What is an ARO and how does it work?
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 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.
How do I secure an ARO?
Based on custom recommendations from Flow Power, you can choose your price limit on your ARO.
You pay for a small premium when the ARO is activated, but it gives you a level of certainty that’s worth it.
ARO in action
In an example from Q1 of CY18, the fixed rate price from the market is $104 /MWh. An ARO can be purchased at a strike price slightly higher than this – around $124.80 /MWh (120% of the market price).
You’ll never pay more than the strike price – but if spot prices are lower than a comparable fixed rate price, you benefit from the lower spot prices.
Where do I find information on my spend?
When receiving your power bill each month, there will be a section featuring your ARO charges for the quarter.
Want to know more?
If you’d like the benefits of buying wholesale and comfort around avoiding high prices, speak to one of our power specialists today about how AROs or how any other power tools can work for your business.