Winter Market Opportunity: Is there one?
Municipal Program Director
Energy forwards are traded daily, and expectations often cause market fluctuation. For example, as far back as 2013, the New England states have seen tremendous rate hikes when the winter months arrive. Before 2013, the summer was considered ‘the peak.’ Still, over the years, the region continued to rely on Natural Gas for electricity generation while shutting down/decommissioning other less efficient sources, causing the peak season to shift. But what happens when expectations are wrong? Energy agreements are often purchased during the spring and fall – considered shoulder months when demand is not at its peak. When expectations fall short, opportunity comes up big.
Many energy managers reference the utility as a barometer for the market, but the key is to understand the forwards before making any decision. The three red arrows represent the spot markets during the last three winters. Suppose you purchased electricity in February 2020 or December 2020. In that case, you’d be in excellent shape today, but if you decided to wait and purchased in December 2021, believing there was “plenty” of time left before the contract expired, the options wouldn’t look nearly as appealing. This is why always it’s critical to know your options. Sometimes the winter months are a terrible time to buy, but other years have shown that Spring, Summer, and Fall wound up being the worst time to make a purchase. The point is, as energy managers, we need to be looking all the time. Talk with your energy consultant, ask questions, request they run renewal options every month and when the market hits a dip, run a full RFP.
The last eight months have proven energy rates can and will spike without warning. Inflation – spike! Increased demand – spike! Freezing winter expected – spike! If your agreement expires in 2022 and you haven’t executed a new one, an opportunity to sustain costs over the coming years was missed. We know how assumptions tend to turn out; stop assuming and start knowing.
We’re not fortune-tellers, but we did advise all our clients to look at renewal rates as the country began emerging from the pandemic in early 2021 and continue to monitor the markets closely.