As the energy industry wakes up to the news of the collapse of small energy supplier GB Energy Supply, a watchful eye will no doubt be focused on other new-challenger suppliers, whose business models are being tested by increasingly volatile market and economic conditions.
The three year-old gas and power supplier cited, “swift and significant increases in energy prices” for its demise. GB Energy Supply will have come under pressure from the changing energy market prices, which is when a business’ ability to adopt a forward hedging strategy becomes crucial.
So what can I&C businesses take-away from this?
Over the past year, the industry has (rightly) been focusing on increasing non-commodity charges; exploring ways to mitigate the growing risk and where possible turn it into value-generating opportunities via demand response schemes. However, it’s critical we do not neglect the commodity element of the bill. Commodity costs still make up more than 45% of the bill and with the smallest market movement can impact your exposed cost exponentially.
The message to businesses is clear: ensure that your risk management strategy is up to date and that you are hedged in accordance with it.
To keep abreast of market movement, it’s possible to set an upper and lower tolerance, often called ‘warning orders’, so that you are alerted when a price decision may need to be made. Changing economic conditions (such as the falling Pound after Brexit, or increasing market prices) may mean that your tolerances need reviewing to reflect your latest budget.
As with every aspect of business, knowledge is power. There is a plethora of market information out there and it’s important to make use of it. Be sure to stay on top of market changes so that you can understand the forces at play and give yourself a better chance of foreseeing issues and reacting to changes quickly, from a properly informed position
Here at Inenco we provide short, jargon-free market updates along with updates via our twitter feed @inenco
Volatile market conditions create challenges across the industry, for suppliers and businesses alike, but it’s more pertinent that ever to take control of those risks which can be managed.