Trying to keep energy costs for your business low can feel like a full-time job, and finding the right supplier who can fulfill your needs without busting your budget is no easy task. It can take hours to research suppliers and rates and write countless RFPs. And once you find a supplier, you need to negotiate back and forth with them to get the best price possible so you don’t blow your budget.
But luckily there’s a simple, speedy alternative that may be a solution for you - reverse energy auctions. Here’s everything you need to know about how reverse auctions for energy procurement may make your life easier and save you money.
What are Reverse Auctions for Energy Procurement?
First, let’s start with the basics. What exactly is a reverse auction when it comes to energy procurement?
Well, you know how a regular auction works. The seller offers an item or service and invites bidders to make offers. If the thing being auctioned is in demand, more hopeful buyers will place bids, driving the price up. The winner is the person who is willing to pay the most for that item.
A reverse energy auction is, predictably, opposite in many ways. It’s when you, the buyer, work with an energy consultant to find the perfect supplier at the best price. Based on your past energy usage and future needs, we find a group of energy suppliers in your area who can provide what you need and invite them to the reverse auction.
On the day of the auction, the suppliers make competitive bids to earn your business for the lowest price possible. Like in a regular auction, bidders try to beat out their competition. However, with a reverse auction, the bidder who can do the job for the lowest price tends to be the winner. The suppliers in the reverse auction can’t see the name of the other bidders, but they can see the amount bid.
This all happens through an online portal so you don’t have to leave the comfort of your desk, and it usually takes less than 30 minutes. After the reverse energy auction is complete, you get to review each supplier's bid and services to decide which one is right for you. And best of all, there’s no pressure on you to pick one of the bidders if you’re not happy with the results of the auction. It’s a win-win scenario.
Who Should Hold a Reverse Energy Auction?
Reverse auctions are a great way to save time and energy researching energy procurement, but they’re not the right solution for everybody.
Typically, these are groups that benefit from reverse auctions for energy procurement:
- Federal, state, and local government
- Industrial operations
- Large corporations
- Restaurants
- Hotels
- Commercial office space
It’s important that your organization be large enough for a reverse energy auction. In order for the process to work, there needs to be enough suppliers who are willing to compete for your business. However, reverse auctions can also be successful for small and medium businesses depending on the market.
No matter the size of your organization, a reverse auction for energy procurement works best when the following qualifications are met:
● A clear outline: It’s best to have specifications and clear quality standards for bidders to consider before making an offer.
● Keep it simple: Reverse auctions work well when the service being purchased is fairly simple. If you need a complicated service with multiple contingencies or complicated requirements, it might be best to work directly with suppliers.
● Competition is key: In order for a reverse auction to work and get the buyer the best price, it is necessary to have a rivalry between the companies as they need to want to compete for your business.
ENERGY PROCUREMENT CHECKLIST
Check out this checklist for strategic energy procurement tips to optimize your companies overall energy plan.
If you’re still on the fence about whether a reverse auction for energy procurement is right for you and your business, here’s a list of benefits and drawbacks of the process.
The Benefits of Reverse Energy Auctions
● Save time: If you’re in charge of energy procurement, you know that the process of finding a supplier can be time-consuming and tedious. You have to research suppliers, estimate your needs, and draw up multiple RFPs. With a reverse auction, all you have to do is consider the bids after the auction.
● Save money: one of the biggest benefits of reverse auctions is that they get you the most competitive price out there. When it comes to energy procurement, the savings usually amount to between 5 and 15%.
● Healthy market. Reverse energy auctions are also good for keeping the supply market healthy as suppliers are chosen for their price and services, not their name. In fact, most reverse auctions are anonymous so you choose the winner based on the value of their proposal, not their brand. That way you don’t have to worry about bias affecting your decision.
● Stay accountable. When it comes to a reverse auction, everything is organized, standardized, and recorded. That means you’ll have easy access to all the records you need for financial and legal purposes.
● Simplify. The best benefit of all may be how easy reverse auctions for energy procurement are. It’s a simple way to get direct comparisons between service and price without any extra effort on your part.
Drawbacks of Reverse Energy Auctions
● Communication. Reverse auctions don't allow for much (if any) communication between the buyer and the seller before a deal is struck. So if you have complicated energy needs to discuss with a potential supplier, reverse auctions might not be right for you.
● Supplier buy in. Sometimes it’s difficult to get suppliers on-board for reverse auctions. They could be resistant to change or unwilling to sell their services for a rock-bottom price.
Save Money on Energy Procurement Today
If you’re ready to save money, time, and headaches, then reach out to A1 Energy today. We’ll work with you to create the perfect customized energy solution for your organization. Schedule a call with one of our energy consultants now!