Applying an integrated Purchasing approach that combines Fixed Price and Indexed Price strategies
Savings in energy cost. In 2013 Canal de Isabel II Gestion (Spain) realised € 500.000 reduction in energy cost
The moment in time that one asks for a price is the main variable that will affect your electricity price.
Up to 2012, the company had a simple purchasing strategy: we issued a tender in September for next year’s consumption in one “single shot”. They used a fixed price scheme for approximately 500 facilities and all tariff periods (peak, base, valley), and eventually the signing process took at least two months. In 2013 they realised savings and better prices by reducing open positions for suppliers, through unbundling administrative-technical and economic aspects in the tender. This produced a comfort letter for provisional suppliers, and setting two rounds for the price auction. The company established a € 500,000 reductions in the second round.
In the 2014 tender some other measures were taken: selecting the “least margin” supplier first, and then choosing the best days to close the price in the market with 6 “clicks”, closing a sixth of our estimated consumption at a time (a click is a closing order to the electricity broker to lock in a set price). This way, the company was able to obtain an average price based on six purchasing prices instead of a price in a single moment. Doing so, they are managing our price risk in time. Multi-click choice improves the price, but has a limit. Indexed Prices are lower in the long term. Additionally, you can convert an indexed price into fixed too. In the 2015 tender they are exploring the “Integrated Approach”. They shall do a trial with variable prices, so part of the consumption will be contracted as Fixed Price, and the rest will be contracted as Indexed Price.