| | NOVEMBER 20259contracts viable as you would be stuck into higher prices for several years. Short term contracts hold significant premiums built in by the suppliers. The only alternative is to look at flexible contracts, this allows you to either be part of a basket of smaller consumers or on your own if the consumption of energy is high enough. This allows you to trade the market and pay market reflective rates. Many of you will have some exposure of currency and other commodities or raw materials that you have to purchase. Purchasing energy can now be done in a similar fashion, choosing to buy a percentage of your energy for certain months at a time, allowing you to build a position over time, rather than making one decision in a year or three years. Is it too risky?All commodities and trading have varied degrees of risk. However correct risk management strategies in place mitigate a lot of risk on an energy contract. At Northern Gas and Power, we insist on setting a budget as soon as the energy contract has been signed. This protects you from a rising market where all the energy could be purchased very quickly if the market has several bullish factors and very few, if any bearish factors. Secondly, a position report which allows you to see your entire portfolio is essential. This will tell you your forecasted consumption, what has been hedged and what remains open. It will also tell you what the cost of purchasing energy that has not yet been purchased is, or to buy the remaining volume of energy after several previous purchases. When purchasing the energy, it should always be done in smaller `clips' such as 10-20% of your demand at a time. This allows you to purchase energy at several points throughout the duration of the contract and you would pay a weighted average price of all those trades. Buy building a position over time this allows you to take risk off the table and protect you from the next big spike in energy costs.In a market that has seen extreme volatility from 100-14p/kWh in a matter of weeks, taking an average of all the trades done in between is the only way business can navigate these rising costs. Senior leadership of CEOs and CFOs have never taken such a keen interest in energy, until now. Having the right systems in place makes managing such a contract far more easier to manage for finance teams. A monthly budget which automatically calculates your cost of energy gives them a peace of mind in how the contracts are managed. Lastly the correct market information, understanding all the key factors influencing the price of energy on the day, short and long term provides extra reassurance. We are now in a global energy market, more interconnected than ever before. Consumers around the globe need to understand that as a nation relies on imports of energy, they are directly impacted by factors in other nations with the same demand for the energy as well as factors impacting the supply. For example, French nuclear generation impacts UK and European prices as France has traditionally been an exporter of that power to those nations. In 2022, prices rose as France became an importer of energy. Having access to the global supply and demand data flows of energy is now more critical than ever in navigating these volatile energy markets. The only alternative is to look at flexible contracts, this allows you to either be part of a basket of smaller consumers or on your own if the consumption of energy is high enough. This allows you to trade the market and pay market reflective rates.
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