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Improving Cost Control in a Volatile Market

Published Date

Progressive Purchasing has a Key Advantage Over Fixed-Price Contracts: Speed

Market volatility increased significantly since the start of March as the market assessed the potential impact of the blockade of Strait of Hormuz. As a result, electricity futures prices have increased between 1% (H2-2028 in Victoria) and 20% (Q3-26 in New South Wales), with a clear distinction between states and timeframes.

As mentioned in our focus on progressive purchasing as an electricity cost management tool in January, it enables the ability to respond quickly to market opportunities and actively manage electricity cost risk. In addition, a key benefit in the current market is that it enables easy differentiation in price risk management tactics between states and time periods. 

In comparison, a more traditional market engagement through a fixed price tender tends to take anywhere between two and six weeks and any differentiation on contract terms between states increases cost and effort due to required additional market engagements. Progressive purchasing allows electricity prices to be fixed within days allowing buyers to respond quickly to market opportunities and risks.

The SE Advisory Services energy markets team has provided ongoing management advice utilising progressive purchasing contracts for over a decade and today helps manage around 10 percent of Australia’s Commercial & Industrial consumption in the National Electricity Market. While past performance is not a reliable indicator of future performance, since 2020 our energy markets team has achieved an average hedge price below the average market price by 10.7 percent, 12.9 percent and 13.86 percent annually in New South Wales, Victoria and Queensland respectively.

Complimenting progressive purchasing are other cost control opportunities. Key examples are targeted optimisation reviews, invoice validation, network tariff reviews, demand charge assessments, power factor assessments, and energy metering & monitoring (previously discussed here).

We will explore these cost-control actions in greater detail in an upcoming article; in the meantime, please reach out to your Client Manager for an immediate discussion.

You can also contact our expert Gareth Simpson to set up a progressive purchasing strategy tailored to your consumption.