Wholesale Market Complexities

Whilst markets were trading at record lows due to the covid-19 it was correct for businesses and consultants to take a long-term view and purchase a large majority of your energy volume to guarantee low prices for a set period.  What is more difficult is how you and your business approaches your next energy renewal contracts.

Whether your renewal be 2022 or 2025 it is likely you will be entering the market at a much higher price than your current contracts.   The below table summarises how prices are currently trading for the next five years.

What is likely to happen next?

More volatility in wholesale energy prices.  As we hopefully return to normality this summer, GDP will rise and with the vaccination rollout a third covid wave will likely be prevented. Energy demand is expected to continue to increase as we progress through Q3 and Q4 2021 and in to 2022.

Whilst prices are astronomically high when benchmarked against wholesale prices twelve months ago when business could secure long term electricity contracts below 4p/kWh and long-term gas contracts below 1p/kWh, prices beyond 2022 (especially gas prices) are attractive when benchmarked against historic wholesale prices.

As confidence in the economic recovery continues far dated contracts are continuing to rise steadily.

What now?

Flexibility within your approach to energy procurement is essential.  Twelve months ago, it made sense to either heavily hedge a flexible contract or switch to a fixed price contract to secure low rates and budget certainty. Products are available which prevent the risk of securing fixed price contracts at a market high including blend and extend and flexible purchasing contracts.

If your business consumes more than 1 million kWh of gas or electricity per annum a more bespoke, flexible purchasing strategy may be worth exploring in the current market climate.

For further details on current wholsesale prices and a free, no obligation discussion on your energy procurement strategy please contact hello@gleg.co.uk