Energy market prices increased substantially in the last 12 months and this has had a big impact on many businesses. But what we often forget is the fact that people related to dealing with this matter - in particular procurement managers - are suddenly thrown into a whole different ball game. Besides managing the obvious price risk, they now have to cope with variable contracts, cash management, forecasting issues, the introduction of new grid tariffs, different hedging strategies, exposure to spot prices, follow-up of long-term market prices, etc.
In other words, the procurement manager of today has a new job to be done in comparison with 12 months ago. Because of the holiday season, we're in good seasonal spirits and we're offering you this checklist of tasks to do before the end of December. With this information, we hope to contribute to a relaxed and joyful X-mas in a few weeks.
- Hedging strategy: did you develop a clear hedging strategy (stop losses, profit triggers), and did you align it across your management? Given the current volatility, agreeing on this beforehand might eliminate heavy discussions at later board/management meetings
- Capacity tariff: did you perform the necessary steps on the Fluvius websites (for Flemish customers) in order to simulate and determine your ideal capacity profile? If not yet done, call me right away :-) Deadline is 31/12/2022
- Variable contracts: a recent study of Voka (Flemish Chamber of Commerce) showed that approximately 75% of companies will have variable contracts as of 01/01/2023. Did you take into account the implications of switching from a fixed to a variable contract? Were you able to forecast your budget while linking it with the hourly forward and spot prices?
- Market prices: stay up-to-date on what's happening within the energy markets. Preferably - once a week- you should keep track of the evolutions within the energy landscape. Your 2023 resolution ;-)
- Creditworthiness of your supplier: energy suppliers have gone bankrupt this year due to the high volatility of prices. Keep a close eye as anticipating this might solve a lot of administrative hassle and financial loss afterward.
- Bandwidth = 0%: energy suppliers have substantially reduced, or even eliminated the possibility to deviate from your forecasted energy usage. Neglecting this will lead to surcharges which are often linked to high imbalance prices.
- Provisions: setting aside accurate provisions in a volatile market is challenging but so important as cash management is crucial today.
- Hedging practice: the advantage of the link with spot prices is that there are more hedging products available in the market: base, peak, off-peak but also yearly, quarterly, monthly, and even weekly products
- Guarantees of origin: do you want to include this in your supply contract or would you have it managed by an independent broker? Given the high prices today and the fact that energy suppliers often take a significant margin on this, it is worth exploring this option.
- Invoice control: Most companies never control the monthly invoice of their supplier. A (second) resolution for 2023 is to start doing this. We can guarantee you, it is worth it
- Forecast your future consumption: An accurate forecast will lead to reliable provisions and up-to-date budgets. Invest in the right tools to automate as much as possible.
Today the job of the procurement manager has completely changed in the last 12 months. Not only the job content shifted into a complete different direction but also the stress factor increased dramatically. Energy procurement managers become more and more like traders exposed to the high volatility of energy prices. Time for a bonus :-)
Xavier De Moor?is a senior energy expert with over 20 years of experience in energy hedging and trading strategies. His role at?Condugo?is helping customers with?energy procurement, energy sourcing, and energy budgeting.
