Between success and failure. About good and weak energy and gas purchasing strategies with a bloom of indexed offers in background



Adam Wlizło

Member of the Board

Electricity and gas purchasing strategies based on futures indexed offers are booming. The dynamic increase in interest is a derivative of last year's price increase. More and more companies are deciding to buy some media for 2023 now, without waiting, as was the case in previous years, for contracting all of them in the second half of the year (so far the contracting peak was in September-November).

To put it simply, it can be said that the market of energy products is like the market of stocks, currencies or other commodities. Probably none of us would invest a lot of money in buying shares of an unknown company. Similarly, if we do not have sufficient knowledge about the mechanisms that create prices on the wholesale energy and gas market (thus we may have difficulty identifying the accompanying market risks), we should be careful when making purchasing decisions regarding energy products.

The main advantage of indexed offers, addressed to large energy and gas consumers, is the possibility of purchasing at current market prices. Entrepreneurs using the services of an intermediary (sellers) have access to the wholesale market and may, in accordance with the terms of the accepted offer, contract energy products at appropriate times. This obvious advantage of the product gives rise to many opportunities but also generates risks. Therefore, purchasing at indexed prices should always be based on a well-thought-out strategy tailored to a given enterprise.

What is a strategy that only answers the question of when to make purchases? Market practitioners will say that this is not a strategy but a casino entry ticket. Unfortunately, it is common on the market to create and publicize price forecasts and the resulting tactics of conduct, prepared on the basis of gut feelings, often fueled by media and politicians reports. A well-prepared strategy defines the scenarios of the company's conduct under certain conditions - price drops or increases. Such a strategy results in specific actions that will be implemented in the event of the emergence of market opportunities, but also the materialization of individual risks.

Below we present examples of questions that are worth asking ourselves, but also other "strategists" who urge us to adopt such and not other ways of proceeding.

Does the energy and gas purchasing strategy directly correlate with the company's financial strategy? Does the purchasing strategy based on specific pricing mechanisms take into account the risk levels acceptable to the company? What are the differences between the offers, and in particular, what are the factors influencing the final price of the price telling us? What are the main price determinants in wholesale markets?

The current market price of a band product for 2023 is PLN 593 / MWh, more than twice as much as the valuation of the same product from a year ago. We recommend our clients to take advantage of one of the indexed offers available on the market and then, based on a prepared strategy, to purchase the first tranches of energy for next year. Various price scenarios may materialize this year. Should the price increase scenario materialize in the coming months, hedging part of the portfolio will turn out to be a valuable move.

You can read more in the article: Energy prices for 2023. What should you know before signing a contract?

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Through the eye of an expert. About the purchase of electricity for 2024

Many entrepreneurs take advantage of the current, relatively good market situation and have already started contracting electricity for 2024. Unlike in previous years, some companies have even completed it and are already making purchases for 2025. Companies for which the cost of energy purchase has a significant share in the entire cost structure more and more often base their decisions on individualized purchasing strategies tailored to the specificity of their operations, taking into account both current market conditions and scenarios in the event of their significant change. These strategies are the basis for the selection of the energy contracting model, they also allow for the implementation of investment or purchasing activities in the field of green energy, which is gaining in importance.

From mid-January 2023, the energy exchange prices for 2024 oscillate in the range of PLN 700-850/MWh. It can be said that this is quite a promotion, considering that in the previous six months these prices generally did not go below PLN 1000/MWh, and at the peak they even reached PLN 1800/MWh. Current prices for companies are approx. PLN 100-200/MWh higher than the exchange prices (this value includes the costs incurred by sellers related to profiling and balancing customers, the so-called "colors", excise duty, service costs, but also the accompanying risks of price changes and sellers margin of course).

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Join Enfree. Your future in the energy market.

The energy market poses more and more challenges to Polish companies. At Enfree, we help to face them - we develop energy purchase strategies for the largest recipients in the country and carry out purchasing processes for them.

If you know energy and would like to work with us, write to us. We are looking for support for our team.

Call us: +48 695 000 950

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Why is it not worth waiting with the purchase of energy for 2024?

Loudly in the network about "low", exchange prices of energy listed on the SPOT market in January 2023. (low from the perspective of the prices we faced in 2022). A relatively attractive price level favors entrepreneurs whose energy sales contracts enable the settlement of energy purchases taking into account the current exchange prices (the so-called Day-Ahead Market).

Settlement taking into account exchange prices, both futures market and DAM (SPOT) prices, is an increasingly popular form of settlement of energy sold to large electricity and gas consumers.

Why is it worth not delaying the signing of such an agreement for 2024? Because we gain more than we lose. The main advantage is the ability to react immediately to the market situation. When the time is right, the purchase can be made immediately. In order to take full advantage of this arrangement, it is important to have enough time to catch the price opportunities that occur throughout the year. Therefore, the beginning of the year is a good time to look around the market and choose electricity and gas suppliers for the next year.

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