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What is Energy Purchasing?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 27 November 2017
  • Copyright Protected:
    2003-2017
    Conjecture Corporation
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Energy purchasing is the process of contracting with vendors to purchase various types of energy produced by those vendors. The purchasing process may involve electricity produced using traditional and alternative methods, natural gas, propane, or oil. While many of the clients who engage in energy purchasing are cooperatives or municipalities, corporations operating mega-facilities sometimes seek to minimize energy costs by contracting for different utilities.

The main focus with most energy purchasing ventures is to secure the best possible energy pricing for each unit purchased. For this reason, many energy contracts are structured as volume purchase agreements. Essentially, the buyer agrees to purchase and use a minimum amount of units within a given time frame. In exchange for this commitment, the seller extends a highly competitive rate per unit.

An energy purchasing contract of this type will sometimes utilize what is known as tier pricing. Above and beyond the minimum amount specified in the agreement, the buyer may receive additional discounts if the usage exceeds the projected average monthly amount. For example, if the buyer contracted to use 20,000 units of a given type of energy during the month of March, the seller would extend a discount off the cost of the units used during the month of April.

While buyers can contact sellers directly, it is often advantageous to secure the services of an energy consultant. Consultants can help the client evaluate their energy needs and identify potential vendors who can meet those needs. At the same time, the energy purchasing consultant can represent the client, negotiating the best possible pricing and terms.

In addition to energy purchasing deals that focus on securing electricity from traditional sources, it is also possible to do business with producers of energy generated with alternative methods. This can be especially important for buyers who are advocates of the environment and want to be as green in their energy usage as possible. Buyers can negotiate with firms that produce energy using solar energy or wind power, and seek to purchase large volumes at green pricing that is acceptable to both buyer and seller.

Municipalities sometimes engage in energy purchasing as a means of providing a full range of utilities to citizens. In this scenario, a city would establish volume contracts with a power producer as well as providers of natural gas. In turn, the city resells the energy to citizens living within its jurisdiction, making it easy for people to establish a central utility account rather than dealing with multiple vendors. The city also makes a profit from the venture, which can often keep local taxes to a minimum while also supplying the city with resources to maintain essential services such as a fire department and a police force.

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