Just like fixing sections of your home loan, you can customise your electricity usage with a hedge. Hedges give you even more control over your energy spend by allowing you to negotiate a fixed rate. With a range of options, this power tool can be used in combination with load management to create a smart, cost-efficient solution.
We can help you negotiate a hedge at Flow Power, you can contact a generator directly or contract through the ASX Energy Futures Market.
Here are the most common hedges available today.
Buy a Swap when the market is trending up and your business wants to avoid a high spot price. It’s a contract of difference that allows you to trade the half-hourly spot price for a pre-arranged rate. Swaps give you price certainty and allow for greater risk management.
Sometimes you might want to take out an option for a swap in the future. This is called a Swaption. This hedge gives you the option to buy a swap on a future date, but you’re not locked in: if the market moves, you have the flexibility to decide whether or not to use the Swap. A Swaption is perfect when you want to forecast further into the future.
Caps are fixed prices calculated in half-hour intervals. Lasting for one quarter, they kick in when the spot price exceeds the strike price, currently set at $300/MWh – around the same cost as running a generator. You’ll have to pay a small premium when the cap is activated, but it gives you more price certainty. Caps help customers limit the price they pay for their energy and benefit by responding to market signals.
Not found under a cartoon, but rather a rising market, a Caption allows you to buy or sell a cap at an agreed future price — and sell it back if you wish to. This hedge protects you from high prices, as well as allowing you to take advantage of low prices.
Average Rate Option
An Average Rate Option (ARO) is an automatic calculation determined by an average contract period, rather than intervals. It places a limit on the price the you pay for electricity – the protection is against average prices rather than single price events. With this option, you pay the average over the quarter based on the current trading rate – you’re billed your load weighted price, and at the end of the quarter, we’ll apply a credit to wash out any payments over the limit. This Option protects you from unexpected price strikes, but allows you to take advantage of lower market activity.