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Energy: is it a commodity?

Rafael Herzberg's picture
Consultant energy affairs, Self employed

Rafael Herzberg- is an independent energy consultant, self-employed (since 2018) based in São Paulo, Brazil* Focus on C level, VPs and upper managers associated to energy related info, analysis...

  • Member since 2003
  • 2,221 items added with 1,295,103 views
  • Oct 31, 2020

Energy: is it a commodity?

The market trend is to make everything a commodity. It is easier to contract a commodity than a special product.

* Solar energy

Developing a roof project or setting up a farm is practically a standard undertaking

* Migrate to the deregulated market

It is "just" to follow the procedures and in less than a year everything will be done

* Energy efficiency

Making your operation efficient requires well-known retrofits and management

* Arbitration of costs between sources

Building a portfolio of fonts to minimize costs is easy and simple

* Metrics

To evaluate energy contracting and consumption is a tested and powerful tool

In order to choose what to do, it is about evaluating technical, financial, legal and management requirements at stake for each company or institution.

And, of course, the perception of advantages and disadvantages and risks associated with the list of solutions potentially available.

Conclusion: energy is a commodity but the decision-making process is not!

Bob Meinetz's picture
Bob Meinetz on Oct 31, 2020

"Conclusion: energy is a commodity but the decision-making process is not!"

Rafael, in terms of basic economics, no consumer pays money for the "decision-making process". It's up to producers to find the most efficient, cost-effective way to produce and market their product so they can be competitive - to provide the most value for the least money.

When  we use the term "market" we generally imply a free market, where sellers can compete with other sellers. But due to its nature, there's a fundamental difference between selling energy and other commodities, like corn, or sunflower oil, or cane sugar. Vendors of electricity are monopolies - they have no competition. So strictly speaking an energy "market" does not exist.

One could argue a truly free market doesn't exist for any commodity. Even in an open-air farmer's market, if one flower vendor is the cousin of the market organizer, sh/he will likely be awarded a choice location, or be mentioned in advertising, etc. But in general, consumers get the best value for their money when these anti-competitive practices are limited. And though there does exist a buying-selling paradigm for wholesale electricity in the U.S., it's rife with anti-competitive practices and special interest market distortions. A free market in electricity most certainly does not exist.

Because the value of clean electricity isn't immediately apparent, many consumers don't appreciate it. In those situations we're forced to rely on lawmakers to enact regulation to ensure society gets the most value for its money, too. But we should never expect consumers to accept this burden on their own accord. A free market, by definition, rewards self-interest. If we expect consumers to appreciate the true value of carbon-free electricity for fighting climate change, we're setting ourselves up for failure.

Rafael Herzberg's picture
Rafael Herzberg on Nov 2, 2020

Hi Bob,

What I am trying to point out is: energy related solutions are almost commodities nowadays.

However if you go to two different end users (whether industrial, commercial or institutional) operating in the same market and about the same size, you will find out that they might decide to go for different solutions. Simply put because their decision making processes are different.

One real life example. Two automotive part industries controlled by multinational companies contracted me to explore their energy related opportunities. One was very happy to go for a natural gas furnace alternative (to the electric one in place) given the ROI. The other told me that they were not interrested in this solution. Period!

Different ways to analyse and decide. 

Rafael Herzberg's picture
Thank Rafael for the Post!
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