Energy procurement explained: What it is and how it works

Energy procurement is the process businesses use to source and manage their energy supply—balancing cost, reliability, and sustainability. These decisions directly impact both your bottom line and your environmental footprint. A well-executed procurement strategy can help meet financial targets, reduce operational risks, and support compliance with sustainability or regulatory goals.

In this guide, we’ll walk through the energy procurement process, explain the different types of contracts available, and highlight how a strategic approach can benefit your business.

What is energy procurement?

Procuring energy typically involves evaluating your energy needs, researching available options in the market, negotiating favorable terms, and implementing contracts that support your operations.

Effective procurement helps manage costs by enabling competitive bidding and more favorable rate negotiations. It also reduces exposure to pricing volatility and supply disruptions—particularly when businesses diversify energy sources. Procurement strategies can also support sustainability goals by including renewable energy options or improving efficiency through smarter contract structures.

The role of market structure

The structure of your local energy market plays a key role in shaping procurement strategy. In regulated markets, businesses typically purchase energy from a single utility provider. Prices are standardized and options are limited, with little room for customization or negotiation.

In contrast, deregulated markets offer greater flexibility. Businesses can choose from multiple energy suppliers, compare competitive offers, and negotiate terms that better fit their operational and financial needs. This creates opportunities for cost savings, customized contract structures, and the inclusion of value-added services like demand response or green energy options.

If your business operates in multiple states or regions, it’s important to account for these regulatory differences. A procurement strategy that works in one location may not apply elsewhere, so tailoring your approach by market is key to optimizing cost and consistency.

The energy procurement process

The energy procurement process follows a structured series of steps—from initial assessment to long-term contract management. Each phase is designed to help businesses align energy sourcing with budget, usage patterns, and sustainability goals.

While details may vary depending on the size and location of your business, the general steps include:

1. Assess energy needs and research the market: Review historical energy usage and peak demand trends. Forecast future requirements based on growth plans, seasonal fluctuations, and operational changes. In parallel, research available suppliers, track current market rates, and identify pricing trends that could influence your strategy.
2. Evaluate suppliers and negotiate contract terms: Compare providers by pricing models, reliability, customer service, and contract flexibility. Review key terms such as contract length, termination clauses, and renewal conditions. Negotiate to secure competitive rates that align with your budget and risk tolerance—balancing fixed and variable rate components as needed.
3. Implement and manage contracts effectively: Coordinate the transition between suppliers if needed and establish clear communication protocols. Set up systems for regular invoice audits to catch billing discrepancies early. Track contract performance and resolve any service issues to maintain operational continuity.
4. Monitor market conditions throughout the contract lifecycle: Keep an eye on shifts in energy prices driven by weather events, regulatory changes, and global developments. Adjust your procurement strategy as needed to mitigate risk and take advantage of emerging opportunities.

Keep track of these changes, monitor regulatory shifts, and adjust strategies accordingly. This ongoing attention helps you take advantage of favorable market conditions and reduce potential risks.

What are the different types of energy contracts?

Energy contracts typically fall into several structures, each offering different levels of price certainty, risk exposure, and management complexity. Here’s a breakdown to help you choose a contract that aligns with your budget, risk tolerance, and internal resources.

Fixed price contracts

A fixed price contract locks in a predetermined rate for your energy usage over the length of the agreement. This gives you full price certainty, allowing for accurate budgeting without surprises from market fluctuations. In this structure, the supplier takes on the market risk, and the fixed rate usually includes a premium to account for that risk.

Fixed contracts work well for businesses that prioritize budget stability and want to avoid exposure to volatile energy markets. However, this approach also limits flexibility and may prevent you from benefiting if market prices drop.

Variable price contracts

Variable price contracts offer rates that adjust on a regular basis, typically monthly, based on supplier pricing models rather than market indices. Unlike indexed contracts, which are tied to transparent market references, variable pricing is often influenced by supplier discretion and short-term market conditions.

These contracts may work for businesses with low or highly predictable energy usage, or those who value simplicity over control. However, they often come with less transparency and can lead to higher costs if not monitored closely.

Indexed contracts

Indexed contracts tie your energy rate directly to market pricing, usually through a published index. Your final price includes the real-time market cost of energy plus a supplier margin.

This option suits businesses that are comfortable with price variability and have the ability to monitor the market or adjust usage as prices change. While indexed contracts can offer cost savings when market prices are low, they also carry higher risk if prices increase unexpectedly.

Block and index contracts

Block and index contracts combine the stability of fixed pricing with the flexibility of market-based pricing. In this arrangement, you purchase a portion of your energy at a fixed rate, while the remaining usage is priced based on the market index.

This hybrid approach is ideal for businesses looking to manage risk while still taking advantage of potential market savings. It allows you to tailor your strategy based on your energy usage profile and financial goals.

Green energy contracts

Green energy contracts source part or all of your energy from renewable sources such as wind, solar, or hydroelectric power. These contracts can be fixed or indexed but include a guarantee that the electricity comes from certified clean energy providers.

This type of contract is best for businesses with sustainability targets or environmental reporting requirements. While green energy may come at a premium, it can enhance your brand reputation and support broader corporate responsibility goals.

Benefits of strategic energy procurement

Strategic energy procurement strengthens financial stability, reduces risk, supports sustainability efforts, and enhances competitive positioning. A well-designed approach helps your business respond effectively to shifting market conditions while meeting long-term operational and environmental goals.

• Control control and optimization: Locking in energy rates when market prices are favorable can deliver significant savings over time. By timing contracts strategically and participating in demand management programs, businesses can avoid peak-period pricing and better forecast their energy budgets.
• Risk management: Energy markets are volatile. A diversified supplier portfolio and staggered contract terms help reduce exposure to sudden price increases. Some businesses also use hedging tools to cap costs while maintaining flexibility to benefit from market dips.
• Progress toward sustainability goals: Procurement strategies can incorporate renewable energy through power purchase agreements, green tariffs, or carbon offset provisions. These allow companies to meet emissions goals and demonstrate environmental responsibility without overhauling their infrastructure.
• Gain market edge: Lower operational costs can translate into improved profit margins or more competitive pricing in the market. Sustainability leadership also enhances brand reputation, helping attract environmentally conscious customers, investors, and partners.

Strategic procurement builds resilience. It prepares your business to handle supply disruptions and cost fluctuations while setting the foundation for long-term performance and growth.

How consultants support strategic energy procurement

Energy consultants are specialized intermediaries who help you navigate the complexities of energy markets and procurement processes. These professionals bring expertise in market analysis, supplier evaluation, contract negotiation, and regulatory compliance, skills that most businesses don't have internally.

Here’s how they can help:

• Provide expert market insights: Consultants monitor energy trends, pricing shifts, and regulatory updates to help you make well-timed, informed purchasing decisions
• Access competitive supplier options: Their industry relationships often give you access to exclusive rates or contract structures not available through direct sourcing
• Compare and negotiate supplier contracts: Consultants evaluate supplier proposals, focusing on pricing, flexibility, and reliability. They negotiate terms to help secure better rates and stronger contract conditions
• Ensure contract performance: After the contract is signed, consultants continue to monitor supplier performance and help resolve any service issues
• Support regulatory compliance: Consultants guide you through reporting requirements and documentation for federal, state, and local regulations—helping you stay compliant and avoid penalties
• Identify available incentives: They can point you toward energy rebate programs, tax credits, or green energy incentives that align with your sustainability goals

Manage your procurement processes with Ramp

Ramp gives procurement specialists the tools to move fast, stay in control, and make every contract count. Our AI-powered procurement software cuts through the complexity of procurement—centralizing contracts, flagging opportunities, and automating the work that slows you down.

Ramp allows you to:

• Intake in an instant. Drop a contract into Ramp and let our AI handle the rest—no manual entry, no delays
• Avoid costly errors. Catch fraud and mismatches automatically with three-way matching
• Get the best price. Benchmark energy quotes against thousands of real transactions and negotiate with confidence
• Stay connected. Sync seamlessly with your ERP and finance stack to unify supplier data and speed up approvals

Ramp Procurement helps you lock in better terms and uncover savings across your portfolio—all from one place.