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News : Wholesale Procurement reduces risk and price
UK wholesale electricity and gas prices are influenced by such a wide range of factors that it is hardly surprising that they should be volatile. Highly unpredictable worldwide events such as geopolitical problems and the weather affect prices, as do the more predictable home market energy supply and demand issues. Throw in exchange rates, European prices, security of supply and general market sentiments and you have a complex mix that can result in price volatility of 5%or more, over a few days and over 300% in the past 5 years.
How do you budget and control costs in such a market?
Fortunately, electricity and gas do not have to be purchased on a daily basis; there exists a liquid wholesale market that allows companies to purchase energy up to 3 or 4 years ahead. If used correctly, this market can provide companies with the protection they need to budget for their electricity and gas requirements. In addition to managing the risks, this procurement strategy can also bring significant pricing advantages in the long term.
Pricing advantages compared to what?
Traditionally annual or longer-term energy supplies have been contracted on a single day (often referred to as a fixed-term, fixed-price contract). In a stable, predictable market, this proved to be an adequate way of contracting energy. However, in a volatile market, it is a high risk strategy; unless you monitor the markets every hour of every trading day, you have very little chance of securing acompetitivepriceto coincide with market points. The fixed price contract is a blunt instrument to use in a modern, volatile, and technical market and can no longer be seen as a prudent method of procuring gas or electricity. This method suffers further from higher supplier margins & risk management charges to cover intra-day movements in price and the additional work involved in the ‘tender’ process.
In contrast, purchasing the same energy requirement in chunks known as ‘clips’ in real time in the futures market (known as wholesale procurement) avoids all the pitfalls of the fixed price tender method. Wholesale procurement facilitates the adoption of a robust risk management strategy that can enable more effective management of the price risks inherent in the current energy markets.
Wholesale Power UK specialises in procuring energy forclients directly from the wholesale markets and has a proven track record of beating the market average by over 15%. This lower risk, lower price option is growing in popularity.
In addition to managing bespoke contracts for larger customers, Wholesale Power UK also opens up this market opportunity to companies that would normally not have sufficient individualload to buy ‘clips’ independently. Such companies enter our portfolio arrangements, utilising the combined usage to achieve independent end prices that take advantage of market opportunities normally available only to large consumers.