Energy commodities (natural gas, electricity, oil, etc.) form a financial market. Each commodity has forward contracts for deliveries which can be for one particular month years into the future. In deregulated markets, the benefit of these forward contracts to an energy purchaser is that you have the opportunity to monitor these forward prices for when they are favorable. This gives you some control over your budget instead of just being a price-taker.
Importantly, to play in the energy market, you need to pick good partners. Banks are often the other side of commodity contract purchases. And your supplier's credit rating directly impacts their cost of money, and thus the premium they must buy these contracts at.
Hospital Energy is continually monitoring the market, advising our clients on where the market has been and where it might be heading. We use sophisticated statistical models to show the amount of risk a client is exposed to, quantifying (at 90% confidence intervals) how much the price could rise or fall.
We also help customers identify attractive prices for extension well before their current supplier agreement ends. A long time horizon equips an energy buyer to take advantage of market drops.
FORWARD PRICES MOVE UP AND DOWN
Even as the near term prices are high, there can be savings to be had in the longer terms. In 2014 and 2015, some zones saw winter pricing spike above historic averages. Prices fell, and in 2017, winter prices were much lower. Still, Hospital Energy was able to identify savings for a group of health care facilities in 2017, 2018, and 2019. Read our case study to learn more.
HISTORIC COMPARISON OF PRICES
Energy pricing is volatile, with boom and bust cycles that defy prediction. Often, having an understanding of where prices are, where they have been, and where they might go is the best you can do. Decision making with incomplete information can be difficult, but a risk management strategy is the best way to deal with this uncertainty. Layering hedges is a good way to lower prices and lower your volatility. You can read more about procurement strategies and how they can impact the price your facility pays over time.