An electricity hedge contract is a contract between two parties who each have an exposure to electricity spot prices: typically one buys at spot prices and one sells at spot prices. By entering into the hedge, both parties reduce their net exposure to volatile spot prices. Typical examples include a retailer that hedges with a generator, or a large consumer that hedges with a retailer or generator. Financial intermediaries also participate in our electricity hedge markets.
The electricity hedge market has grown rapidly in scope in the last few years, but the majority of hedges in the market are still contracts for differences (CFDs) that are cash-settled each month based on differences between spot prices and the hedge's fixed hedge price, using a fixed notional volume. Hedging is a more advanced strategy than, for example, contracting for all supply at fixed prices (as most consumers do) and offers advantages including greater flexibility and better pricing in many cases.
HedgeSafe Total Hedge Service
We take you through the entire hedging process starting with an initial evaluation, then preparing to hedge, buying or selling hedges, and managing your hedge portfolio and exposure to spot prices. Energy Link also runs a one day course on Hedging Electricity »
HedgeSafe is a comprehensive suite of electricity hedging services, built on our market knowledge and out expertise accumulating over 20+ years.
Strategic Hedging Decisions
Good risk management depends on a strong framework to guide hedge portfolio management. HedgeSafe analyses your total hedging requirement to develop the hedging strategy you need to monitor performance and limit risk exposure.
Preparing to Hedge
There are a few regulatory requirements you must meet before you can enter into hedge contracts. We check that you can meet these requirements and help get you set up with the relevant documentation. We also give you guidance about the credit requirements commonly associated with hedging.
Portfolio Recommendations and Review
Hedging strategy should be flexible enough to cope with changes in your operations and risk exposure, along with the volatility in the wholesale and retail electricity markets. HedgeSafe monitors the spot and hedge markets, forecasts wholesale price movements and tracks your consumption or generation to keep your hedging strategy up to date and your hedge portfolio in balance with operational requirements.
Buying and Selling Hedges
Striking the best hedge contracts requires careful preparation and robust analysis. HedgeSafe takes you through every step of the hedge trading process from generation or consumption profiling, through financial risk analysis, the assessment of hedges you look to buy or sell, going to market on your behalf, and post-deal verification.
Hedge and Risk Monitoring
Even a portfolio of just one hedge needs to be monitored for effectiveness, cash flow and fit to requirement. With HedgeSafe we monitor your hedges, reviewing their performance each month, ensuring you are billed correctly and that costs are allocated to the correct budget lines. Routine position reporting keeps you informed of your risk exposure, allowing you to adjust your hedge strategy and balance your hedge portfolio.