Energy’s complexity makes it one of the hardest categories for procurement teams to optimize. In a world of unpredictable (and often escalating) energy costs, we estimate that those who succeed can save between 1 and 5 percent of total annual energy spend.
While many procurement teams can see the value they could unlock in energy, capturing it has been difficult. As the leader of a global industrial firm puts it, “We know where the opportunities are, but we have neither the capital nor the operations capacity to pursue them.”
Part of the problem is that the most obvious efficiency levers—variable frequency drivers, compressor upgrades, and lighting and equipment retrofits—have already been implemented. To extract the remaining value, procurement must navigate an opaque, fragmented energy spending landscape.
Savings opportunities, for example, are often dispersed across a distributed network of assets. Capital constraints limit companies’ ability to “spend to save.” Engineering capacity—critical to capturing savings and avoiding equipment failure—is often stretched thin.
What’s needed is a model that embeds procurement in long-term energy planning and builds the commercial models needed to scale impact. Here we explore how leading organizations redesign sourcing strategies, overcome funding roadblocks, and tap all levers to optimize energy procurement (and help meet other environmental, social, and governance [ESG] goals).
A multipronged approach to capturing value
Organizations today need sourcing strategies that deliver commercial impact at scale while reducing demand and internal inefficiency. Three approaches stand out.
1. Contracting to unlock and preserve value
Energy procurement is no longer simply about finding the lowest rate but about designing a sourcing strategy that delivers impact at scale. A major consumer packaged goods (CPG) company, facing a threefold increase in energy spending over five years, asked its procurement team to reshape energy expenses across multiple regions. The team reduced the number of supplier relationships by more than 30 percent, standardized contract terms, and imposed demand thresholds and greater visibility on surge usage. As a result, the company found six-figure annual savings and anticipates additional future energy savings of approximately 10 percent.
Companies that reframe procurement as a strategic value driver share several characteristics:
- Aggregate for scale and efficiency: Leading procurement teams bundle contracts across business units, stores, plants, or regions to secure better pricing, simplify vendor management, and cross-subsidize load profiles. One food and beverage producer reduced costs by more than 10 percent by consolidating its energy sourcing across three countries, allowing it to shift from retail rates to wholesale-indexed pricing.
- Optimize contract timing and structure: Procurement leaders actively time market entry, locking in supply 12 to 24 months (or even longer) in advance, when pricing is favorable. They also align contract expirations across plants to synchronize sourcing windows. A chemicals company’s hybrid pricing model balances fixed rates with index-linked triggers, reducing its volatility exposure by about one-third.
- Refine commercial practices: Hidden costs add up. Sophisticated procurement teams lower energy delivery costs through measures that smooth energy usage and avoid surprise charges. To avoid “load penalties” for inefficient consumption, for example, procurement teams can work with plant managers to adopt power factor correction (PFC) solutions. Better use of demand-response programs can help companies qualify for financial incentives, while improved meter combinations can reduce demand charges or unlock more favorable rates—or both. Switching to higher-voltage grid connections is another option, albeit at a higher upfront investment.
- Rethink the ownership model: Energy-as-a-service, long-term power purchase agreements (PPAs), and shared-savings agreements can eliminate energy-related capital expenditures. A logistics company’s third-party ownership model for a battery storage and solar project successfully transformed capital expenditure into operating expenditure, and accelerated ROI.
2. Reshaping demand the smart way
Many companies are proving that targeted demand reduction interventions can yield an outsized impact with minimal risk to day-to-day operations.
A national grocer reduced utility spending by 25 percent by targeting consumption variability across more than 400 locations. By benchmarking energy use against the best-performing stores and clustering similar sites into cohorts, the company could tailor energy reduction goals for more intelligent capital allocation and measurable savings.
A global technology company cut data center energy consumption by 20 to 25 percent within the first year through a combination of in-row air cooling, liquid immersion systems, and AI-assisted airflow optimization. Excess heat now supports nearby facilities.
Lastly, an automotive manufacturer that shifted production to off-peak hours reduced peak demand charges by about 20 percent. Generative and agentic AI and models make any required trade-offs easier to understand.
3. Fixing “leaky pipes” in operations
Finding and fixing internal process inefficiencies can preserve additional value. Auditing invoices, for example, can catch errors, missed credits, and unclaimed tax exemptions. Better matching invoices to tariff structures helped a global chemicals company recover substantial value from billing mistakes and missed incentives.
AI-based data analysis can help identify usage patterns, cost drivers, and anomalies for pressure-testing in scenario models. This approach effectively aligns energy investment decisions with future demand projections. It also avoids the limitations of standard ROI calculations, whose conservative assumptions can derail promising energy optimization projects.
Making energy optimization real
Even high-ROI projects can stall in energy procurement without sufficient upfront funding. Procurement teams can overcome this bias by underscoring the risk mitigation value of these investments rather than just their cost savings.
Governing for scale is critical, too. Leading companies deploy a dedicated energy project management office (PMO) with authority across sites. They implement shared standard operating procedures (SOPs) that align engineering, operations, and procurement to track usage, forecast spending, and measure performance. They also design incentives that go beyond cost control and tie performance targets to energy KPIs. One industrial leader acknowledges, “We stopped treating energy as an expense line—and started managing it as a portfolio.”
Procurement is uniquely positioned to drive savings and operational resilience in the complex energy category. This shift is not about small efficiency gains but finding hidden costs, fixing waste, and building a more innovative way to manage energy.