February 2022 Volume 4

OPERATIONS & MANAGEMENT

online auctions to procure energy. Online energy auctions are a transparent, competitively driven way to purchase power, natural gas, and renewables, securing the best price available in the market. As an added benefit, they don’t cost a thing. The winning supplier pays the auction fee as part of its contract. This combination of delivering significant cost savings with zero CAPEX investment makes 2022 the right time to make online auctions the centerpiece of your energy procurement strategy. Here’s why: 1. Largest supplier pool = Fiercest competition for the buyer’s energy contract Online auctions have rewritten the rules of how many suppliers can compete to become an energy buyer’s power, natural gas, and/or renewables provider. The more suppliers bidding on a forging plant’s business – in a real-time, transparent, and logical way – means increased savings for the energy buyer. Many large energy buyers still use paper processes to “broker” energy deals. This method is not efficient and limits the number of suppliers that can participate in an RFP (because every additional supplier added to the bidding means more work for the procurement team or broker and a more cumbersome process to manage). And limiting participation limits savings. With online auctions, it’s just as easy to include 14 suppliers in the bidding as it is 2 or 3, and when the competitive juices get flowing, and each bid is reducing supplier margins as quickly as it is increasing the buyer’s savings, you won’t want to go back to paper or e-mail sourcing. Race Winning Brands sure didn’t. 2. Transparency For the uninitiated, an online auction conjures the notion of an auction, but really what we do at Transparent Energy is run a series of auctions in succession. Different contract terms (12-month, 24- month, 36-month) and products (electricity, natural gas, renewables, fixed price, variable, etc.) are put up for bid – one at a time – which, over the course of an hour or less, delivers a full picture of how the market is pricing. For example, a customer might find through the competitive dynamics of the auction that a 24-month, fixed-price contract with 25% green energy costs no more than a 24-month contract for “all brown” energy (i.e., no green component), or that a contract for power from 100% renewable sources can be obtained for just a few extra thousand dollars. The variations are endless, but the result is the same. Suppliers bid the price down. Suppliers in the auction see the leading bid and can become the leading bidder themselves as they choose. More importantly, the buyer sees the entire process play out in real-time and is left with a bullet-proof audit trail comprised of every bid on every product and term, a real boon for CFOs and other time- pressed executives who value the auction’s transparency and time- stamped record keeping. Finding true price discovery like this happens nowhere else in retail energy.

Here is what that price discovery looks like during an auction:

These auctions for fixed-price electricity supply were run in succession, testing 12-month, then 24-, 36- and 48-month terms. During each auction, a robust set of suppliers, 12 in all, aggressively bid down the price, providing a real-time pricing topography of the market. And see the dramatic kink down at the end of the 36- and 48-month auctions – that’s one supplier making a last aggressive bid to win the business. Extra savings in the buyer’s pocket! After these auctions, an additional set of auctions were run to include 25% renewable energy in the form of Green-E RECs (renewable energy certificates). By running these green auctions, the customer was able to compare the winning prices for each term length with and without the green component, enabling it to cost out precisely the price of going green. The electricity auctions delivered this forging plant over $240,000 in savings over the 48-month term, providing valuable budget certainty through December 2024. With that success in hand, the foundry turned to Transparent Energy to help with its natural gas contract. Having worked with the same supplier for 15 years, the buyer felt “stuck” in a contract that was hard to understand, and possibly not in its best interest.

FIA MAGAZINE | FEBRUARY 2022 48