Reverse Energy Consulting

What is a Reverse Auction?
A Reverse Auction is an auction in which the usual roles of buyer and seller are reversed. In a reverse auction, your hospital or facility would specify its energy need and the suppliers would submit price offers to supply the energy. The Reverse Auction is a tool Reverse Energy is making available to you which many purchasing and supply management organizations use for spend management, as part of strategic sourcing and overall supply management activities.

At the designated day and time, several suppliers will log on to the Reverse Energy Exchange auction site and will input several quotes over a pre-determined period of time for a number of RFPs with varying terms to meet your needs. These quotes reflect the prices at which the suppliers are willing to supply the requested energy commodity.

How often are Reverse Auctions scheduled?
A. Reverse Auctions for energy are customized and scheduled based on the needs and energy contract completion date(s) of a participating healthcare organization.

Which states are deregulated for energy procurement?
A. There are 17 states (including DC) with deregulated electric markets that could benefit from a reverse auction. These include: CA, CT, DC, DE, IL, MA, MD, ME, MT, NH, NJ, NY, OH, OR, PA, RI, TX. Natural gas is deregulated in most states and renewable energy and environmental commodities are available in all states.

What does risk-free mean?
A. Participation in a Reverse Auction for energy procurement is a risk-free opportunity to secure the best possible price for energy commodities and increase the use of cleaner, renewable energy. Risk-free means that Reverse Energy will work with the hospital or facility to evaluate the opportunity, market conditions, develop a procurement strategy, prepare all necessary procurement documents and conduct the auction. At the conclusion of the auction, Reverse Energy will identify the lowest bidder and compare the bid to the current market conditions. Then the hospital can make a decision to enter into an agreement or walk away without consequences or costs.

Am I obligated to take the lowest price? What if I don’t like any of the bids?
A. There is no obligation to move forward with any bidding supplier. You are free to choose whichever supplier that you believe provides the greatest value. You are also free to reject all suppliers.

There is no charge for a reverse auction for energy, or monthly fees, regardless of your decision to move forward or pass.

How are suppliers motivated to participate if the buyer can just walk away at the end of the auction?
A. The Reverse Energy Program is powered by and operates on the Reverse Medical Exchange Platform which is operating in more than 100 deregulated energy markets. To date more than 500,000,000 kWh of electricity and 50,000,000 cubic feet of natural gas have been transacted.

The reverse auction is a tool used by many purchasing and supply management organizations for spend management, as part of strategic sourcing and overall supply management activities. Quoting performed in real-time via the Internet results in dynamic bidding. This helps achieve rapid downward price pressure that is not normally attainable using traditional static 3-quote paper-based bidding processes. The prices that buyers obtain in the reverse auction reflect the narrow market which is created at the moment in time when the auction is held and it greatly outperforms all other procurement processes. Suppliers understand how the process generates very favorable pricing for the participants and know that very few if any participants walk away from pricing they cannot obtain through any other process.

Can I still participate if I already have a contact for electric power or natural gas?
A. Yes, you can use the Reverse Auction program for the procurement of energy commodity that you
need in the future, provided your current energy contract(s) is expiring in the next 12 months.

Can I participate in a Reverse Auction for just part of my total energy use?
A. Yes, you can use the Reverse Auction program for a portion of your energy needs. The minimum energy that Reverse Energy will conduct a Reverse Auction for is 1,000,000 kWh for electric power and/or 50,000 decatherms of natural gas.

What is the effect of market volatility on the timing of a Reverse Auction for energy?
A. The energy market is a very volatile marketplace and prices are continuously moving up and down. However the long term trend has prices moving up. Market volatility and the timing of a procurement event is equally challenging for any approach whether that is a traditional paper-based RFP, or a web-based Reverse Auction, or any another approach. Each facility must consider when to release paper-based RFPs or when to hold an auction. What is certain is that a Reverse Auction outperforms other approaches.

How do you calculate the savings?
A. The Reverse Auction is a tool used by many purchasing and supply management organizations for
spend management, as part of strategic sourcing and overall supply management activities. Quoting performed in real-time via the Internet results in dynamic bidding. This helps achieve rapid downward price pressure that is not normally attainable using Traditional static 3-quote paper-based bidding processes. The prices that buyers obtain in the Reverse Auction reflect the narrow market which is created at the moment in time when the auction is held.

In order to calculate savings Reverse Energy performs a market analysis to estimate the current market price for your energy needs and load profile and the savings estimate is compared against this market analysis.

The downward price pressure is created by suppliers stripping their margins to the bare minimum in a dynamic bidding event and minimizing the risk premiums suppliers normally add to longer procurement cycle events. The risk premium is added by suppliers to address the market volatility that may occur over the duration of a procurement event. If the event occurs over multiple weeks such as in a paper based RFP, you will see higher risk premiums than one would see in a real time single day procurement event like the Reverse Auction.

Are there advantages for multiple hospitals or facility’s  to participate in a single Reverse Auction?
A. Individual healthcare facilities that use at least 1,000,000 kWh of electric power or 50,000 decatherms
of natural gas annually are eligible to participate in a reverse auction; the customized RFPs with varying terms that go out to bid on the date the auction is scheduled will be based on their unique needs and interests. Multiple facilities, which are part of a single legal entity, can aggregate their energy volume for a single Reverse Auction event, provided each facility is served by the same local utility distribution company.

Aggregating different legal entities into the same Reverse Auction can be challenging for a number of reasons:
Each hospital or hospitals within a legal entity or system needs to agree to the same legal terms and conditions (e.g., same percentage of traditional or renewable energy in the case of electricity, same contract terms and length.)Within a system, all the hospitals would have different credit ratings, different load profiles, etc. affecting the price and resulting in some facilities subsidizing others.
At the end of the auction, if one of the participants within a system did not want to execute an agreement with the winning supplier, then the supplier would walk away because of the volume change so all the other hospitals would not be able to execute a supply agreement.
All the current contract end dates would need to be the same. Interim contracts could be provided, however, to get all the participants on the same schedule.

How do we begin the process of using the Reverse Energy Exchange Auction process for our energy procurement?
A. If your facility is using at least at least 1,000,000 kWh of electric power or 50,000 decatherms of natural gas annually, has energy contract(s) expiring within the next twelve months, and is located in a state deregulated for the purchase of electricity and/or gas, you should consider participating in a Reverse Auction.

To start the process, Reverse Energy needs to know your facility annual energy usage, current contract status and your local distribution company.

After a review of your energy needs, contract status and market conditions, Reverse Energy staff will inform you of the opportunity and work with you to plan the next steps.

What is clean energy?
Clean energy is considered to be “environmentally” clean – meaning it is typically non-polluting. The phrase is commonly used interchangeably with green energy or renewable energy. Energy consumers purchase clean energy to help reduce the environmental impacts from their consumption of conventional energy and to support further development of clean energy resources.Clean or renewable energy is often more expensive than traditional fossil fuels (oil, coal, natural gas). However one of the opportunities gained from the Reverse Auction is to use the savings from the purchase of traditional energy to offset the increased cost of renewable energy.

What types of power generation are considered clean energy?
Clean (renewable) energy is generated by the sun (e.g., solar panels) wind (e.g., wind turbines) and water (e.g., hydro-electric generators). These resources replenish themselves naturally. Renewable energy is then fed into the electrical grid and thus can be accessed anywhere, which reduces our dependency on foreign oil and increases domestic economic opportunities.
How much extra does clean (green) power cost?
It varies. Just as power prices fluctuate so does the cost of buying clean power. The competitive nature of the auction has driven some suppliers to provide clean power at little or no premium compared to “brown” or 0% clean power. Reverse Energy can run multiple auctions to test the pricing of varying levels of clean energy, just as they can run multiple auctions for different terms such as contract duration, payment schedule, etc.

Can I buy clean natural gas?
There is no “clean” natural gas sold, but Reverse Energy can help you determine your gas purchase’s impact on the environment and then purchase natural gas bundled with third party verified carbon offsets to reduce your carbon footprint. Learn more about renewable energy certificates and carbon offset credits by emailing mlieberman@reverseenergy.com

What is a renewable energy certificate, credit, green tag, or “REC”?
Renewable Energy Certificates (RECs), also known as Renewable Energy Credits or green tags, are tradable environmental commodities in the United States which represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource. Thus RECs represent the environmental attributes of electricity generated from a renewable resource. Environmental attributes include the avoided emissions when electricity is generated from a renewable resource instead burning a fossil fuel such as coal, oil or natural gas.These certificates can be sold and traded and the owner of the REC can claim to have purchased renewable energy. RECs have their own market value. The price typically will be equal to at least the difference between the market price for commodity power and the revenue required for the renewable power project to be economically viable for its owners.

By helping to make renewable energy projects financially viable, the revenue stream from RECs plays an important role in spurring the development of new renewable power generation. RECs can incentivize carbon-neutral renewable energy by providing a production subsidy to electricity generated from renewable sources. It is important to understand however, that the energy associated with a REC is sold separately and is used by another party. So when you purchase a REC you get only a certificate.

In states which have a REC program, a green energy provider (such as a wind farm) is credited with one REC for every 1,000 kWh or 1 MWh of electricity it produces (for reference, an average residential customer consumes about 800 kWh in a month). A certifying agency gives each REC a unique identification number to make sure it doesn’t get double-counted. The green energy is then fed into the electrical grid (by mandate), and the accompanying REC can then be sold on the open market.

There are two main markets for renewable energy certificates in the United States – compliance markets and voluntary markets.

Compliance markets are created by a policy that exists in 25 U.S. states called a Renewable Portfolio Standard. In these states, the electric companies are required to supply a certain percent of their electricity from renewable generators by a specified year. For example, in California the law is 20 percent renewable by 2010, whereas New York has a 24 percent requirement by 2013. Electric utilities in these states demonstrate compliance with their requirements by purchasing RECs – in the California example, the electric companies would need to hold RECs equivalent to 20 percent of their electricity sales.

Voluntary markets are ones where customers choose to buy renewable power out of a desire to go green. Most corporate and household purchases of renewable energy are voluntary purchases. Renewable energy generators located in states that do not have a Renewable Portfolio Standard can sell their RECs to voluntary buyers, usually at a cheaper price than compliance market RECs.
Adapted from Massachusetts Technology Collaborative Renewable Energy Trust.

In some states, the best indicator of how much a purchase will contribute directly to the development of more renewable energy is the percentage of the product that is classified as new. New renewable energy facilities are generally considered to be those created after 1997.

Many states have Renewable Portfolio Standards, which require all electricity suppliers (utilities) to get a gradually increasing percentage of the electricity they sell from these new renewable energy facilities. This increasing demand should lead to the construction of additional renewable energy facilities.

When a consumer purchases new RECs, those RECs are retired. Because these purchased RECs have been taken out of circulation, electricity suppliers can’t use these same RECs to fulfill their legal obligation under the Renewable Portfolio Standard. They then need to get RECs from other renewable energy facilities. One goal of voluntary clean energy programs is for more renewable energy facilities to be built than the Renewable Portfolio Standard requires.

Currently, because of a shortage of renewable energy generating facilities, energy suppliers are having difficulty obtaining a sufficient supply of new RECs to meet their obligations. In a situation like this, some Renewable Portfolio Standards require them to make an Alternative Compliance Payment (ACP) which will be used by the issuing state to help develop renewable energy facilities. Because of the difficulty of siting and financing renewable energy power plants in some regions, it can be hard to know how soon a given renewable energy facility will be built due to any particular entity’s REC purchases. Yet, at a minimum, a purchase of new RECs increases the amount of money the state will have to spend through the Alternative Compliance Payment fund.

The purchase of new RECs remains considerably more likely to lead to increased renewable energy generation than “old” RECs. Consumers should therefore consider the percentage of new RECs in the renewable electricity products they purchase. The higher the percentage of new RECs, the more the consumer is helping to spur clean energy development.

What is Carbon Offsetting?
Carbon offsetting is the act of mitigating (”offsetting”) carbon production and greenhouse gas emissions by paying for emission reductions through the purchase of a carbon offset instead of reducing one’s emissions. Carbon offsets can be generated for example, by tree planting, avoided deforestation, or combusting/containing methane generated by farm animals, landfills or industrial waste.Although there are six primary categories of greenhouse gases, carbon offsets are measured in metric tons of carbon dioxide-equivalent (CO2e). One carbon offset represents the reduction of one metric ton of carbon dioxide, or its equivalent in other greenhouse gases.

How do I know that the clean energy or renewable energy certificates I’m buying haven’t been sold to somebody else?
There are third party verification/certification services such as environmental and consumer protection standards as set out by the FTC and National Association of Attorneys.

How do I know the clean power or RECs I am purchasing really create an environmental benefit?
The Reverse Energy Exchange requires third party, nationally accepted standards and verification (Green-e) for both the clean power and renewable energy credits our members want for their facilities. The standards require a clean “chain of custody” from the clean energy generation facility to the customer. You can read those standards at Green-e. We can also work with you to create custom standards for your RFP to meet your particular needs. All suppliers review and agree to abide by these standards or they can’t participate in an Energy Exchange auction. We will work with you to make sure the proper wording and standards are used to ensure supplier and product integrity and reliability. In the case of Renewable Energy Certificates (RECs), (aka Green Tags, Green Certificates, Clean Energy Certificates) the standards require certificates to represent new clean generation that would not otherwise exist or be built without the REC’s being sold.
http://www.green-e.org/getcert_ghg_standard.shtml