85 years ago, the U.S. Federal government passed the Securities Act of 1933. A lasting legacy of this is the undoubtedly familiar refrain to anyone who has ever considered investing:
“Past Performance Is Not Indicative of Future Results”
Yet it’s entirely possible, when businesses start to consider their energy budgets that they will take current and historic costs as reliable indicators of future expenditure. It rarely is and as King Lear observed: that way madness lies.
There are many moving parts that influence what a company pays for their energy. These change through time and are influenced by varying factors including region, consumption, consumption profile, metering and connection type to name a few. Two key categories of energy budgets are:
- Commodity (wholesale) costs and;
- Non-commodity costs (all the other costs involved in getting energy to the point of consumption)
And non-commodity costs can be broken down even further: into network or ‘transportation system’ costs and various taxes and levies
These costs are dynamic and using historic data is rarely results in an accurate budget. In fact, across much of Europe, commodity and non-commodity costs have increased significantly over the past 12 months.
“You can’t handle the truth!” - Colonel Jessup, A Few Good Men
To help you handle this unfortunate truth, here are a few energy budget recommendations:
- Good energy budgets start with good data (relevant, complete and accurate); a centralized, preferably system-based record of all facilities in your portfolio, their invoicing and consumption history is a good starting point.
- Larger facilities almost certainly need their own energy budget at account/meter level. Making a generalized set of assumptions to apply across all large facilities is unlikely to be accurate. Your site managers will thank you for the extra attention.
- Unpack the constituent elements of an energy price and understand what each is and what might impact it over your budget time horizon. What trends anticipated in one cost may not apply to others? Consider new costs that often can be introduced rapidly. Given the energy transition occurring in many markets fueling complexity and rapid changes to costs, consulting a knowledgeable and trusted advisor could be sensible.
- Consider revising and updating your energy budgets more frequently, especially given increased dynamism in non-commodity costs and volatility in the wholesale market. 'One and done' is probably not the best mantra.
- Remember to allow for operational and infrastructure changes at your facilities; now is the time to call the site manager to ensure assumptions about future consumption are accurate.