Industry
Manufacturing
Challenge
After expanding operations, a large manufacturer saw rapid growth in electricity usage and costs and needed a more flexible procurement strategy than a traditional fixed‑price contract.
Results
NextEra Advisors designed a fixed‑variable price mix that introduced controlled market exposure, resulting in approximately $190K in savings over the contract term.
Product
Energy Procurement
Challenge
When NextEra Advisors began working with this large manufacturer, a fixed-price electric supply contract was the right fit for their energy usage and existing market pricing. In later years, the client expanded to a new location. NextEra Advisors worked with the client to develop a load profile for the new site based on prior usage and projected processes to be used. This expansion led to a quick ramp-up in production and therefore energy usage and cost.
Solution
In advance of the client’s contract renewal, NextEra Advisors reviewed post-expansion energy usage patterns, as well as current and future market prices. As the client continued to expand, NextEra Advisors determined that the company was using enough energy to benefit from an active hedging strategy that would introduce more market price exposure with the objective of lowering electricity costs over time. NextEra Advisors initially discussed a managed approach with the CFO. The managed approach would involve ongoing hedging and require active input and participation from the client. Because the business was still growing rapidly, management felt that they could not devote the time required to achieve a successful managed approach.
In response to this, NextEra Advisors designed an optimal fixed-variable price mix to acclimate the client to an energy procurement approach that would expose them to more market volatility with the opportunity to potentially lower costs. NextEra Advisors monitored the market and advised the client on executing a price lock if at any time they felt the market exposure exceeded their risk tolerance.
Results
By taking the additional market price risk, the client was able to capture the lower prices that resulted in the market. The strategy struck the right cost-benefit balance for the client given the energy market fundamentals and their business objectives at the time. Through this strategic energy buying, the client saved approximately $190,000 over the life of the electric supply contract compared to the fixed-price supplier offers at time of renewal.
