Having trouble setting your risk strategy?
December 22nd 2009 Creating an energy risk management strategy and purchasing process that works in a volatile market is not as complex as you might think. The problem most companies struggle with is how to deal with conflicting objectives within their organisation.
Finance teams are normally trying to achieve cost certainty yet the purchasing team are heavily focused on delivering savings in the same budget period, add to this a CEO who will lambast with perfect hindsight whichever of these failed and you begin to understand why some organisations struggle.
The problem of course is that no one is very good at understanding whether today’s energy price is good or bad. Most companies rationalise it in the context of what has happened previously and then try and take decisions to achieve a more favourable outcome – but depending on how each department views the problem the outcome is rarely consistent.
Right now consumers are looking favourably at £40 to £60MWh power prices for the next few years because £130MWh is still very fresh in their minds – yet just two years ago when they had the opportunity to buy at prices lower than £45MWh, they wouldn’t because they had seen it as low as £27MWh.
A risk management partner who will help you to understand the value of the risks you are currently taking before distilling this into a sum of money (capital allocation) your business is more comfortable with is key. Once this initial step is complete you can utilise the flexibility of your supply agreement to keep you consistent with your objectives however they evolve.
Encore’s clients typically manage their spend three years forward on a rolling basis but review with us the amount of capital (risk limit) they allocate each year to manage the problem on a monthly basis ensuring they remain in step with their business goals.
Over 160 blue chip organisations manage their energy this way with Encore (about 10% of the UK industrial and commercial market) and every one of them has ultimate control of their position – consumer decisions are never basketed.
This way you can be sure that your strategy really is your strategy and that however volatile the markets become you know it will deliver what you ask for. More articles from Encore Internation: | 
