Changing energy market means generators must evolve hedging strategies

A new energy landscape is rapidly evolving in the UK. Following the launch of our 'Power Shift' report, Iain Robertson, Vice President of Renewables, discusses the challenges and opportunities for independent generators.

The generation system which has been long-dominated by large-scale fossil fuel plants is being replaced by a decentralised, cleaner and smarter one. This huge shift has seen thousands of new renewable energy projects come on stream in recent years.

But making smaller generation projects stack up financially has become increasingly challenging as subsidies are cut, additional income streams come under threat and markets see ever-greater volatility.

Against that backdrop, the largest challenge many generators still face is when to sell their output and for what term.

A snapshot of recent prices shows just how challenging this decision-making can be. Over the past couple of years, baseload power prices for Winter 2017 have been as low as £35/MWh and as high as £51/MWh, while Summer 2018 prices have ranged from £29/MWh to £47/MWh.

In light of this variability, a passive approach to selling electricity is no longer advisable.

The traditional ‘once-a-year’ price fix means being exposed to the market at the point of fixing rather than benefiting from any market price developments during previous periods.

Analysis carried out by SmartestEnergy over the past three years, a period during which the market has seen high levels of price variability, demonstrates that a more active and longer-term approach could deliver generators higher revenues – as much as 8.3%.

However, taking a more active approach can be a challenge.

A recent survey we carried out highlighted that 87% of generators find it difficult to decide when to hedge and 85% would require additional support to sell their power more actively.

More detail on our analysis and survey results can be found in our latest report, Power Shift: Mitigating risk and becoming more active in a changing energy market – available to download here.

The report also looks at our new ManagedPPA product, developed in response to the pressures facing independent generators.

This industry-first trigger-based PPA enables generators to access to the traded power market without the resource requirement to monitoring the market themselves.

We believe that by helping our customers become more active, we can help the sector continue on its growth trajectory.

We hope this report and our ManagedPPA product will help generators adapt to the new market conditions we all face.

> Download the Power Shift report here
> Watch a short video about how ManagedPPA works here