Service provider work on the principle of bulk purchasing, wherein the consumer annual energy consumption details are collected for the analysis of his load profile and forecast the future power requirement. After collecting all information from consumers, service provider leads a negotiation with energy providers for competitive rates.
Overview of Service provider Approach:
"Load profile" known as the variation of an electrical load versus time, depends on consumer categories like residential, commercial and industrial and also on consumer sub-classes within those categories. As we know consumer contacted load is used to guesstimate the future electric supply requirement and power pricing. There are two key parameter of power pricing; demand charge and energy charge. Demand charges are calculated on the basis of consumer's peak load, which is the highest rate of electricity usage during that time period. Energy charges are based on actual energy consumed by consumer over a given period of time. Now day's service providers are playing a key role in power distribution business to provide competitive energy prices to their consumers. Service providers make a consumers group as per variation of individual consumer peak load. It helps to manage overall load profile of group and improve the energy pricing of group. Service providers will give economic advantage to his the consumers by securing more competitive power prices in market. Service provider has a high level of expertise in Power purchasing process, analyzing load data, administering the RFP process and ability to do a negotiation with energy providers.
Advantage of purchasing electricity through service provider
Increased Buying Power: Wholesale energy markets are dynamic trading environments and subject to great volatility and liquidity. Consumer group with high electric load have a greater purchasing power and more leverage in negotiations with their energy providers.
Improved Load Factor: Through load aggregation, service providers can enhance their purchasing power by taking advantage of load diversity among multiple facilities as a means of improving the overall load factor for the group.
Lower power distribution cost: Consumer may be able to recognize additional benefit by taking the services from experienced service provider in packaging load data for market, managing the RFP process, and leading negotiations with utility. By deploying a higher level of expertise of service provider in the power procurement process, consumer group will typically enjoy more competitive rates and lower distribution costs.
Competition: Buying groups have an opportunity to seek energy quotes not only from energy providers but also service provider. They will select the suppliers on the basis of best pricing quotes, terms and conditions.
Open Challenge with service provider
Skill Set of service provider: The challenge lies in finding appropriate service provider, Who should be specialist and capable of analyzing load data, administering the RFP process, leading negotiations with energy suppliers, and providing ongoing management and monitoring services on behalf of the group.
Discrimination in group members: In a group, it is possible that few members of group will benefit and other will not. As an extreme example a group consisting of a large hotel and several small ice factories, the hotel with its attractive load profile may end up with a slightly higher price and the ice factories with their much less attractive load profiles would each most certainly benefit immensely. Sometimes some members of an aggregation group are subsidizing in comparison to the other members of the group.
Dynamic trading environments: Consumer buying groups and their supplier will keep the offer price open for a particular time frame. It can be a few days, for a week or even extended days. Holding an energy price open is chancy. If consumer signs up, during the offer period and meanwhile the tariff in wholesale markets for electricity rise, then supplier may lose margin and purchase energy at a price that is higher than the price they have committed to sell to customers. Mostly supplier will add risk premium to their offer price to get protect from fluctuation in energy pricing.
Summary If consumer is participating in an aggregation group, either he will confirm that the energy purchasing from service provider is economical and better for him or he will elsewhere find better pricing, terms and conditions. There are still few open questions for us how consumer can judge the skill set of service provider, how discrimination in group members due to load profile, seasonal effect etc. can be sort out, how lose margin in power purchasing can be control in volatile market?
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