17.05.2023

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

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energia elektryczna
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Author

Adam Wlizło

Member of the Board

What have we learned from the energy crisis we faced in 2022? What conclusions do we draw and what do we do to prevent the devastation of companies' finances as a result of the increase in electricity prices? Let's take a look at the changes that have taken place on the Polish energy market over the course of a year.

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).

It is impossible to predict at what level market energy prices will be in the future. However, we have the opportunity to minimize the risk of their growth and take advantage of potential price opportunities. What is needed is expert knowledge, a well-chosen product, and a safe seller. Decision making and general business awareness of the entrepreneurs themselves will also be useful. The luck factor is also important, but in the case of a well-prepared strategy, we do not make the entire finances of our companies dependent on it.

One of the products most often chosen by large energy consumers (with an annual consumption of more than 1 GWh) is the purchase based on the so-called a stock exchange model that allows you to make purchasing decisions for smaller “packages” of energy over a longer period of time. By choosing this form of purchase, we limit the risk of making a purchase decision at an unfavorable price point. At the same time, energy sellers do not need to add to the price additional components related to the risk of price volatility incurred by them during the period of binding the offer. The latter factor is particularly important for institutional clients organizing tenders based on the PPL, in the case of which the period of validity of the offer often exceeds 30-40 days, which significantly inflates the prices offered to them.

A noticeable change in the last year is the growing interest of entrepreneurs in purchasing energy produced in renewable energy sources. For many of them, the origin of energy from ecological sources is an obligatory condition of the contract. The "greenness" of energy is confirmed by the purchase and redemption of the so-called guarantees of origin, the current price level of which exceeds PLN 20/MWh (a year ago guarantees could be purchased without any problems at a price not exceeding PLN 10/MWh). What's more, it turns out that the demand for green energy is so great that many sellers no longer offer guarantees of origin for 2023, and among others, this product is in short supply.

Strongly promoted in 2023 as a way to reduce the cost of energy purchase were long-term contracts concluded with green energy producers in the cPPA (Corporate Power Purchase Agreement) formula. Market energy prices for such contracts ranged from PLN 400 to PLN 750/MWh depending on the time of submission of bids (remember that these prices do not include additional, often very high costs, such as those related to balancing the recipient and the energy producer). Due to the significant decrease in energy prices this year, the attractiveness of cPPA contracts has decreased. However, they are still worth considering in the context of long-term energy price security and direct access to renewable sources.

An attractive alternative to cPPA contracts is still investing in your own energy source, primarily a photovoltaic installation. Such installations usually pay for themselves after a few years (depending on the pricing scenarios, the payback period may last from about 5 to about 8 years). At present, however, the biggest challenge is obtaining permission from the local distributor to connect the installation to the power grid, which results primarily from technical conditions (lack or poor condition of the distribution infrastructure).

So what is worth doing? First of all, let's not wait passively for the development of events that constantly affect and will affect energy prices, let's develop a dedicated purchasing or investment strategy and implement the actions described therein. The more time we have to make decisions regarding the purchase of energy for next year, the more likely we are to obtain an attractive price. Therefore, it is not worth waiting until autumn to make purchasing decisions, but take up the topic before the holidays.

Adam Wlizło

Member of the Board

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