Managing energy spend in a volatile market

With energy market volatility likely to continue, when you agree your contract rates can make a significant difference to your costs.

Shell Energy’s STEP (Strategically Timed Energy Procurement) Online product is designed to help larger businesses (those using more than 5,000 hours per year, in at least one state) manage timing risk and their exposure to market volatility.

Instead of agreeing to all prices up front at the time of contracting, STEP Online allows customers to choose prices for parcels as small as 5% on a quarterly or annual basis.

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

A customer who agrees to a traditional fixed-price contract will have contract rates in line with electricity market price forecasts at the time of contracting. Whether market price forecasts are high or low at that time will determine the prices for the term of the agreement.

A STEP Online customer can progressively agree prices for parcels of energy or selected environmental products during the contract term, resulting in an average price over the contract period (depending on when prices for parcels are agreed).

If a customer thinks the market will remain volatile, this averaging approach may be appropriate. That said, predicting market price trends is notoriously difficult.

In a situation where a customer believes market prices will increase or they simply want budget certainty for the entire contract term, they may prefer to lock in all contract rates at once with a fixed-price contract.

With STEP Online, customers can agree their electricity pricing progressively during the term of their contract. Budget certainty can still be achieved by agreeing prices for all parcels in advance (for example, agreeing prices for all parcels in calendar year 2021 by the end of Q3 2020).

The benefits of this flexibility are most obvious in a multi-year STEP contract because it allows the customer to adapt their approach per year according to their view of the market. Regardless of the pricing approach, Shell Energy contracts do not have a volume tolerance mechanism on contracted sites. This means there is no impact on the price you pay if you consume more or less energy than you expect you will.

For more information on whether STEP Online is right for your business, click here or talk to your account manager.