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Applying Reverse Auctions to Energy Procurement



Applying Reverse Auctions to Energy Procurement

One area that has become very conducive for the reverse auction platform is energy procurement.  There are a few reasons for this:Energy, whether it’s natural gas or electricity, is a product that is not easily differentiated between suppliers. Gas is gas and electricity is electricity, regardless of who sells it. This lessens the likelihood of the buyer choosing something other than the lowest price, which encourages suppliers to drive prices as low as possible.

  • Reverse auctions allow bidding to take place in real time, and considering the volatility of energy markets, they can be very valuable to both buyer and seller. The traditional Request for Proposal (RFP) systems used to bid out energy doesn’t allow suppliers to fully consider market conditions as they move. Uncertainty over when other suppliers will bid or when a buyer will purchase, forces suppliers to protect themselves with the price they provide, which keeps the buyer from receiving the lowest price the market may dictate. By bidding in real time, suppliers can better consider the current market conditions and will know by the end of the auction whether they have won the bid or not. This reduces their risk in offering a price, something that can help lower prices for the prospective buyer.
  • Since energy costs can be a significant expense for many organizations, the incentive is to reduce these costs as much as possible. For the reasons outlined above, reverse auctions have been able to do this for energy, helping many organizations save thousands of dollars in energy costs.
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