Energy Procurement: A Primer

Few people think about the source of their energy. The bills from the power company arrive in the mail (or electronically) and are paid. But residential and commercial customers can benefit from choosing from where they source their energy either as a strategy to reduce costs, shrink their carbon footprint, or sometimes both.

Energy procurement is the strategic process of sourcing energy from a third-party supplier or local distribution company (LDC). Energy costs are also one of the highest operating costs of most companies and a driving factor of budget development. But procuring electricity and natural gas is more complex process than simply choosing the lowest rate. Budget constraints, regulatory compliance, and volatile energy markets make it difficult to develop an energy strategy aligned with requirements — and budgets allowed for this necessary utility.

Choosing energy at the lowest rate and with the most favorable terms presents quite a challenge. Cost reduction/risk management resources within the commercial energy space can help businesses manage their energy costs by leveraging procurement strategies, efficiencies, and renewable resources customized according to each organization’s unique energy load profile.

These energy management companies help clients cut through the complexity of energy procurement to deliver the best energy rates available with minimal client risk. Most use a traditional request for proposal (RFP) process allowing suppliers to compete for client business, which generates more competitive rates. An increased trend of integrating renewable energy options into corporate sustainability and energy management programs has seen an evolution in available options. But their complexity means it’s become difficult to identify the most viable choice.

Electricity Plan Types

The energy market has three main types of electricity plans: fixed, variable, and indexed rates.

Fixed Rate plan

A fixed rate electricity plan charges the same rate per kWh of electricity for the term of your agreement. The price stays the same regardless of electricity use. Prices change only if delivery fees change. 

Variable Rate plan

With a variable rate or month-to-month electricity plan, your rate can change every month. Because the law requires that providers must publish the next month’s rate, you do get a heads up about the next month’s rate, whether it’s increased or decreased.

Indexed Rate plan

Like a variable rate plan, your cost will change on a regular basis with an indexed rate electricity plan. The difference between the two plans is the formula they use to calculate price. Indexed rate electricity plans are tied to a published market price, like the cost of natural gas.

Regardless of the plan they choose, clients also have the option to choose the percentage of green content. Business can choose 100% green energy, for example, without installing solar panels. When completing the RFP, companies can request 100% of the energy they use has been generated from renewable sources.

Renewable Energy Sources Used to Generate Electricity

With sustainability a C-suite consideration — and the global push among governments, organizations, and private citizens to address climate change — the energy industry has continued to innovate and develop the technology to support and grow renewable energy sources.

Renewable — or sustainable — energy sources cannot run out. Sometimes called “alternative energy,” these sources offer a different option to traditional, commonly used non-sustainable fossil fuels like coal or wood. The major types of renewable energy sources include:


This process converts solid fuel made from plant materials like wood and wood waste, municipal solid waste, landfill gas and biogas, into electricity. It’s become a much cleaner, more energy-efficient process even though biomass involves burning organic materials to produce electricity. But converting agricultural, domestic, and industrial waste into solid, liquid, and gas fuel enables biomass to generate power at much lower environmental and economic costs. This relatively newer technology generated about 1.4% of the US’s total electricity generation last year.


This process harnesses the earth’s natural heat trapped in the mantle and uses that heat to generate electricity or heat buildings directly. Geothermal power plants pump hot water from deep underground through a well under high pressure. The water reaches the surface where the pressure drops, converting the water to steam which spins a turbine connected to a generator to produce energy. About 0.5% of the U.S. electricity came from geothermal power plants in 2020.


Hydropower is one of the most commercially developed renewable energy resources. Dams or barriers trap water in large reservoirs used to control the flow, which is used to drive a turbine to produce energy. Nearly every state generates a portion of its energy via hydroelectric/hydropower facilities with the bulk of generation capacity found in the West. New Jersey generated 15 billion kilowatt hours with hydropower in 2020.


One of Earth’s most abundant (and free!) energy sources, sunlight offers an amazing amount of energy. One hour of solar energy reaching the planet’s surface is enough to power all of Earth’s energy needs for an entire year. But time of day and season of year determine how much solar energy is available to convert into thermal or electrical energy. A range of technology exists to collect and transform the sun’s energy, including solar water heating, photovoltaics, solar thermal energy, solar architecture, molten salt power plants, and artificial photosynthesis. In 2020, solar energy provided 2.3% of the country’s total electricity.


Wind offers a plentiful source of clean energy with wind farms becoming increasingly more common. More than 57,000 wind turbines are spread across the United States with an average of 3,000 built annually. In 2020, the US installed more wind turbine capacity than any other year! This summer, the New Jersey Board of Public Utilities approved the construction of two more offshore wind farms which are expected to generate 2,658 megawatts of clean power by 2029. Wind blows a turbine’s blades, attached to a rotor which spins to create electricity.

Are You a Company, Business or Organization? Work with an Energy Solution Provider

It makes good financial sense to audit your energy expenses each year. And it might also make sense to call a professional — like CREA United’s Robert Leech, from Circuit Energy Group. Energy solution providers keep an eye on the market. They can set up an RFP for clients currently in a supply agreement for electricity or natural gas. It’s important not to wait until your supply agreement’s nearing the end of the term to set up an RFP.

Companies like Circuit Energy Group don’t allow clients to go beyond the end of their agreement without setting up a renewal agreement or sending them back to the utility for their supply. But here’s where clients often find themselves paying more than they should. If you allow a contract term to expire without proactively taking steps to secure a new contract, you’ll end up with a default rate with your current supplier. Then your supplier will purchase your energy on the spot market — and that approach usually means you pay more than you should (and the supplier can charge what they want).

If you find yourself in an unfavorable agreement and the market dips below the rate you’re paying, an energy solution provider can work with your supplier to negotiate a lower rate on a blend and extend agreement and lower your rate for an extended period.

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