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Energy Changes Coming in 2021 and How Your Business Can Prepare
November 12, 2020
2020 has been an unpredictable and challenging year for many small businesses, and it’s hard to tell what the future holds. As your trusted energy supplier, we want to let you know what you can expect in the energy market in 2021, how it impacts your business and how to prepare.
What Do I Need to Know About Energy in 2021?
- Capacity costs will rise. Capacity costs can make up to 40% of your generation costs on your energy bill and are determined by multiplying your business’ peak season demand spikes by the capacity rates determined at annual auctions. The capacity auction determined that in 2021, capacity costs will nearly double in Ohio. The capacity costs for 2022 are still unknown. Additionally, new capacity fees are being added to ensure grid resiliency.
- Natural gas demand will slightly increase. Forecasters are predicting households in the U.S. to consume 5% more natural gas for heating this winter (October through March) than last winter, according to the U.S. Energy Information Administration. Increased demand can mean increased price.
- Energy prices are rising but will remain reasonable. Throughout late 2019 and 2020, energy prices hit all-time lows. The long-term futures market shows energy prices are rising but remains in the bottom 15% of prices over the past 15 years or so.
What Are My Energy Options for Next Year?
As an AEP Energy customer, you have many options for your business’ energy and access to our Account Management Team that will help you make the best decision for your organization.
- Secure a fixed price contract sooner rather than later. The new, increased capacity prices begin in June 2021 with unknown pricing beyond that. Locking in a fixed rate now for a long-term contract could provide you with the most protection and is the lowest risk option for long-term savings.
- Utilize solutions that help you manage your capacity. Many suppliers, including AEP Energy, offer solutions that reward you for reducing your capacity. AEP Energy’s capacity management plan allows you to fix your energy rate on the forward curve (which is relatively flat for the next few years), which helps you avoid any energy market price spikes, and puts you in complete control (good or bad) of your capacity costs. To make this process as easy as possible, we offer a capacity reduction program that alerts you to reduce your demand when the grid is peaking. Reducing your demand helps alleviate your capacity cost year-over-year. This option will provide you with the most savings but also requires the most effort and risk tolerance.
- Manage your demand. Transmission and capacity charges are factors of demand and are controlled by the consumer. Demand is a measurement of how much energy your business uses at a single point in time (generally a 15-minute interval) each month. In order to achieve substantial savings on your energy bill, business owners will need to understand and manage their demand. When paired with a capacity management product, as mentioned above, your business can operate at the lowest cost year over year.
- Example: Think of your business’ demand as gas mileage in a car. In order to get the best miles per gallon, how would you drive? Speed up and then slam on the brakes? Or would you accelerate slowly and drive sensibly? Most people would say sensibly, and the same holds true for how your business uses energy. Things like turning on lights or machines as needed and not all at once, as well as using smart technology and LED lighting can reduce your demand.
We encourage you to be proactive about your business’ energy plan to avoid unwelcome surprises in 2021 and beyond. As an AEP Energy customer, contact our Account Management team at 1-888-924-7111 to discuss your renewal options. If you’d like to get started with AEP Energy, contact our Small Business Energy Consultants at 1-877-648-1936.
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