Navigating a volatile energy market with flexible contracting

Navigating a volatile energy market with flexible contracting

Australia’s energy markets are experiencing unprecedented volatility, with mainland east coast wholesale electricity prices increasing on average 234%¹ in the past six months in the National Electricity Market (NEM).

A perfect storm of energy events – extreme weather leading to increased demand at the same time as reducing renewable generation, unplanned outages at power plants and increased call on more expensive gas-fired peaking generation to fill the gap – has driven wholesale price volatility.

Households and businesses are starting to see price increases reflected in their electricity bills. For some businesses, rising costs are crippling.

Shell Energy is working hard to support our customers through this difficult period.

We offer a range of flexible contracting options that can help to ease the strain of unpredictable pricing.

While traditional fixed-price contracting locks in a price based on pricing at the time of the agreement, our flexible options like STEP² Online and STEP Index can make managing the more extreme swings of market volatility easier to navigate.

Progressive purchasing gives businesses the option of agreeing their electricity pricing during the term of their contract, spreading timing risk by locking in energy prices as you go.

Exactly when you agree to your contract price can make a significant difference to cost, so it is worthwhile considering the types of contracting available. Learn more about two of our most flexible options below.

STEP Online

Shell Energy’s STEP Online product is designed to help larger businesses (customers that use more than 2000 MWh per year in at least one state) manage timing risk and exposure to market volatility.

Instead of agreeing to prices upfront at the time of contracting, STEP Online allows customers to choose prices for parcels as small as 5 per cent of total volume for the purchase period on a quarterly or annual basis.

This gives businesses an opportunity to monitor market prices for electricity and environmental schemes to proactively manage timing risk.

Unlike a traditional fixed-price contract where you are locked in for the term at the prevailing market price, STEP Online customers can progressively agree prices for parcels of energy or selected environmental products during the contract term.

A multi-year STEP contract allows the customer to adapt their approach year by year according to their view of the market.

STEP Index

If you would like the benefit of progressive purchasing but are not able to actively monitor the market on a regular basis, STEP Index may be suitable.

STEP Index is a type of progressive purchasing that lets you spread timing risk by averaging energy prices over periods of time, helping to smooth out market highs and lows.

Eligible customers³ pay the simple average of forward-market prices for electricity and environmental certificates. STEP Index smooths out the market highs and lows by buying a small percentage of your requirement each day at the prevailing market price in the weeks and months leading up to your contract period, resulting in an average market price.

Regardless of the pricing approach, Shell Energy’s electricity contracts do not have consumption restrictions, meaning if your business changes over the contracted term and you use more or less electricity than you expected, you won’t be penalised with higher prices or fees.

We are here to help

Contracts like STEP Index and STEP Online may help your business manage market volatility. We understand that the options can feel overwhelming, and we are committed to helping our customers navigate this challenging time. Remember we are always happy to walk you through which contracting option is best for your business.

Talk to your account manager, explore the Shell Energy website, or talk to your energy advisor for more information.

STEP Index

Your electricity prices are the simple average of daily forward market prices calculated over a period of time to smooth out market highs and lows.

  • Suitable for large sites with interval meters that use over 500 megawatt hours (MWh) per annum per state
  • Ability to lock in pricing
  • Available in QLD, NSW, ACT, Vic, Tas, SA. WA environmental certificates only.
  • No load variation penalties
  • Site roll in/roll outs within an agreed tolerance
  • Monthly invoicing and early payment discounts
  • Complimentary Portal access with all standard reports, index position, current pricing and summary

STEP Online

Agree your electricity prices progressively over your contract period for more control over the electricity prices.

  • Suitable for large sites with interval meters, and that use over 5 gigawatt hours (GWh) per annum per state
  • Available in QLD, NSW, ACT, Vic, Tas, SA and WA
  • Site roll in/roll outs within an agreed tolerance
  • Monthly invoicing and early payment discounts
  • Complimentary Portal access with all standard reports, purchase position, STEP purchasing and summary

1Based on Shell Energy’s wholesale prices across Qld, NSW, Vic and SA from Dec 2021 – June 2022.

2Strategically Timed Energy Procurement

3Customer uses more than 500MWh per annum, per state.