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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