Internal Risk Guidelines – Time for a check-up?
How does your business procure its electricity? More importantly how does your business manage electricity price risk?
Do you secure a long-term agreement only to file it away not to be seen for several years? If this is the case, then it’s time for a check-up because you may be placing your business at risk.
If your business is situated on the east coast of Australia it’s connected to the National Electricity Market (NEM). This market operates every second of the day, 7 days per week, 365 days per year. It’s the platform that connects electricity producers and consumers. The NEM enables electricity to be treated as a commodity and consumers can enter into forward contracts to manage their commodity risk in the same way other commodities are managed.
If you haven’t reviewed your electricity risk guidelines in recent years, it is likely you contracted with a retailer for a 2-3 year period. By entering into a long-term rate agreement you are foregoing opportunities to secure potentially lower electricity prices if there is a decline in prices.
In the current energy market it’s important to take a proactive approach to securing your electricity rates. This can help mitigate the risks of price increases and capitalise on price decreases. This approach enables consumers to secure electricity rates on a quarterly and region basis and is often referred to as progressive purchasing.
The volume of electricity that your business uses is a significant consideration when determining your appropriate risk tolerances. The more electricity your business uses, the greater the financial risk.
If you are unsure about how to approach your electricity procurement or are interested in understanding more about risks associated with electricity purchasing, please contact us on 07 3232 1115 to speak with one of our Portfolio Managers.