What Is Your Covid Energy Strategy? – TMT

Video Transcript

So you’re an energy buyer, and you know the market’s at 20-year lows. What can you do with this information?

Determine Your Priority

An important first step is determining your priority. Prior to Covid, we were hearing more from clients about energy strategy, risk tolerance, and budget.

But it seems like overnight we’ve really shifted to a PnL economy, especially for those industries that Sam highlighted as the ones who are hurting. They’re after absolute dollars savings.

So the first step is to determine which bucket you’re in: Cost Savings or Budget Stability. Or maybe you’re in a hybrid, and you want to look at options for both.

If Your Goal Is Cost Savings…

As Mike mentioned earlier, we’re in 20-year lows for both electricity and natural gas. If you’re in that absolute dollars savings bucket, there are different options and energy strategies that we can employ.

Option 1: Sweet Spot

The first is called a sweet spot. Typically, people look at 12- , 24- , and 36-month terms, something that’s structured around a year. But now, we’re seeing a lot of popularity around sweet spot pricing. So maybe a 15- 27-, or 33-month term gleans the lowest rate instead of the typical one, two, or three year terms.

Option 2: Blend and Extend

The second option is blend and extend. Let’s say you have less than a year left on your agreement. Under that scenario, you would engage with your current supplier and, for example, in exchange for adding two years onto your  agreement they’d open up the months left on your current term and lower the cost for you. That provides some immediate rate relief.

Option 3: Strike Price

The third option is strike price. For example, maybe the market’s at 5 cents for electricity, but you really want a rate that’s 4.8 cents. You can ask for an alert to be more aggressive on pricing. If we ever hit that 4.8, we get an immediate notification, and you’re able to take advantage of a volatile day in pricing.

If Your Goal Is Budget Stability…

For those that are still thinking long term and still thinking strategically, you might want to look at longer-term agreements, such as four or five years. We’ve definitely seen a long-term trajectory for clients that are still healthy.

That’s going to depend on credit and a willingness to go that long, but we’re certainly seeing an appetite for longer-term deals in light of where market prices are at.

 

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