Understand what you are paying
Over the top of the spot market, the ASX Futures predicts were the market is going. That’s very closely aligned to the fixed rate offers that come out of most retailers (not including their margin). This means businesses are paying for the possibility of changes in the market rather than when it really happens. Those who took advantage of the spot market, like those using our Ceiling Power Tool, can see in the graph below how they came out on top.
Coming out on top with spot
* Includes 16% retailer fees source www.aer.gov.au
Getting price certainty
Businesses need certainty so they can plan. That’s why there are Power Tools to make sure you get just the right amount of risk and as much reward as possible
Let’s run through them.
Locking in your price with a Swap
When your business needs to know what you are going to pay for the coming period, you can lock in a Swap. Think of it as a block of power that you power your business with.
A swap is a contract of difference that allows you to trade the half-hourly spot price for a pre-arranged rate. Swaps give a business price certainty and allow for greater risk management. Sometimes, you might want to take out an option to take out a swap in the future. This is a swaption and gives you the flexibility to decide whether or not it’s right for your business.
Certainty with a strike price
When you are ready to get more involved in the mark, caps will ensure that you’re always benefiting from the lows – but it will also mean that you don’t pay more that the strike price (set at 30c/kWh).
Buying spot with an upper limit
Every business is different and each one has their own threshold for maximum price. ARO’s work similarly to caps. The strike price is a dollar figure set at a percentage above the futures price- usually 20%. It’s an automatic calculation determined by an average contract period, rather than intervals.
Long term certainty with a low-price tag
Whether the solar power is generated at your site or through an offsite agreement – both deliver lower power costs. If you owned a business in Vic and had signed a renewable PPA, you could have saved up to 50% across Q1 of this year.
The time has come for energy to move beyond the procurement team and onto the Finance Manager’s desk.
On May 22, 2018 our experts discussed the financial hedges that deliver set pricing outcomes for businesses in a webinar. Watch it here