Taming the unpredictable: Mitigating weather volatility in efficient energy management

By Seth Zuskin, WellStat

There’s no longer any such thing as “normal” weather.

In recent years, national and global energy markets have become increasingly reactive  - driven less by fundamentals and more by speculation, fear and volatility. Just a decade or so ago, pricing was largely dictated by steady patterns of demand and supply. Today it’s swayed by sudden hurricanes, prolonged heat waves, unexpected cold snaps and the creeping uncertainty that accompanies them all.

For large energy consumers, this translates into risk in terms of surges in user demand, supply uncertainty (power availability) and unpredictable costs.  With the right approach, that risk can be managed, mitigated, and even turned into an advantage.

For WellStat, energy management projects and solutions start with planning, not panic. In the face of weather-driven impacts on energy availability and usage, we help clients manage energy obligations with smarter, more flexible energy procurement strategies and operational (usage) optimization.

Speculation vs. fundamentals: The new energy market reality

Historically, energy pricing was driven primarily by tangible fundamentals: Availability of supply, grid capacity and seasonally -predictable demand.  Today, these fundamentals are increasingly overshadowed by speculation.

The power market has seen a significant shift toward future-based trading activity, where the perception of risk - rather than actual events - causes prices to spike.  (It used to be said that if a trader on the floor of a commodities exchange in New York returned from lunch with a wet umbrella, the price for orange juice futures would fall, despite the rain being nowhere near Florida (where the majority of the oranges were grown).

This perception-led market movement is especially true when it comes to natural gas, which fuels (literally) over 50% of power generation in regions including the US Northeast. If traders fear that a hurricane may disrupt Gulf production, for example, natural gas prices will rise - with electricity prices following - regardless of real-time demand or grid stability.

Layer on top of this an uptick in extreme weather events and it’s no surprise that energy prices are swinging more wildly than ever. At WellStat, we’re seeing clients contend with double the number of demand response events year over year, not just in response to extreme cold or heat, but also attributable to growing market sensitivity to perceived (as opposed to actual) risk.

Contracting for chaos: Smarter energy procurement

In this environment, traditional energy supply contracts are increasingly inadequate. Relying solely on fixed rate agreements may leave businesses overpaying during low-demand periods, while excessive exposure to spot (not future) markets can lead to budget-breaking procurement costs to manage unpredictable demand surges.

That’s why WellStat adopts a data-driven, consultative approach to energy contracting and management, with the first step gaining a comprehension understanding of your business model, your appetite for risk (which can often differ from what you think it is), operational requirements and long-term energy goals.

With that insight, we design a tailored energy management strategy that may blend fixed and indexed pricing with seasonal hedges and protection against peak demand penalties. We consider geographic weather volatility, the role of natural gas in your region, and broader market psychologies with the goal of achieving energy procurement deals that don’t just overcome volatility and demand surges, they anticipate them.

The cheapest kilowatt of energy is the one you don’t use

One of the biggest myths in energy procurement is that the key to cost savings is negotiating a lower energy supply rate. It’s not.

Even if you could achieve an overall 25% reduction on your energy rate - which would be an exceptional reduction - this might equate to only a 10-12% actual reduction on the total bill.  Why? Because the per unit cost of energy is only one part of the equation. Taxes, distribution and capacity charges, and other ancillary fees, make up the rest.  

The real savings come from operational management: The cheapest kilowatt [of energy] is the one you don’t use. By optimizing building performance, automating energy-intensive systems, and using real-time monitoring to identify and eliminate inefficiencies, we help clients to cut actual usage - and this translates directly into lower energy bills.

This is where WellStat’s end-to-end energy management services are a differentiator. We support and manage both the energy supply and operational demand sides of efficient energy management, creating holistic strategies that deliver supply stability and cost savings.  

Energy planning in an uncertain world

Every year seems to herald more named storms, more frequent and longer heatwaves, and deeper cold snaps than in years’ past - and there is no sign that this trend will reverse.

The reasons why weather patterns are changing is the subject of much debate. For energy management purposes, however, it’s less about the ‘why’, and more about ‘how’ to deal with these changes.

WellStat helps clients to build energy strategies that assume weather (and other) volatility as a permanent feature of the power management landscape. Because these possibilities have already been factored into pricing structures and operational responses, clients aren’t caught off guard by sudden spikes in demand (and/or prices).  And because our approach is consultative, not transactional, we’re able to revisit those strategies as global dynamics, market conditions and client goals shift and change.

The future of energy management?  Control and cost.  

The rise of AI and data centers, the electrification of industry and competing global demands for power will accelerate and intensify energy demand. But here’s the good news: You don’t need to be able to predict the future to prepare for it.

With the right energy management partner - one who understands the market, the risk spectrum, your business needs and operating environment(s) -  you can gain and maintain control over your energy obligations, even in the most unpredictable of environments.

That’s exactly what WellStat does.

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‍"The cheapest kilowatt is the one youdon’t use. Energy savings don’t just come from chasing lower supply prices - they come from smarter operational decisions and usage reduction.” - Seth Zuskin, WellStat

About the author

Seth Zuskin is an energy strategy leader at WellStat. He works with organizations to build resilient, risk-aware energy strategies that combine advanced procurement techniques with smart operational efficiency - tailored to each clients’ unique goals and usage patterns.