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“Things can get tricky in the so-called shoulder months”
Temperatures are getting warmer as spring arrives and energy buyers, particularly those on flexible contracts, will be rubbing their hands in glee expecting lower prices as demand falls.
Unfortunately that’s not always the case. The UK energy market is now mature and reasonably well structured, and suppliers are clearly fully aware that demand ebbs and flows with the seasons. Therefore, a large number of maintenance and infrastructure checks take place during the summer months when demand is at its lowest.
This is often not an issue – the UK could easily deal with a major gas pipeline being taken offline in July or August, for instance. But things can get tricky in the periods that traders call the “shoulder months”. These are the times where it may be summer according to your desktop calendar, but the energy system can still be exposed to frost and even snowy conditions – usually April and to a lesser extent September.
During these shoulder months it is rarely recommended that clients take their exposure into the spot market. Spot prices can leap to unusually high levels as seasonal changes in supply begin to take effect. Historically, the UK has seen some of its highest energy prices in these periods.
The answer is probably to fix before the period in question, or at least have the option to hedge forward at a time of your choosing. Whereas it might be a good market call to hold off, or purchase fully your energy exposure at certain times of the year, April is often not the right time to do it.
Peter Pharoah, head of energy markets, ENER-G Procurement
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