While “electrification”—the practice of replacing technologies and processes that use fossil fuels with electrically powered alternatives—is often discussed as a solution for reducing carbon emissions, it’s important to note that these efforts are tied to a significant increase in power demand, which has wide-ranging implications for energy markets and consumers, such as healthcare facilities.
According to a report released this summer by the International Energy Agency (IEA), global demand for electricity is rising at its fastest rate in years, driven in large part by the increasing uptake of technologies that run on electricity – think EVs and heat pumps. Overall, this rising demand could have a significant impact on energy prices within healthcare facilities, due to several key factors that are at play:
- Supply and demand dynamics: As demand rises and the supply-demand balance tightens, market volatility is more likely, as is scarcity pricing. This is particularly true during peak demand periods.
- Fuel costs: The price of electricity is influenced by the cost of the fuels used to generate that electricity, and as demand for these fuels also increases, prices are likely to climb. While the grid continues to transition from fossil fuels to renewables, natural gas producers are planning for a significant spike in demand over the next decade, as renewables alone would struggle to meet demand.
- Infrastructure investments: To meet rising electricity demand, healthcare facilities will need to make costly investments in new power generation capacity, transmission lines and distribution infrastructure, as well as smart grid technology to support rising power consumption. Rising electricity demand often coincides with a push toward renewable energy sources, the integration of which requires additional infrastructure investment.
While rising energy demand may be inevitable, energy customers, such as healthcare facilities, can adopt several strategies to better manage their energy usage and lower their bottom lines.
Strategies for an Evolving Energy Landscape
There isn’t a one-size-fits-all approach to energy, and a strategy should be tailored to meet a facility’s needs. It is becoming more important to think holistically about your plan and work with your supplier to understand what blend of opportunities will best meet your goals.
Consider an Investment in Solar
We’re in the middle of a critical transition period, shifting from a stage in which the grid reacted to consumer demand, to one in which generation fluctuates more — and in which end users will need to be more flexible. Investing in sustainable energy and technologies like solar power and battery storage could help healthcare facilities be more prepared for this future and minimize risk by hedging against rising energy prices. Choosing to transition to solar energy depends primarily on where your business is located, as guidelines and potential incentives vary. Work with a supplier to decide if solar is the right choice for your business now and, if not, help draft a plan for the future.
Focus on Energy Efficiency
Energy efficiency measures and demand-side management programs can help mitigate price increases by reducing overall electricity demand. With so much that’s out of a facility’s control, the right approach is to focus on what you can control. By reviewing the data that shows how and when your company’s facilities use energy, you can develop an efficiency plan that might help lower overall energy spend. Be sure to discuss your questions with your supplier, as several sustainable options carry a smaller cost impact than might be expected such as LED lighting.
Discuss Your Risk Appetite with Your Supplier
Before signing a contract, select a product from an energy supplier that aligns with your business’ risk appetite and sensitivity to price fluctuations.
A time-of-use product directly passes on wholesale prices to consumers. When choosing this type of product, it’s important to understand how the energy market has been developed and the fundamentals that affect these rates. In deregulated energy markets, an hourly energy auction takes place, during which generators bid to participate. Rates are affected by demand for generation (typically driven by weather and generators’ efficiency) and the cost of fuel. Power markets can be volatile, so it is important to continuously monitor market conditions and make adjustments as necessary to stay ahead of changes.
A fixed energy price contract helps offset the hourly variability in energy prices. If your business is more risk-averse, your energy supplier can help manage that risk with this type of product — but it’s important to work with a supplier who has experience managing this risk.
As prices for energy fluctuate – and options for powering your healthcare facility continue to grow – it can be difficult to land on the right strategy. The best energy strategy begins with finding the right partner who will work with you to help you achieve your facility’s unique goals.
Joe Haugen
As an experienced leader with an extensive background in competitive power markets, Joe has a passion for connecting customers to wholesale power markets and helping them manage the risks and complexities of the marketplace with products that best fit their energy needs. He is responsible for power pricing, power trading and hedging and wholesale market operations behind more than twenty utilities in ERCOT, ISO NE, MISO, and PJM.