Timed-buying is a strategy that should be used during every energy supply negotiation. Brokers, great brokers that is, guide clients in determining how much energy to contract, which product to use, and for how long the term should be. With the goal of best meeting their client’s energy needs, here are a few key areas a timing strategy is used for:
Companies or property owners who have multiple locations may run into the issue of their third party contracts having varying terms. Not only can this become an operations nightmare but you could be missing out on saving opportunities. Use your total energy volume to your advantage whenever possible. Timed-buying can assist in lining up your current contracts to terminate at the same time, enabling your total book to be used in your next energy bid.
Etek Example: We helped a property group align 15 accounts, strategically contract their agreements to co-terminate, and bring operational ease to the CFO. At the start of negotiations, the client had 10 power accounts with the utility company, 3 accounts with one supplier ending in 2021, and the remaining accounts with a different supplier ending in 2022. Not only was this hard for our client to manage administratively, but their current contracts were extremely unfavorable. We provide a timed-buying strategy that 1. immediately contracted the 10 accounts with the utility company so they no longer had a variable rate 2. timed said contract to terminate at the same time as their contract that ends in 2021 3. future-priced the 13 accounts in a contract that would terminate the same time as the contract ending in 2022 – this meant that our client would be able to fully use their volume to contract all 15 accounts together in 2022 – Bigger volume to play with = More room to negotiate with energy suppliers.
Just like the stock market, the energy market fluctuates and is impacted by geopolitical factors, seasonality, weather, the economy, and world events. In order to not back your business in the corner, time your energy buys in preparation for market movement.
Etek Tip: As 2021 will be a volatile energy year from factors as COVID, natural gas shortages, and impending inflation, it’s time to evaluate your companies energy protection strategies. Are you coming out of contract in 2021? Are you with the utility company now? Is your renewal set for 2022 or 2023? Let’s take a look at your business and strategize your plan to protect from volatility.
Hedge or Hybrid
Hedge a percentage, a certain number of months, or a component of your energy supply. Based on market conditions, seasonality, and pricing futures, you can time your supply contracts to customize your power. Energy agreements can be comprised of multiple hedges, ending in a fully fixed contract (hybrid) for power or natural gas. The time of a hedge and your exact hedge product is determined by factors like seasonality, your business operations, and market conditions. Timed-buying can help you to use the market to your advantage.
Etek Tip: As 2022 and 2023 are pricing favorably, we are working with clients to hedge 25-50% of those years now (based on volume and location). Depending on the industry our client is in and their energy profile, we will either stick with a traditional financial hedge or hedge multiple times to fully fix their contract.