Energy markets are governed by supply and demand laws and not the government. Energy supply and demand gets determined by an array of factors, so an attempt to predict energy prices are fruitless. Unpredictability and volatility, means you are always unsure about your decision of taking a position. However, wise energy investor will avert risks and exploit opportunities, which lie concealed in energy pricing curves.
There cannot be a forecast to constrain your exposure to the volatility of energy prices but preventive measures can be taken to avert the risk efficiently. ETRM or Energy Trading & Risk Management system are designed to manage energy asset as well as create commodity trading strategies. The program helps analysts to respond to operational limits and fluctuating demands.
Energy trade & risk management app offers businesses transparent view of complex energy portfolios along with their mark-to-market positions and price exposure [financial and physical in nature]. As positions or trades are subjected to price volatility, portfolio exposure needs to be managed via risk management process or hedging program. Entire lifecycle of a portfolio position needs to be managed.
Benefits of energy trading & risk management solution
- Manage volatile transmission expenses
- Monitor positions & exposures every hour
- Maintain real-time positions & their valuations
- Get familiar with the driving force of P&L changes with attribution
- Fulfil reporting requirements
How to take control of volatile energy trade market and turn threats into opportunities?
Some energy consumers don’t decide to fix because of unpredictable market environment. Their rates are pegged to future wholesale value or an average spot. Yet, getting determined with an intention to fix price can create value. With strategic goal, you can establish long term cost stability with active price management employing price fixation for some years into future can cause good results than taking just average prices.
Obviously, price cannot be beaten but applying simple techniques like not fixing a lot in single step and never fixing in falling market can help to obtain good results. However, you will need to monitor energy market actively and grab the opportune time to fix instead of during market peaks.
Start with market analysis, which tells you the real time behavior of the price and thus you can identify the opportune moment. Based on analysis create your own policy for unfixing, non-fixing or fixing the energy prices.
- Budget risk investor will get affected a lot by unexpected increase. They need to create a program, which fixes prices for several years into future and stabilize energy costs.
- Market risk investors will lose to their competitors if they fix and market collapses. So, they need to be more careful with fixation.
- Survival risk investors have risks on downside and upside, so they need to balance their long-term fixations carefully by staying closer to the market average.