Energy market experts at Utilitywise plc believe the mild winter has handed out some crucial lessons to the industry about the benefits of corporate clients not getting locked in to prices too early. Market prices are near long-term lows despite troubles in Ukraine.
The energy trading team at EIC, bought by Utilitywise in 2013, trades in significant volumes – 3.7TWh for power and 3.2TWh for gas – and while rivals hedged early in autumn 2013, EIC has saved its clients £10m since October by not panicking and hedging too early.
Head of risk management, Jon Ferris, said EIC had a record of purchasing energy at significantly lower prices than the Big Six energy companies. Over the past three years, EIC has bought at an average of £49.53MWh while the ‘big six’ bought at around £61.40MWh.
“The UK’s gas supplies can comfortably cope with a mild winter, which is what we have experienced, albeit a very wet one. The high prices from last year’s cold snap had already been priced in, so we believed it would be better to wait.
“We have had a very successful winter on our clients’ behalf as a result of not purchasing too early. The mild weather has meant prices have fallen and that has benefited us.
“The difference between our policy and some other industry figures was highlighted at a MEUC conference in October 2013. It became clear there that they preferred to hedge early while we were happier to wait – and we feel that has paid off.
“Long-term weather forecasts are not that reliable, so hedging early can hamper purchasing strategies. It is our policy not to attempt to pre-empt how a volatile market is going to be priced.
“We have taken advantage of lower prices towards the end of winter to reduce our clients’ exposure to volatile markets. Even following the events in Ukraine, prices for the remainder of winter, and summer remain low compared to much of the last two years,” he said.
“Where people have made gains over the past few months, perhaps now is the time to start locking those gains in.”