Energy Management 3.0: “Source to Pay” for the Energy Category
by Phil Adams, CEO – US, BidEnergy Ltd.
When I ran World Energy Solutions, a pioneer in auction-based energy procurement later acquired by EnerNOC, I had a chance to witness key developments in the evolution of energy management – namely the 1.0 and 2.0 incarnations of it – and their implications on corporate energy users.
It seemed every step forward further reinforced energy’s “difference” from other corporate spend categories, making it too complex to fold into a centralized procurement function. While that tension still exists today, I believe we are on the cusp of an exciting and transformative new era in energy management – Energy Management 3.0 – one driven by breakthrough new technologies and data-centric processes that will give companies more visibility and control over their energy spend and exciting opportunities to integrate energy insights into the fabric of their corporate strategies.
Energy Management – A Short History
Before energy management 1.0 was even born, managing energy was easy. Businesses simply got their monthly utility bill and paid it. That began to change in the mid 1980s with the deregulation of natural gas, and an incipient young industry was born – energy management. In its early stages, energy management was a people business, with consultants focusing primarily on the biggest natural gas users in the U.S., namely Midwest industrials. Leaders in this new regime pored over NYMEX charts to forecast pricing, provided nominating and balancing services and special bill validation – down to the penny – all wrapped up in manual reporting.
Then came the wave of electricity deregulation of the 2000s, coincident with the dawning of B2B ecommerce. Not only did these changes spark the creation of a new cottage industry – electricity procurement – but, over the decade, bill management, demand response and energy efficiency programs also made their mark, becoming their own mini-industries within energy management. This 2.0 era was characterized by technology innovation, such as online reverse auctions in procurement and portals for bill management. These and other technologies led users to a more active engagement with energy that resulted in cost savings and conservation efforts, while supporting the launch of hundreds of new energy-management players.
As technology came to play a bigger role in the delivery of energy management services, new business models began to take hold. Energy management was no longer the province of the “fee-for-service” monthly retainer. Instead, a brokerage model flourished in energy procurement, with suppliers paying a per kilowatt hour (or in the case of natural gas, per dekatherm) commission fee. Bill management grew into a pay-per-bill service. And with utility rebates driving efficiency projects, a rebate capture business and shared savings models were spawned.
If this all sounds familiar to you, it’s because the heyday of energy management 2.0 only recently ended – with acquisitions. Throughout the 2010s we have experienced “the great rollup,” the purchase and assembling of numerous “best-of-breed” service providers in the service of bigger firms with more holistic energy management offerings. The acquisition of World Energy, Opower and Retroficiency, by EnerNOC, Oracle, and Ecova (in turn bought by GDF Suez), respectively, illustrates the trend. Today, few if any of the original 1.0 energy management players remain standalone providers, and I’d venture that 85% of the 2.0 field is now part of a bigger company with a bigger energy management offering.
Data Defines 3.0
This recent history has set the stage for energy management’s most important flowering to date – 3.0. And, as with 2.0, the catalyst is technology. Today, we have the Internet of Things giving us access to more energy data than ever before; sub-metering, which can deliver 5-minute data reads off individual machines; and the ability to read the unique energy signatures of equipment in a building. Using these technologies we can now know when a critical piece of equipment is about to fail before it happens, and even if someone has left the back door of the shop open. Through big data analytics enabled by smart devices spawned by the Internet of Things, we can drive improvements and keep individual buildings as finely tuned as possible.
No surprise then that a defining feature of Energy Management 3.0 is the centrality of data. The emerging capability to generate, gather and centralize energy-related data is a potential game changer for companies looking to not only master their energy spend, but leverage information to create new energy-driven opportunities within their enterprises.
This is certainly a driver at BidEnergy, my new company, which is targeting the “source-to-pay” process in energy. For numerous reasons, including scope complexity and the federated way electricity deregulation unfolded in the U.S., both sourcing, (i.e., energy procurement) and paying (i.e., the bill management process) have each in their own right proven to be thorny issues for customers to handle, much less handle centrally through automation as part of one master process. That, however, is about to change.
Making Source to Pay Possible: Key Innovations
Interestingly, bill payment in the U.S. had not seen the step-change innovation that characterized many other areas within energy management. In part this is because the priority had been placed solely on paying bills fast to avoid a late fee or utility disconnect. That’s not “checking the bill,” and that’s not “paying right.” This pay-fast mentality turned bill- pay services into a commodity business, one that has historically been people-, not technology-, intensive. Even in the case of the portals created by bill management vendors, the real work on bills was being done manually behind the screen, often overseas.
This reliance on people to key in, review and pay bills is changing now because of a major technology development: robotic process automation (RPA). The IT publication InfoWorld defines robotic process automation as:
At its core, RPA is “robotic” software that organizations configure to capture and interpret actions of existing applications employed in various business processes. Once RPA software has been trained to understand specific processes, it can then automatically process transactions, manipulate data, trigger responses, and communicate with other systems as necessary. (InfoWorld, March 23, 2015)
Robotic process automation is making bill payment a key enabler and vital part of Energy Management 3.0. Now with RPA, software can handle every aspect of the billing lifecycle without human intervention. This translates into a huge speed and accuracy advantage, done less expensively, with the added benefit of all a company’s usage data being captured, stored and immediately accessible to energy and category managers, procurement teams, and other decision makers. With RPA, the system does the work: From extracting the data off the utility bill to running validation checks, to “quarantining” a bill if there is something wrong with it, to passing the bill onto a payment file that links to the accounting system. Automatically.
With robotics pulling and storing bill data, validating the bill and paying it, all in an automated fashion, companies are moving beyond simply paying bills fast to also quickly identify billing errors and saving money as a result. They are also building a data foundation that is central to better energy management. Good data from energy bills provides information needed for carbon and Energy Star reporting, as well as for budgeting and forecasting actual to budget. It is also key to identifying “hot spots” or outliers in your company’s portfolio. If you have 1,000 stores across the country with the same physical footprint and 20 are using twice as much energy as the others, data can help you identify and address the problem more quickly.
And once you have a rich data set, specifically around usage, you can begin to dig deeper, asking bigger questions: “Should I put solar panels on all my stores?”; “Would it pay to do a lighting retrofit?”; “Are my stores using energy at the worst times – i.e. peak energy – and, consequently, could I make changes that would reduce my demand charges and improve my carbon footprint?”
In addition, in highly competitive sectors such as retail and grocery – industries marked by razor-thin margins – having access to timely energy-cost data can provide surgical precision to product-pricing strategy. Here, the ability of robotics-enhanced systems to accrue missing bills and provide an accurate, real-time view of energy expenditures can actually improve top-line performance.
As much as I’m an “auction man” at heart, having built my career in that space, I truly believe these 3.0 advancements in bill management and payment, built on the speed and accuracy of robotic process automation, will drive tremendous value for customers and lead to meaningful additional energy management initiatives.
Speaking of auctions, that is another technology whose evolution is leading to Energy Management 3.0, and, significantly, there is a strong tie to bill management. One of the major energy challenges for U.S. companies, especially for companies with a large national footprint, has been balancing the benefits of local optimization (i.e., getting the best price for energy for each individual site) with those of centralized management (i.e., limiting back office headaches). Typically, national companies and their brokers have opted to run a procurement process to select a limited number of national suppliers – with broad geographical reach – choosing the providers who can meet their energy needs at the best price.
While this may sound reasonable, from a cost perspective it would make much more sense to award contracts to individual suppliers, including regional suppliers, based on their ability to meet the energy needs of specific locations, not to national suppliers who happen to be everywhere you are. This, however, could mean awarding 10 different contracts instead of one or two, and that’s where centralized procurement has typically won the argument. Yes, we might save a million dollars, but how are we going to handle billing for 10 different suppliers, each with their own bill format and payment terms? That’s a logistical nightmare best avoided.
Today, we have an answer: “combinatorial auctions” for energy procurement paired with robotic process automation for bill management. Now with combinatorial auctions, the next evolution of online Anglo/Dutch auctions, we can open up a national company’s needs, in every location, to every able supplier. This gets more suppliers into the mix, spurring competition that results in better pricing, and it enables these suppliers to bid on only the sites they want – say sites in Maryland and Texas, but not New York, for example. The combinatorial auction software then calculates the best deal for the customer on a weighted-average basis. As a result of this breakthrough approach, national, multi-site companies can get the best from the market, saving money by selecting the suppliers who are expert, and most cost competitive, in their specific region.
By pairing this procurement process with robotics-driven bill management, we are finally in a position to realize the integration of “source to pay” in energy that is the standard of nearly every other major spend category in corporate America, from raw materials to indirect costs, such as travel and marketing. The beauty, of course, is the system does the work, transforming energy’s inherent complexity into something logical, visible and, ultimately, manageable, saving companies time and money with the added benefit of bringing energy spend fully into the corporate fold.
In Energy Management 3.0, such transformations will be the new normal, moving “energy management” out of its former position as a back-office, cost-minimization function to a key driver of corporate strategy and its successful execution.
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About the Author
Phil Adams is the U.S. CEO of BidEnergy Limited, a robotic process automation company. BidEnergy is leading the transition to Energy Management 3.0 by integrating on-line procurement and bill management to create the category’s first source-to-pay solution. Phil’s leadership in energy management dates back to the early 2000s when he guided World Energy Solutions to leverage the convergence of electricity deregulation and B2B ecommerce and establish itself as the online-auction leader. Over his 13-year tenure at the company, first as COO, then President, CEO and Board Member, he helped take the company public in 2006; managed the Regional Greenhouse Gas Initiative (RGGI) contract, running auctions for the U.S.’s first carbon cap and trade program; grew the company organically and through several acquisitions; and led its successful exit in 2015 through an acquisition by EnerNOC.
Phil can be reached at email@example.com.
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