Energy Aggregation: What Your Business Should Know

It’s no secret: energy deregulation has led to a multitude of benefits for customers all across the United States and Canada. One study conducted by the Kleinman Center for Energy Policy at the University of Pennsylvania found that electricity competition generates a whopping $800 million in economic benefits each year for Pennsylvania alone.

Indeed, energy choice has led to a flood of benefits and innovative approaches, including an increasingly common procurement approach known as “energy aggregation.” In the energy industry, aggregation occurs when a group of energy consumers unite to make collective energy purchasing decisions.

The underlying premise is simple: customers have more “buying power” to secure competitive electricity or natural gas prices when they are part of a larger group.

Unlocking procurement options

Why should businesses, collections of businesses or communities consider aggregation as part of their energy procurement strategy? Depending on your business size and location, aggregation can put you in a stronger position to: 

• Secure competitive electricity or natural gas prices
• Gain access to renewable energy options
• Receive expert guidance on energy purchase decisions

“Aggregation can unlock a number of procurement options for businesses in certain key markets,” explains Matt Salera, Strategic Sales Manager at Direct Energy Business. “It can not only lead to more competitive electricity and natural gas prices, but also expanded renewable energy options.”

There are two different approaches to energy aggregation: broker-aggregated accounts and municipal pools. Here’s how each option works.

Broker-Aggregated Accounts

In a broker-aggregated account, an energy broker assists clients by functioning as the delegated decision-maker for the entire buying pool. As an intermediary between the consumer and the supplier, brokers consider the needs of each consumer in the group and solicit pricing for the group’s collective energy load. Energy brokers often obtain a better price than what would have been possible for the smaller load of a single client, and continue to benefit the client over the long term by managing contracts, payment and future procurement decisions.

For businesses, opportunities for energy aggregation depend on the region. Take Virginia, for example. Consumers with under five megawatts of annual demand cannot buy energy directly from an independent supplier unless it’s 100 percent renewable power – their only option to purchase traditional power is to aggregate multiple premises to reach the five megawatt threshold and subsequently gain regulatory approval. As we’ve noted, it’s a convoluted process that unfairly punishes customers, but an instance in which aggregation can serve multiple purposes.

Municipal Pools

A municipal pool for energy aggregation involves a single customer point of contact who purchases energy for many buildings or services under the same contract and pricing. For example, a city or county could group multiple public services, such as fire, police and street lighting, into one aggregated energy pool in order to get the best possible rates. For cities like Philadelphia, municipal pool aggregation is a key part of the energy strategy, as savings on energy free up tax dollars for other public goods and services.

For residential customers, municipal pools enable communities unite and collectively enjoy energy savings. For example, Ohio cities and townships are allowed to form aggregated buying groups to purchase electricity, natural gas or both on behalf of residents as part of the state’s “governmental aggregation.” In fact, in 2018, some cities held voting referendums to decide whether to pool their community’s buying power thereby both reducing individual energy bills and procuring renewable energy from competitive suppliers.

Aggregation for Renewable Energy

As for energy consumers in Virginia and Ohio, aggregation can unlock renewable energy options for your business or community. Renewable energy has become an increasingly appealing option for commercial and industrial customers as corporate demand has skyrocketed over the past decade. According to the Rocky Mountain Institute’s Business Renewables Center, more than 130 companies have committed to 100 percent renewable energy as part of the RE100 initiative.

Additionally, another report produced by Advanced Energy Economy found approximately half of all Fortune 500 companies have set renewable energy or sustainability targets.

‘A major decision for any energy procurement strategy’

There are several important factors to consider before moving forward with an aggregation-based energy strategy. First, you should do your homework to find out if aggregation is an option for your business, based on the size of your business and your area’s regulations. Next, we recommend considering the following questions: 

• How can aggregation benefit my community or business?
• If my business joins a buying group, do my energy goals align with the goals of the collective group?
• How long is the procurement contract?
• What is the renewal process for the contract?
• What is the billing process?
• What are the contract’s terms, conditions, requirements and fees?

 “Aggregation is a major decision for any energy procurement strategy,” Salera notes. “But, it isn’t a decision that needs to be made in isolation – in fact, that’s the essence of energy aggregation. Our team of experts at Direct Energy Business are always ready to assist, answer questions and guide business decision makers through the entire process.”

One of the more unique energy procurement solutions offered by Direct Energy Business is PowerPortfolio, which features the expert guidance of our Strategic Services team combined with a customized, blended and transparent portfolio approach. With PowerPortfolio, your energy portfolio is treated like the important investment that it is, with a diversified blend of fixed price, block purchases and variable market-based purchases to ensure your business is taking advantage of all opportunities available in the marketplace.

Interested in learning about how energy aggregation can help your business achieve its energy goals?