By Paul Shagawat, Co-Founder and Managing Partner, Transparent Energy
Over the last several months, our Market Intelligence team has published numerous articles pointing to a common conclusion: buy now to take advantage of a very favorable energy pricing environment – and to get in front of looming market volatility.
Our team has meticulously made the case that current upside risk (the risk of natural gas and electricity prices going up) far outweighs downside opportunity (the idea that prices can go much lower). For the sake of brevity, I’ll summarize our thinking – and it’s based on historical and forward-looking data from the energy industry’s most reliable sources:
- Natural gas prices, a common proxy for electricity prices, have remained at or near historical lows for the last several months.
- Natural gas prices can only go so low because of production costs (at a certain point, it is no longer profitable for drillers to drill).
- The bull case for natural gas – and an era of higher prices and price volatility – is being driven by increased domestic power demand (including the AI datacenter boom), robust global demand for U.S. LNG exports, and ongoing geo-political and weather-related risk.
Suggestion Taken
All of those factors have led us, and continue to lead us, to recommend to customers (C&I, institutional, private equity, and other large buyers of energy) that they buy now to secure savings and remove upside risk.
And that recommendation has struck a chord with buyers, leading to massive transaction volumes throughout 2024 and productive changes in behavior, with many of our customers going out earlier (i.e., proactively engaging the market to avoid becoming ‘price takers’) and longer (contracting for much longer terms than usual to lock in savings and reduce risk) than ever before.
Here are just a few examples:
Big-Box Retailer
This brand-name retailer engaged Transparent Energy to procure electricity and natural gas for several hundred of its locations throughout the Midwest. With our help, we turned them from energy procrastinators stuck in expensive holdover rates (what happens when energy contracts are neglected and expire, defaulting to a utility’s most expensive rate) to savvy, proactive buyers.
After running an auction for them that attracted 8 suppliers, who bid 95 times over 23 minutes to secure the company’s natural gas contracts for its Illinois properties, driving down the final contract cost by nearly 10% in the process, Transparent Energy turned its attention to the retailer’s electricity needs in Ohio.
And the results were even better.
This time our auction attracted 12 qualified suppliers, who bid 265 times over the course of 30 minutes to win the business, compressing margins by over 15%. The client was thrilled
As a result of these auctions, the retailer secured cost-saving, fixed-price contracts for natural gas and electricity and intends to leverage this scalable, transparent, and demonstrably effective procurement process across all its remaining stores and geographies.
Hospitality in the Clouds
In one of America’s most iconic cities, a 2.5+ million sq. ft., 90+-floor, multi-use (hospitality, retail, office space) skyscraper dominates the skyline, and its happy owners now hold a new electricity contract that will power its operations for the next 4 years!
Although their legacy electricity contract wasn’t coming due for another 6 months, this property owner heeded our advice to take advantage of market softness and leverage our proprietary auction technology and process to maximize competition for its business.
The results were textbook! Transparent Energy brought 12 suppliers into the real-time auction event, and the bidding and results surpassed expectations: 320 margin-compressing bids in just 33 minutes.
The client walked away with a 48-month electricity contract at a cost-saving rate it could confidently build on through 2028. A towering achievement!
PE Firm Spreads the Wealth
Transparent Energy’s value proposition for private equity firms is compelling: a repeatable, scalable, and fully transparent procurement process that PE firms can standardize on for all their holdings.
Recently, one of our PE clients brought our auction-based procurement process to an additional holding, a manufacturer in Indiana. Many firms operating in Indiana resign themselves to being price takers for natural gas, because of market illiquidity.
Transparent Energy has found that even in relatively illiquid markets a little competition goes a long way. We boosted the number of participating suppliers to 6, triggering a competitive auction event to win our customer’s business. Delighted with the results, the manufacturer went long, securing a natural gas contract for 60 months. The combination of cost savings and risk avoidance for a 5-year energy term to fire its production process proved irresistible.
Simply Irresistible
We’ve continued to make the data-driven case that the current energy market is sending a strong buy signal for large consumers of energy, an opportunity that may not last. Bullish signals for 2025 portend the possibility of higher prices and more volatility than we have seen in recent years.
Consider the customers profiled here who answered the call to “buy now” and locked in savings for years to come while taking future energy-price risk off the table. They, and hundreds of other Transparent Energy clients, are happy they did.
###
If you’d like to take advantage of favorable energy market pricing to save money and reduce risk or have questions about what may lie ahead for energy prices in 2025 and beyond, please contact us at letstalk@transparentedge.com.