Take a look at the balance sheet of any business. Most have made large investments in fixed assets. Examples of these commitments include manufacturing and assembly equipment, buildings and facilities, and computers and software. Regardless of the product or service offered, fixed assets are required to deliver value. Hospitals, universities, and other institutions are in the same boat. Without brick and mortar and other fixed assets, they are not able to carry out their public service role. An economist might say most businesses and institutions are long fixed assets – major financial commitments made to support the organization’s ongoing mission.
In contrast, most businesses and institutions are short electricity. After employee salaries and benefits, electricity is often the largest indirect operating cost. For some businesses, like commercial real estate, it can represent 30% or more of total operating expenses. Unlike employee costs, electricity prices are uncontrollable and volatile. Over time, kilowatt hour unit costs are susceptible to broad macroeconomic trends. They are driven by the marginal costs of production, primarily fossil fuels like coal and natural gas. While low today, wholesale natural gas prices have varied by 400% since 2008. A hiccup or shock in supply and demand can have profound effects on the unit cost of electricity. By being short electricity, organizations put a large part of their margins and profits at risk to factors beyond their control.
What can be done to better match the term of fixed assets and power costs? Historically, not much. Most power contracts are limited to 2-3 year terms, because electricity suppliers cannot afford to assume the risk of fuel price changes. Financial hedges for fuel prices can be purchased but they also have a short life and are expensive. Renewable power provides the potential answer. Because renewable sources like wind and solar do not require fuel and have low ongoing costs, they can provide a 15-20 year physical hedge against future power price increases. The value of the hedge accrues to the renewable power owner – typically utilities or developers.
CustomerFirstRenewables (CFR) is changing where the value of renewables is captured, with direct user investment in utility-scale renewable energy sources. CFR offers a flexible, customer-tailored contract that offers many financial and environmental advantages. CFR’s service model provides value tailored to customer needs and far exceeding what they can do on their own:
- Reduced electricity costs compared to conventional electricity supplies
- A natural, physical hedge against future price growth in electricity markets
- Production and management of carbon and renewable energy credits
- Brand enhancement through demonstrated environmental stewardship, and
- A true financial share in the renewable energy upside as prices grow and fluctuate
To know more about renewable sources supply solutions offered by CustomerFirstRenewables, log on to http://www.customerfirstrenewables.com