There are many options for purchasing energy. The pros and cons of each option must be examined thoroughly before developing a detailed energy purchasing plan. Here are some factors to consider before choosing a strategy:
- What percent should be hedged initially? …in subsequent hedges?
- What are the parameters that will trigger additional hedges?
- Should the same strategy be employed for both natural gas and electricity?
- Should electricity hedging be done on regular kW blocks, or on load-following blocks?
- Which non-energy components should be hedged, and under what conditions?
- Should the same strategy be employed across facilities in multiple states, or should there be local and regional differences?
- There are many ways to hedge, and an ideal strategy may include several types of layers (strips), as each one provides unique benefits. Here are some examples of possible hedging layers (strips):
- Strips based on % of usage throughout the entire year
- Strips based on % of usage for specific months only
- Strips of On-Peak and Off-Peak vs. Around-the-Clock usage
Prospect Resources utilizes its proprietary analytic tools to craft and execute an effective and flexible strategy which mitigates risks, reduces volatility, increases budget certainty and stability and significantly reduces overall energy expenditures.
Buying 100% of your energy needs at once is a risky and capricious bet on a particular price and day. Such a bet eliminates your flexibility to take advantage of future market opportunities. Based on the last 10 years of market analysis, it is a very costly proposition.