Hedging - What? and Why?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.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 that are cash settled each month based on differences between spot prices and the hedge's fixed hedge price, using a fixed 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. Energy Link runs a one day course on Hedging Electricity »
HedgeSafe: the Total Hedge Service
HedgeSafe is our comprehensive suite of electricity hedging services, covering everything from the sourcing of a single hedge to the development of corporate risk management policy. Together the HedgeSafe components interlock to provide total hedge management in a framework for electricity price risk management.
The HedgeSafe management framework
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.
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 external markets, forecasts wholesale price movements and tracks your consumption to keep your hedging strategy up to date and your hedge portfolio in balance with operational requirements and your other fixed price contracts.
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, to the assessment of hedges you look to buy or sell, and post-deal verification.
Hedge Performance Monitoring
Even a portfolio of just one hedge needs to be continuously monitored for effectiveness, cash flow and fit to requirement. With HedgeSafe we monitor your hedges, reviewing their performance right down to the half hour trading period, 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 portfolio.