By Juan Emilio Ballesteros
The Head of Energy Consulting at Ayming Javier Díaz Carmona explains that one of the strategies that companies can implement in order to get by in the market is improving cost management and energy savings on natural gas and electricity thanks to professionalized energy purchasing.
Who is he?
Born in Granada in 1983, Diaz later graduated from the University of Granada with a Bachelor’s degree in Economy. He joined Ayming Consulting as a Manager in 2017 as part of the Purchasing and Cost Performance team in Madrid. From 2009 to 2017 he built his professional career working at the National Utility Service (NUS), Vodafone Spain, and Digital Logic America in Spain and the U.S. (Los Angeles), specializing as Key Account Manager and mainly as Senior Advisor. His expertise encompasses the energy sector, energy distribution companies, and the telecom sector.
More and more Spanish companies and multinationals with decision-making power and electricity consumption rates exceeding €300,000 a year are turning to external energy consulting, seeking to make significant energy savings. The trick is to choose the right time to buy by monitoring the markets, which allows detecting favorable price opportunities, as well as negotiating the type of contract and time periods that most interest said companies.
Professionalized energy purchasing should answer critical questions such as: When to buy? What products to buy? and for how long? It is difficult to solve such matters without the proper mechanisms to continuously monitor the over 20 energy suppliers in Spain or access to energy stocks with below market conditions.
Ayming, an international corporate consulting group offers solutions and opportunities that companies can apply to become more competitive. One of the improvement strategies that can be implemented in the economic-financial field is professionalized energy purchasing. Many companies are contracting energy consulting services given it provides annual savings ranging between 3 and 8 percent in natural gas and electricity costs.
How can companies improve their competitiveness by managing their energy expenses?
The corporate world is especially concerned by the situation and prices in the energy market. It is seeing natural gas and electricity costs negatively affect their purchasing strategies and businesses, hindering their competitiveness. For this reason, one of the strategies that can be implemented in the economic-financial area is professionalized energy purchasing and associated risk management that could offer them access to the latest information on the situation of the markets and possible purchasing opportunities that may present themselves through trade policies below market rates.
The goal is to save energy and companies can manage to reduce expenses in natural gas and electricity by 3 to 8 percent with support from the energy consulting services. The complexity of energy markets and the variety of existing products indicate it is advisable that companies have external consulting support in order to make better decisions, savings, and continue to be competitive.
What percentage of companies know when, what product, and for how long to purchase?
A low percentage of companies handle this information, as you need specialized knowledge of the sector and the different existing products, daily market monitoring, and an ongoing relation with the different energy firms.
Very few companies have experienced professionals with enough knowledge as to make the right choice when purchasing energy. With regards to when to buy, we are all aware of the daily variation of electricity and natural gas prices, as they are based in dynamic markets. Furthermore, there are multiple futures markets and daily markets for electricity (OMIP, OMIE, OTC) and natural gas (Brent, MIBGAS, TTF, NBP, etc.). It is practically impossible to permanently track their trade policies as part of any company’s daily activities.
How about the moment of purchase?
Choosing the right moment to purchase is also a strategic decision, since energy prices can variate by up to 20 percent in a certain period. On the other hand, if we purchase in the futures market, it is not governed by seasonal trends, which means it requires continuous market monitoring.
“CHOOSING THE RIGHT MOMENT TO PURCHASE IS ALSO A STRATEGIC MOVE, SINCE ENERGY PRICES CAN VARIATE BY UP TO 20 PERCENT”
Which product should companies purchase?
With regards to which products to purchase, in a mature energy market such as the one in Spain, suppliers offer an extensive portfolio with product and contract modalities with significant differences for a same price modality (especially indexed, multiclicks or direct market access), which could entail a significant economic impact if one is unfamiliar with the products. Thus, the correct product choice can generate higher savings than the ones obtained during the negotiation process.
Which variables impact the contract duration?
Finally, making a decision regarding the contract duration requires extensive knowledge on the multitude of indicators necessary to determine the situation of the market, assessment and monitoring of geopolitical events and their potential impact on the leading markets, and preparing forecasts based on the evolution of prices. All of these are complex variables. Having access to the adequate information during the tender process allows assessing the possible duration of a contract according to the situation of the market.
Thus, we see that improving companies’ competitiveness with regards to energy purchasing requires active and efficient management, while evaluating purchase risks by monitoring the market, given that the opportunity for purchase can present itself at any moment.
How many companies have mechanisms to monitor the markets, the trade policies of over 20 suppliers, and access to energy stocks that can provide great purchasing opportunities?
Of course, not many companies have the internal resources to exclusively dedicate to this endeavor. Only the top consumers in the electro-intensive industry have the internal structures that allow having certain knowledge of the markets and the products.
Moreover, on many occasions, these companies do not have the chance to identify purchasing opportunities that may arise from some companies’ trade policy, as a consequence of not having a constant presence in the market. This is why it is important, whatever the size of the company, to have an expert capable of optimizing the management of a category as specific as this one.
But then, how to make energy savings?
For companies to be able to gain savings in their electricity and natural gas consumption during production processes, they must have an answer to the previous questions.
Also, if we analyze the situation of the electricity market at the end of 2017, the OMIE (OMI-Polo Español S.A.) was the most expensive since the liberalization of 2009. The sector faces uncertainty in 2018, but also the feeling that it will bring a lower OMIE price than last year.
What about in the case of natural gas?
Regarding the natural gas market, in 2017 it was marked by a strengthened euro and the evolution of the production cut agreement between OPEC and non-OPEC producers. Until the creation of the Organized Gas market of the Iberian Peninsula (MIBGAS), the option for companies to negotiate with the traders have been contracts based on formulas indexed from different rates – for instance petrol, Brent, and the euro-dollar exchange rate – although Brent has emerged as the main benchmark price in recent years.
Some large consumers have turned to prices in the Dutch TTF Gas Futures as an alternative to Brent, while waiting for MIBGAS and its derivatives market to consolidate their position as a benchmark price.
With regards to the forecasts for gas prices in Spain in 2018, there are many aspects to keep in mind, such as OPEC compliance levels, the continuance of said agreement in view of the rise of U.S. shale oil production seen in the market, variations in reserves, etc.
How to obtain relevant annual savings?
By defining the strategy that best suits the market’s situation at that time.
Which companies can benefit the most from Energy Consulting services?
Spanish companies and multinationals with decision-making power in Spain and consumption above €300,000 a year turn to external Energy Consulting seeking significant savings, not only through the optimization of their contracted capacity, but also by monitoring the markets, which could enable them to detect favorable price opportunities, as well as negotiating the type of contracts and duration they are most interested in.
Which sectors are the most active in this sense both in Catalonia and the rest of the country?
Many Spanish sectors have been benefitting from savings generated by professionalized energy purchasing for almost a decade. Catalonian companies are undoubtedly at the forefront when it comes to using consulting services, since they consider that an energy expert represents a key figure when it comes to making decisions related to both electricity and natural gas procurement. In the case of Catalonia, some of the main sectors utilizing the energy consultancy services, other than electro-intensives, are the chemical, industrial, automotive, food, and paper industries.
On the other hand, when it comes to Spain as a whole, although external energy consulting could be interesting for all types of companies and sectors, the ones most benefitted are those with fewer installations. The chemical, industrial, automotive, food, pharmaceutical, and other sectors are already optimizing their costs with Energy Consulting.
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