Hot And Cold: How Building Owners Manage Changing Energy Costs Caused By Unpredictable Weather
Heat waves and deep freezes share a common outcome: both cause energy prices to rise above average. As climate change warms the planet and pushes global patterns into more unpredictable cycles, both energy suppliers and consumers have looked for ways to keep costs stable.
Electricity powers air conditioning systems in the summer. In the winter, natural gas is the primary fuel source. No matter the season, the prices of both fuels are linked.
“They tend to mirror each other when it comes to price, and that’s because electricity is largely generated from natural gas power plants,” Stanwich Energy Advisors Director of Energy Services Marshall Roshto said. “There are some nuclear plants and there are some coal-fired plants, but generally when electricity demand increases, so does natural gas.”
During hot summers, the electric grid undergoes greater strain. To meet increased supply needs, energy providers switch on secondary natural gas plants. During colder months, natural gas for heating also impacts electricity prices. The more natural gas goes into heating, the higher the base price for turning on the light switch.
Summertime offers commercial building managers greater flexibility in managing costs. During peak office hours, managers can spread out their usage by relying on solar panels or battery storage throughout the day, when energy directly from the grid is the most expensive. The key is to shift electricity use to off-peak hours, when prices and usage stay low. As technology has improved, online management systems can pull real-time data from a building’s metering system, keeping managers aware of how much energy tenants are using and identifying which initiatives would increase efficiency.
Installing batteries for buildings and advanced data systems comes at a cost. In New York, Con Edison launched its Brooklyn Queens Demand Management program this year to offset the expense. BQDM provides building owners with financial incentives for taking steps toward reducing energy consumption during peak periods. The program hopes to reduce peak loads by 52 megawatts.
It is a solution that also appeals to Con Edison’s bottom line. Opening secondary plants comes at an expense to the energy provider, which trickles down to the consumer.
“Con Edison is not the only supplier that owns these power plants,” Roshto said. “It is really a cost that is shared with the entire electricity grid, from customer to transmission lines to the owners of the plants.”
Improving heating efficiency is limited to building improvements like better insulation and boiler control. Commercial buildings have to weigh the risk of riding a market that fluctuates alongside temperatures, or lock in a higher rate to avoid paying more in the future.
“Do customers want to play the market, which has a little bit more risk that will pay off if it is a mild winter, or do they want to lock in slightly more expensive costs now, so they can hedge against potential winter volatility?” Roshto said.
The earlier half of the summer saw below-average temperatures in the Northeast, according to a report from Stanwich, and temperatures are expected to stay mild. The National Oceanography and Aeronautics Association projects that U.S. cooling degree days, the number of degrees that a day’s average temperature is above 65, will be 9% lower this year.
The lower temperatures are a good sign for consumers. The cooler weather has caused prices to settle below the $3 per 1 million British Thermal Units. A BTU is the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
But the CDDs for this summer are still above-average compared to the previous 10. Warmer temperatures translate into greater extremes in hot and cold days during each season. The unpredictability makes hedging the market challenging.
“Clients might lock into a fixed contract now for their electricity, which would protect them in the coming winter. Hopefully we can make broad forecasts about El Niño and the winter, but meteorology is a tough thing, and a few months out is even harder,” Roshto said.
Stanwich Energy Advisors works with clients to not only stay on top of market trends and temperature shifts, but also find the best solution for their goals. Whether clients want to take a risk and float the market and possibly be rewarded with a low index price or lock in stable rate and budget for the future, Stanwich helps clients make the best move at the right time.
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