Hedging Energy Procurement Solutions for Businesses

Energy procurement management can become challenging for strategic-minded businesses looking to develop a long-term cost savings plan. Amidst a sea of options and volatile prices that are tied to external factors, choosing the most convenient energy scheme makes a big difference, as it can save companies thousands of dollars. One of the most popular —yet unexplored— energy procurement solutions is hedging, which consists in purchasing small amounts of energy over time at a fixed rate. Here is how it works and why businesses should consider it. 

What Does a Hedged Energy Strategy Consist of?

Savvy businesses that can design a long-term plan benefit greatly from knowing what their needs will be in advance. By doing so, they can buy a portion of the energy beforehand  to match the demand they forecast. This technique is called hedging, and organizations implement it to protect themselves from spikes in energy prices, which are and have been historically volatile.

Admittedly, this strategy pays dividends when companies are able to make accurate future projections about their consumption and needs. In order to do so, a team analyzes their history of procurement and juxtaposes it with their consumption and future needs.

Imagine a company is planning an expansion. By taking a sample of the amount of energy it has needed for X activity; it can make a projection of how much it will need to materialize the project. By implementing the hedging technique, it can procure a portion of that energy in advance and benefit from a blended price, where the hedging can increase over time, sometimes becoming 100% fixed.

Indeed, if the forecast were to understate the amount necessary, the company might buy too little, therefore having to buy energy on the spot on the market, which means it will do so at a higher price. At the same time, should it buy too much, it would be forced to sell off the excess energy, which can be a costly process and ultimately negatively impact its finances.

• Related content: Energy Procurement Solutions to Propel Businesses

Annual Hedging

Annual hedges refer to a scheme through which businesses buy incrementally until reaching their desired level. Each hedge (or layer) equals a percentage of the anticipated yearly energy consumption and can extend over years.

Energy Procurement Solutions: Monthly Hedging

In the case of monthly hedging, the percentage hedged will differ from month to month. In order to make this scheme work, energy specialists identify monthly pricing opportunities. Due to the great deal of resources needed, larger corporations with a robust backbone can benefit from it the most. However, for smaller businesses, there is always the strategy of partnering with business energy consultants who have the resources to do that for them.

Other Types of Hedging Strategies

• Block and index. With a block and index strategy, organizations can “block” a price throughout the duration of the contract; making it so that any energy usage above it be billed at the index market rate. 
• Load-following blocks and index. A load-following block and index plan consists of hedging a portion of the energy in spite of the fluctuating volumes over time. 
• Managed hedging. Managed hedging allows for maximum flexibility to respond to market events. Businesses set price and time-based triggers to apply hedges.It gives organizations the possibility to lock in different blocks of energy at different times over multiple years.

Tailoring Energy Procurement Solutions

Admittedly, energy procurement management can be daunting. Ideally, each business can design plans that contemplate long-term and customized energy procurement solutions that fit their specific needs. Ideally, they will do so harnessing its own data and balancing cost-benefit and carbon offset to help achieve their sustainability goals.

Onyx Power & Gas’s technology and expertise makes it possible for businesses to access the best strategies in the market, which are specially tailored to them. Onyx’s partners have access to:

• Knowledgeable Energy Professionals
• Market analysis by state
• Energy supplier bid comparison and analysis
• Pricing structure evaluation and development
• Bill auditing
• Contract review and negotiation
• Robust Wholesale Trading Network
• Purchasing Power Across Trading Regions
• Vendor Neutral Approach
• Client Relationship Management
• Commitment to Community

Whether you have a hedged strategy in place or not, our consultants can help you identify opportunities based on your specific data, risk tolerance, and that fit your budget. Our market expertise ensures that your decisions regarding hedging are timely and accurate.

Our Partners