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Energy Price Optimization: Discover the Performance Contract
The energy markets can be incredibly volatile. In just a few days, the wholesale price of energy can increase or decrease by several euros per MWh.
As a result, the cost of your supply is also volatile and difficult to predict. This is especially true for electricity, as the volumes of ARENH, which used to cap the price of part of your supply, are becoming increasingly limited.
Prix de règlement CAL A+1
As an energy consumer, you can enter into a supply contract that allows you to fix the price of your energy on multiple dates. This is generally referred to as a 'click contract'. Under such a contract, and before the start of its supply period, the consumer will have the opportunity to use several market price references to calculate their supply price. They will be able to react more quickly to price movements than with a fixed-price contract (no consultation phase, signing, etc.), and smooth out their supply costs.
The conclusion of a click contract therefore allows a consumer to more easily choose moments when market prices are relatively low, or at least avoid fully fixing their price during periods of the highest prices.
Performance of a supply strategy, cost, and uncertainty
How can the performance and risks of a supply strategy be measured? The simplest way is to compare ex-post, for each supply period, the energy price derived from the clicks (the average of the fixing prices weighted by the volume set during the clicks) with a 'benchmark' price.
We can particularly use as a benchmark the arithmetic average of EEX settlement prices over the duration of your coverage period. For example, for a click contract concluded at the beginning of 2020 for supply in 2021, the coverage period would be 1 year if clicking on calendar contracts, and between 1 year and 21 months if clicking on quarterly contracts (the same reasoning applies to monthly contracts).
The gain from a strategy is simply the difference between the benchmark and the average price from the clicks. If the price obtained is always higher than the benchmark value over several supply periods and the gain is negative (in other words, it's a loss), there is likely something wrong with the strategy. If it's lower and the gain is positive, it means the strategy has some level of performance
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Prix de règlement CAL A+1
It is therefore relatively simple to estimate the performance of a supply strategy ex-post. However, this exercise is difficult to carry out ex-ante. You do not necessarily know what results your strategy will yield in a constantly evolving market.
Moreover, it is important to consider that these results will be inherently variable. Indeed, the spread of prices around their average varies from contract to contract. If the spread is small, there is not much risk of making a mistake, as you will be close to the benchmark anyway. However, your gains will be very limited, and the resources used to monitor the market may end up being superfluous.
It’s also important to remember that implementing a supply strategy comes with significant costs. If you do it in-house, you will face numerous expenses, including qualified personnel, but also the purchase of market data, analyses, etc. If you outsource it, you can imagine that the consultants’ hourly rates are not negligible either. In any case, this cost is fixed, while the gains from your strategy are uncertain and variable.
Augmented Energy’s Solution: The Performance Contract
Augmented Energy offers large consumers its unique expertise in managing their energy supply. Price opportunities in the markets are identified by our portfolio managers, all of whom have extensive experience in energy trading on European markets. We also manage the entire relationship with your suppliers (e.g., sending the clicks) as well as tracking the strategy and its performance.
Our innovation is that, unlike a consultancy firm, Augmented Energy is not compensated based on the time spent optimizing your supply, but rather on the actual gains achieved.
The Augmented Energy performance contract guarantees that the cost of your supply strategy never exceeds your gains:
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If we generate gains for you, we take a share;
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If we do not generate gains, you owe us nothing.
This way, you do not face the uncertainties related to a lack of market opportunities, while ensuring that Augmented Energy is fully incentivized to maximize the performance of your supply.
How does this work in practice? To assess Augmented Energy’s performance, we agree ex-ante on the benchmark value to be used. We also consider the coverage period, the parameters of your contract, and your risk policy in managing your supply.
Then, at the end of each coverage period, we calculate the difference between the price obtained and the benchmark value to assess the gains realized and thus the compensation owed to Augmented Energy.
Is this solution applicable to actors other than consumers? Yes, if you are an energy producer or supplier, we can also offer a similar service to optimize the price of your energy.
For more informations, contact us at : sales@augmented.energy