Businesses could save money on their power bills by locking into forward prices, some of which are trading close to a ten-year low, says Inprova Energy.
“Looking beyond 2018, wholesale power prices are extremely low”, says Daniel Turvey, Lead Energy Trader for Inprova Energy. “Forward power prices for 2021 are particularly attractive at 10% lower than the current trading period of 2018. If you average out prices for the past 10 years, the current figures for 2021 are in the bottom fifth, so there’s an opportunity for businesses to buy better than they have historically.”
He continued: “There’s a general assumption that prices only go up, but the current forward outlook for power demand and supply looks favourable and we could even see some further downward movement in the market. However, the energy market is highly volatile so that’s an unknown. For those wanting certainty that they are buying at some of the lowest rates we have seen in ten years, it is wise to forward purchase a portion of volume and then buy the remainder in chunks as and when the market dips.
“Good timing is key in the current volatile wholesale power market, which saw a 45% price swing last year. That’s more than twice as volatile as the average of the five years prior, so if you are on a fixed energy contract and buy at the peak, you can lose out. This is part of the reason why more and more businesses are sacrificing the budget certainty of fixed contracts to move to flexible purchasing.”
Turvey added: “Flexible purchasing can deliver greater savings and be less risky than fixed products because you are buying little and often and taking advantage of troughs in the market, rather than taking a 1-in-365 chance that you’re buying at the best time. But it’s vital to have a good risk management system and trading strategy to avoid exceeding pre-agreed price limits and incurring potential losses. There are lots of ways of reducing risk, including the possibility of selling-back chunks of purchased volume and then re-purchasing at a more opportune time.
“Sharp increases in third-party energy charges, which it’s difficult to mitigate via smarter energy purchasing, are making it even more important to optimise wholesale energy purchasing. These non-commodity charges now account for approximately 55% of a bill and are expected to overtake wholesale charges by a ratio of 60:40 by 2020.”
For further advice on energy procurement or risk management, or to receive Inprova Energy’s market reports, contact Daniel.Turvey@Inprovaenergy.com, 0330 166 4444