Energy Risk Management
Measure and Manage Energy Risk
Energy prices in a deregulated environment move daily, creating price risk. Find out more about the tools needed to manage volatile prices.
Ameresco’s award winning energy risk management services are tailored to each client and a decision risk strategy is selected through discussions and a thorough evaluation of your risk appetite and performance measures. The portfolio is then managed by professional energy risk managers within a robust compliance framework of policies, procedures and controls. The objective of our service is to provide long term management decision making support to meet the financial, commercial and managerial needs of your organisation.
The UK energy markets are liquid markets where a business has good access to energy risk pricing information and display “efficient” behaviour, with prices “fully reflecting” available information. Risk management governance policy, i.e. the allocation decisions made by risk managers, dominates short-term strategy in such markets, accounting for over 90% of the variation seen in total returns. This suggests that good long- term decision making processes are crucial for effective energy risk management.
Balanced Energy Risk Management
Ameresco manages procurement activities for clients through a Balanced Energy Risk Management methodology. This is carried out as follows:
1. Select the optimal supply contract mix:
Ameresco’s proprietary energy risk management process creates a supply mix based on the client’s energy portfolio, selecting from fixed contracts, flexible contracts, power purchase agreements, financial instruments, load management and self-generation. The options open to clients will depend on size, with bespoke long term contracts only available to larger customers or those willing to enter basket/aggregation arrangements. The weights between options are set so that the expected value and the level of financial energy risk that each selection contributes to the overall performance are similar. Ameresco’s professional energy risk management team then actively optimises the portfolio in different market conditions.
2. Focus on long term performance:
Ameresco’s energy risk management team makes composite purchases of energy using the different options and instruments making up the portfolio when energy is trading at an attractive levels relative to other options. For example, when prices are low a large proportion of energy will be fixed. When prices are high, the exposure will be kept to a minimum. If expectations are of sustained future energy price increases, a bespoke long term bilateral agreement with generators may be attractive.
Energy prices have occasionally fallen to levels that represent good long term value, and Ameresco may recommend a commercial decision to take a long term position and crystallise the benefit. These events are infrequent but often critical. For example, in the run up to the 2008 financial crisis, energy prices were low and stable for a period of time when long term purchases could be made. Ameresco’s decision to conclude many long term positions avoided the high costs that resulted from open positions during that period, delivering high savings to clients.