An effective energy management strategy is essential for all businesses. Direct Energy VP Mike Senff recently shared insights on energy management with the restaurant industry. His tactics are valuable examples that can be applied to all businesses.
Full-service restaurant owners should not overlook one of the simplest ways they can positively affect their bottom line: managing their energy costs. By understanding where and when your restaurant consumes energy, management of this key expense can give you a competitive advantage.
When considering how to best manage energy costs, it is important to understand that each company has a unique energy usage pattern. Different offers exist to suit consumption profiles that vary over time (versus those with more predictable consumption patterns). In addition, a company’s risk tolerance can help dictate how much of its energy usage it is prepared to expose to wholesale market fluctuations, and how much it would like to lock in to certain pricing and for what period of time.
While the concept of developing an energy hedging strategy may seem complicated and time-consuming, there are a few steps that you can take to help better understand your energy usage and manage your energy costs more effectively.
1. Analyze Your Energy Usage and Gain Control
Find a clear pattern in your energy consumption. At the highest level, this will include total annual consumption of natural gas and electricity. A more useful analysis, however, will examine the extent to which your consumption varies by seasonal factors, including by week, by day, and by hour. It is equally useful to understand the degree of predictability in your consumption. Did last month behave the same as this month? Does this Monday look similar to last Monday? Is consumption highly predictable, or does it vary greatly from one day to another? Do the patterns change due to weather, occupancy, production schedules, or other unknown factors?
After analyzing your energy usage, you will have a better understanding of potential opportunities to change operations or schedules to avoid spikes in consumption during high-cost hours. This analysis is also instrumental when making energy purchasing decisions. If advantageous, restaurants with multiple locations can aggregate individual consumption profiles to create an overall pattern of consumption.
2. Understand Your Attitude to Risk and Market Fluctuations
Understanding your energy consumption is a first step, but understanding your risk tolerance is equally important. Employing an energy hedging strategy is no different than managing the cost of raw materials. The development of any sound strategy will include isolating the portion of your operational costs tied to energy and determining how well you are managing the risks around energy costs. Also, it is important to consider your appetite for risk and your ability to absorb and/or pass on to customers the fluctuation of your energy costs.
Competitive energy retailers can provide sophisticated products and customized energy strategies, allowing businesses like yours to choose the product that best suits the needs of their facilities. The products and strategies work collaboratively to create an efficient and predictable energy plan.
Facilities of all sizes have the ability to control their energy costs, or at the very least, to understand them. If this natural hedge doesn’t exist at your restaurant, you might want to talk to an expert.
3. Consider Speaking to an Energy Expert
If you do not have the time to go through steps 1 and 2, this will be step 1 for you.
A wide variety of products are available for natural gas and electricity supply, ranging from simple fixed price arrangements to customized solutions. The real synergy comes from understanding your energy patterns and your risk tolerance, then marrying the two with prevailing market conditions. An expert should help you understand the strength of the fit of any particular recommendation.
While many people are familiar with higher electricity prices during the day and lower prices during off-peak hours (such as holidays, nights, and weekends), there are more factors to consider, including the degree of price volatility. Historically, prices vary more widely during the summer months. Also, hourly prices have historically fluctuated more during on-peak hours than off-peak hours. Depending on your profile and risk tolerance, your business might benefit from more on-peak price protection than off-peak, and might choose a pricing package that satisfies this requirement.
With innovative product possibilities and significant advantages to managing energy costs, we recommend that you start thinking about strategic energy management early in the game. Cost savings can be used to fund other activities, such as upgrading your facility and equipment or operating profit growth. The key is to recognize the importance of strategic energy management and devise and implement a plan best suited for your restaurant.