Introduction — or, Annabella’s Choice #2

It doesn’t take long, and Joanna feels the need to have more people at Annabella with a good understanding of electrical power. Joanna decides that it is important for everyone in the main business and support areas, such as legal and purchasing, to understand the market well, and the company starts sponsoring courses and training on the subject. 

Opportunities keep coming, and Annabella’s team needs to be prepared to analyze the options strategically.

* * *

Annabella’s team soon brings Joanna ideas she wasn’t even considering yet. “The best discount is… not buying!”, exclaims one of the employees, while giving a detailed presentation of how Annabella’s factories, stores and offices can save money by reducing consumption with energy efficiency projects. 

The legal team, who were initially wary of the fact that Annabella was discussing a highly regulated area, soon became comfortable and started looking for opportunities too. “We can carry out a corporate restructuring to place all our stores and offices under the same root taxpayer number”. “With this, all our branches will be able to migrate to the free market right away!”.

Someone suggests that Annabella install smart meters that will allow the company to better understand its consumption and have more ideas in the future on how to be more efficient. 

Smart meters is something interesting, Joanna thinks. She has already discovered that the price of energy on the free market varies every hour of the day, especially if the company purchased too little or too much. If Annabella understands how it consumes energy, and at what times, she will be able to create plans on how to optimize the work in the factories so that the bill is cheaper or, even, so that it has some profit selling electricity surplus.

Another person make a presentation on RECs, renewable energy certificates. Annabella can now certify that its energy is 100% from renewable sources, which is very much in line with the company’s ESG (from Environmental, Social, and Governance) goals. 

The suggestions are all calmly discussed and evaluated by a group of people Joanna calls the “Energy Committee”. No idea is adopted in a hurry, but the returns seem to be promising. Some of these projects involve a small initial investment in changing light bulbs, purchasing equipment and subscribing to technology services, but it pays off quickly, all conclude.

* * *

Joanna also hires consultants and external advisors who are experts in the sector to help with this transition. “Transition”, in fact, which will become a constant and strategically important job of purchasing electricity. 

Joanna know, for example, that some large companies in different sectors have their own electricity trading companies and that, in the past, at least in certain periods, some mining companies made more money selling energy than exploring mines. 

Joanna also knows that there are not only good sides in trading. Many trading companies went bankrupt in recent years because the volume of money they turn over monthly is much greater than the result they generate, and dependence on cash and third-party credit is huge. 

Joanna decides that Annabella needs a little more experience in this new market before creating her own electricity trading, but she is not ruling out the idea for the foreseeable future.

* * *

Annabella’s Energy Committee is in charge of studying the company’s expected electricity consumption and finding ways to mitigate the price variation, at least enough so that Joanna can obtain financing for the modernization of the factory without major worries. 

The winning idea is a long-term contract for the purchase and sale of electricity directly with an electricity generator, which the team found at a very attractive price. They managed to “match” the financing term with the contract term, and will only start receiving and paying for electricity in a year and a half, which is the same period that Annabella needs to install the new equipment. 

The generator was also happy with the deal, because the deadline will allow it to build a new park in that year and a half to serve Annabella and still sell surpluses, and plans to use the contract with Annabella to finance the construction of the park. Everyone wins. 

The size of the contract is just enough to give Annabella some predictability of future costs, while still leaving some room for it to take advantage of other opportunities that arise in this very dynamic market.

* * *

Joanna then continues with the project to modernize Annabella’s industrial park. Talking to the bank that will provide the financing, she explains that the increase in production will allow her to serve European markets, which value ecological shoes, such as the ones Annabella produces. 

The bank suggests that Annabella start buying energy in dollars, to protect itself from currency fluctuations. “Interesting. I always heard that in Brazil contracts needed to be in Reais”. Joanna asks Annabella’s legal department to look into this option, and learns that there are some instances where Annabella can purchase electricity in dollars or other foreign currency. 

The bank itself has a trading company and offers a dollar contract with a good price for Annabella. Another deal closed.

* * *

It may seem odd to start an energy book with the story of a shoe company rather than an energy company. But is it really that Annabella is not an energy company? Electricity is an important input for Annabella, as much as the sisal it uses to make its shoes, with the difference that virtually all companies need energy, and few companies need sisal.

(more to come…)