Energy suppliers are under pressure at the moment, as they will be faced with customers who need a payment holiday. Small suppliers with equally small balance sheets may hit problems first. But a briefing by consultant Aurora yesterday suggested some small suppliers may see upside from a previously risky trading strategy.
Large suppliers have hedged – contracted for proportions of their gas and power demand up to two years in advance, trying to lock in low prices. But the price of gas has collapsed, thanks to oversupply and plummeting demand, bringing the price of power down with it. Suppliers who hedged are paying over the (new) odds and face credit and collateral issues.
Some suppliers are not hedged, but buy on the day-ahead market – normally a risky strategy that has caused failures in some companies who could not cover an unexpected price spike. Now those suppliers – often the smallest – can take maximum advantage of the low prices.
That could help small suppliers ride out the current storm. Which will win and which will lose? Either way, for suppliers who go out of business, under the ‘supplier of last resort’ process the rest of the industry – for which read customers – will carry the costs.
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