24.06.2022

Energy prices for 2023. About the risk of purchasing energy at SPOT market prices

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Author

Arkadiusz Somnicki

Member of the Board

Red energy prices are heating up the domestic economy. Unfortunately, many companies may encounter another unpleasant surprise, if they decide to purchase the entire volume of energy at a price determined on the basis of next year's SPOT market indices. Is purchasing electricity based on currently unknown prices a reasonable idea? Business owners should ask themselves what is worth more - a high-risk chance of winning or ensuring the company's security?

How is it with these energy prices? Buy energy for 2023 now or wait until autumn to buy energy with the hope of lowering prices? Make a purchase at a predetermined price or choose a pricing mechanism based on stock indices? Should you decide to buy energy based on long-term cPPA contracts or decide to invest in your own energy generation sources?

The answer to all questions is: it depends. On a macro scale, it depends on geopolitics. Prices of coal, gas, emission allowances. The situation on European markets and the increasing uncertainty of raw material supplies. EU or local political decisions accelerating or inhibiting the development of the energy sector. On a micro scale, it depends on the situation of a specific company. Its business profile, current and expected financial situation, market awareness as well as the risk appetite of its management.

Regardless of the market situation, we are able to make optimal and profitable purchasing decisions for our companies, as long as we have reliable market information. Experience in energy trading will also be useful. This is very important, considering that many entrepreneurs, looking for a rescue for their budgets, often encouraged by energy sellers themselves, this year choose the option of purchasing energy at prices that will not be established until next year (SPOT market prices). Is this a wise decision? Is it worth betting on the market?

Experience tells us one thing - it is not worth betting everything on one card. This means that we strongly advise against a price fixing strategy for the entire volume purchased based on future stock exchange prices (SPOT prices). Of course, such a move may turn out to be profitable, but if the geopolitical crisis deepens, today's already very high energy prices may increase even more. Let us remember that the history of the energy market has repeatedly written about situations that did not take place in the past and that completely reversed the current system of prices.

So what to do? We recommend hedging the price for part of the volume later this year (the price for this part will be determined based on the current prices of annual contracts for 2023). The remainder of the volume will be purchased at prices to be established next year. The decision to divide the volume should be tailored to each company, first of all, it should relate to its financial situation. When making a decision to purchase energy based on the prices that will be determined in the future, do not forget to prepare a plan of action in the event of a price increase scenario.

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24.06.2022

Energy prices for 2023. About the risk of purchasing energy at SPOT market prices

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