16.02.2022

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

Tags

Author

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?

See also

More news

30.08.2022

cPPA contracts – an opportunity for cheap energy from renewable energy sources

The cPPA (Corporate Power Purchase Agreements) contracts entered the Polish power industry's salons just a few years ago. The first ones willing to take advantage of the contracts were market leaders who created the trend of co-responsibility for the environment, as well as entrepreneurs for whom it was important to guarantee a fixed purchase price for at least a few consecutive years. These contracts are usually concluded for a period of 5-10 years, which results from the requirements set by RES producers (by concluding such contracts, RES producers allow financing of the sources being built, mainly photovoltaic and wind farms).

Read more

24.06.2022

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

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.

Read more

18.05.2022

Purchase of energy from renewable sources. How to protect the company against increases?

The purchase of energy from renewable sources has gained in importance over the last year, because the so far leading ecological emphasis has been supported by a very strong partner - the financial aspect. Over the last year, the purchase of "green" energy (often based on long-term cPPA contracts) has become strongly competitive with the purchase of energy from the power exchange, the prices of which have experienced a threefold increase y / y (one of the main culprits of the current increases is the situation on the coal market). The energy prices offered to companies in the last days for 2023 exceeded the level of PLN 1,250-1400 / MWh (rates vary depending on the characteristics of the recipients; let us remind you that in 2021 entrepreneurs were buying energy on average at PLN 300-400 / MWh).

Read more