Moving into the wholesale power market can be daunting for some. It’s a bit like buying shares, there are blue chip shares which have high confidence but minimal returns or there are higher risk shares which under the right conditions can reap the biggest rewards.
Depending on how your business operates and uses power to do so, certain hedges will be more effective. To understand which solution will work best, we recommend speaking to one of our experts.
Average Rate Option (ARO)
An ARO sets the maximum average spot price payable in any quarter, known as the strike price. It’s similar to a Cap, but the main difference is that you can set the price limit yourself, rather use than the fixed price of 30c/kWh – so you have more control over your spend. If the average price comes out higher than the strike price, you’ll only pay the strike price – and if the average is lower than the strike price, you’ll pay the lower price. Calculated in half-hour intervals, an ARO lasts for a quarter, and can be contracted up to eight calendar quarters in advance. Learn more
Set every quarter, the Ceiling gives you access to the market lows while setting a maximum average price you would pay to ensure you’ll never pay more than you need to. The base Ceiling is calculated at 120% of the market fixed rate and you are notified of what it is 10 business days before the start of the quarter. We set both peak and off-peak Ceilings to make sure you get the best rate possible 24/7. Learn more
Buy a Swap when the market is trending up to avoid a high spot price. It’s a contract of difference that allows you to trade the half-hourly spot price for a pre-arranged rate. Swaps give you price certainty and allow for greater risk management.
A Swaption gives you the option to buy a swap on a future date, but you’re not locked in: if the market moves, you have the flexibility to decide whether to use the Swap. A Swaption is perfect when you want to forecast further into the future.
Need more information?
With so many options available, we suggest talking to our experts to understand which hedging strategy will suit your business and how they would come into play.