A large portion of electricity generation comes from natural gas, making it one of the most vital resources within the energy industry. When natural gas prices go up, so do electricity prices. Over the last year, natural gas prices within the United States have increased by 200%. Navigating an ever-changing market is already difficult for energy brokers, but these conditions make it even more complicated to conduct successful energy management. Offering lower rates sets you apart from the competition and helps you grow your business. When that is not possible, energy brokers can sell a potential customer based on future benefits.
What Is Market Volatility
Volatility is a term used to describe how drastically prices are changing within an industry. For energy, market volatility is the price of electricity or natural gas compared to consumer demand. Prices will fluctuate based on supply and demand. With greater supply, the lower the price. With limited supply, the higher the price. Similarly, demand will have the same effect on prices as supply. Volatility is not fun for anyone involved, but it is a normal aspect of the industry. Brokers must determine how to utilize energy management to help their clients during market volatility.
Why Does It Happen
There are many different factors that can affect market volatility. Weather is one of the most consistent factors that can disrupt supply, driving prices up and creating volatility. Temperatures are known to fluctuate and if they are extreme, can greatly affect prices.
Economic conditions can also affect the energy market. For growing economies, the demand for energy will be greater, driving up costs. Advancing infrastructure requires more energy to operate. Meanwhile, if an economy is not as advanced and does not require as much energy to function, it will have reduced demand and lower costs.
The cheapest form of energy generation is found in coal and natural gas. Whenever there are shortages in these fossil fuels, other forms of energy generation will need to be utilized. This creates higher prices until the supply of coal or natural gas increases again.
How To Sell Through It
Energy suppliers trade in physical and financial markets. Cash transactions that trade physical commodities to be used, stored or resold are known as physical markets. While this method may be preferred, it is difficult to operate during market volatility. However, financial markets are an ideal option. These are digital contracts that represent a future sale or purchase. Both parties have opposite transaction goals. The supplier wants to sell their commodity when the price is high so they can make more profit. Meanwhile, your customers will want to purchase energy when it is cheap or a great deal. Finding a middle ground happens when both parties agree to a future market. A future market is when a supplier and consumer agree to a set price over a specified period of time.
Providing customers with a future contract option is a great way to continue to grow your business during market volatility. To figure how much your customer will be paying, you would average the prices for each month of the contract. You can help customers avoid paying large sums during cold winter months by starting a contract in the spring.
With energy prices predicted to continue to increase throughout the upcoming cold months, negotiating a fixed-price contract for your customers may be beneficial. When discussing this option with them, be sure to evaluate the risks and rewards associated with signing a fixed-rate contract. Locking in a fixed rate during the cold months can offer price protection instead of riding out the winter and hoping for the best. Evaluating how the utility price will change in the winter and compare to fixed rates is an essential step when presenting the option to customers. There is a chance that fixed prices could be higher than the utility price, but it could save the customers money in case of a drastic price shift during the colder months. Ultimately, the decision may boil down to providing your customers with peace of mind.
If your customer is not comfortable with a fixed rate, a hedge product may be a better option. This would allow your customer to lock in certain prices for a specific percentage of their energy and then leave the rest open to index market prices. This would be an ideal option for those who use a majority of their energy during certain times throughout the day. This would be an especially beneficial option when the majority of their energy is used during off-peak hours when market volatility is less. This would protect their price of energy during their highest time of usage and then float the remaining time.
Identify Market Opportunities
The market is always shifting and may not be the same in every region. If your market rates are low, you could evaluate markets in other areas to see if any have increased recently. If so, tapping into that market would provide more opportunities to grow your client base and provide supplier fixed pricing.
Seasoned energy brokers can utilize their previous and existing clients to grow their businesses during market volatility. These shifts in the market provide you with an opportunity to evaluate their fixed-rate contracts and let them know how they are doing. Odds are, they are saving money since the market price for natural gas has significantly increased in the past months. Sharing good news with your customers will retain their business, further your relationships and could encourage them to refer you to their friends and family.
As the energy industry continues to navigate this season of uncertainty within the market, it is crucial for brokers to understand how to oversee energy management in a way that provides customers with the best deals. Knowing your options and if a fixed rate or hedge product would work for their specific needs can help you grow your business and credibility during uncertain times.
Sell More Energy No Matter the Market
Having access to management software that will help you expand into new markets, generate contracts and grant marketplace access would be a beneficial resource during market volatility. Schedule a demo of POWWR’s Broker 360 portal and see how it can help you navigate future shifts in energy prices!
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