Energy

Risk Management

• Energy Overview
• Gas and Electricity
• Liquid Fuels
• Risk Management
• Sustainability
• Download Centre
• News and Events

It's all about risk management!

Purchasing all your annual or longer term energy supplies on a single day (often referred to as a fixed term, fixed price deal) is a high-risk strategy, with a 1-in-250 chance (approx. 250 working days in the year) of getting the best price. In contrast, purchasing the same energy requirement in 'chunks' over multiple trades and over longer periods of time (known as flexible procurement) avoids the high-risk strategy of single day purchasing. Flexible procurement facilitates the adoption of a robust risk management strategy that can enable more effective management of the price risks inherent in the current energy markets.

Aggregated flexible procurement alone does not guarantee a better commodity price, procurements must be supported by a robust risk management strategy and should constantly be reviewed based upon changing market conditions.   How are risk management strategies developed?

• knowledge/experience of market
• statistical analysis
• value at risk models
• organisations risk appetite
• level of budget certainty required

The two most common risk options offered by buying organisations are:

Flexible Locked:

Offers fixed price for supply period.

 

Flexible Variable:

Price varies over the supply period.