Energy procurement can be complex – often, too complex to manage in house. Instead, most larger organisations work with third-party intermediaries to source and compare offers from retailers.
Those intermediaries fall into two categories: energy analysts and energy brokers. Keep reading to learn how analysts and brokers are different, and why an analyst is probably a better procurement partner for you.
How Energy Can Be Procured
Energy is a critical business resource – and, like all resources, how it’s sourced can significantly impact its cost. The basic energy procurement process is:
- Understand your organisation’s energy needs and optimise usage.
- Approximately 12 months before your existing contract expires, identify an ideal renegotiation period.
- At that time, issue tenders to suppliers.
- Negotiate and sign with the best-fit retailer.
Each step involves specialised capabilities that most organisations lack. For example, accurately assessing demand often requires an energy management system that monitors and aggregates usage data in near real time. A separate set of competencies is then required to analyse that data and correct demand-side inefficiencies – and yet another is necessary to analyse energy market conditions and identify an appropriate renegotiation period.
That means organisations have three choices:
- Try to undertake the procurement process themselves.
- Work with a commission-based energy broker.
- Work with a fee-for-service energy analyst (also known as a consultant).
While some enterprises do develop sophisticated internal procurement processes, it’s not cost-effective for most organisations and they lack ongoing daily market intelligence – which leaves options 2 and 3.
Energy Analysts Versus Energy Brokers
Energy analysts (like us) typically work on a fee-for-service basis. Rather than receiving a trailing commission from retailers (which is added on top of your energy rates), analysts are paid solely by their clients. Importantly, that payment is also in exchange for analysis and advice – not negotiating and settling a specific contract.
Initially, an energy broker can be an attractive procurement option. Their commission means that any fees appear small or non-existent, but are actually more expensive over the term of the contract, and their relationship with their retailer panel means that contracts are negotiated and signed quickly.
Unfortunately, the nature of commission-based broking means that perverse incentives are at play. Brokers are normally paid more when they negotiate and settle higher-value contracts – which may or may not be in your best interests. ASIC’s 2018 report on retail electricity pricing recommended:
A mandatory code for commercial third party intermediaries such as comparison websites, connection services, automated switching services, and energy brokers. The code should ensure that offers are recommended based on benefit to the consumer rather than the size of the commission received by the third party.
While some brokers may be signatories to the National Customer Code for Energy Brokers, Consultants and Retailers, the code is voluntary and run by a private-sector council – no actual regulation has been introduced since ASIC’s 2018 inquiry.
Analysts, by contrast, benefit only when their clients do. Our business model, for example, depends on consistently providing quality advice, demonstrating our value, and reducing our clients’ energy costs – not settling large-scale contracts. We charge a fixed annual fee per site, which encompasses:
- auditing retailer invoices for accuracy
- identifying ideal renegotiation periods based on market conditions
- aggregating and analysing consumption data to produce a load profile for each site
- developing and issuing tenders to all appropriate retailers
- analysing all responses and present them to you on a like-for-like basis
- administering your contract with your chosen supply partner.
That scope of service, combined with impartiality and client-aligned incentives, results in a robust procurement process that delivers lower-cost energy.
| Energy Analyst | Energy Broker | |
| Retailer Panel | All appropriate retailers are contacted for tenders | Only retailers that enter commission agreements are included. |
| Revenue | Analyst revenue depends on retaining clients year over year by procuring best-value contracts. | Broker revenue depends on settling as many high-commission contracts as possible. |
| Relationships | Analysts are typically unaffiliated (financially or otherwise) with third parties. | Brokers may receive referral fees from other service providers and soft-dollar benefits from retailers. |
| Advice Level | Unbiased analyses of all retailer proposals are provided. | A recommendation for a specific retailer is provided. |
| Timing | Proposals are sourced at the most appropriate market period (based on forecast trends). | Brokers are financially incentivised to source proposals as soon as possible. |
| Energy Price | Analysts are incentivised to source the most cost-effective contracts for clients. | Brokers are incentivised to source contracts with the highest commission, which may have higher energy prices. |
| Payment | Analysts are paid by the client. | Brokers are generally paid, in part or full, by the retailer via commission. |
Next Steps
Your energy procurement process should start well in advance of your current contract’s expiration date. If you aren’t already working with an analyst, contact one 24 months before you need to renegotiate. That gives your analyst time to implement a smart energy management system as necessary, implement demand-side optimisations, and build load profiles for each site.
Twelve months before your contract expires, your analyst should begin forecasting market trends and provide an ideal renegotiation window. Your tenders should be issued so retailers respond around the start of that period, giving you an appropriate level of leverage during contract discussions.
If possible, work with an analyst who offers fixed-fee engagements. Hourly rates or time plus materials may be appropriate for some value-added services, but, generally, a lump-sum contract provides better transparency. Our services, for example, are provided on a per-site basis – one fixed annual fee, with no hidden costs or early exit charges.
For more information about our procurement methodology – including an estimate of your savings through an active procurement process – schedule a consultation.