What is the difference between fixed-priced and hedging energy procurement strategies?25 October 2022
When comparing energy procurement strategies, finding the best fit for you can take time and effort. Each approach has pros and cons, and these energy enthusiasts discuss them in further detail. Ultimately, the best decision depends on your personal preferences and circumstances, but you need to know the specifics between these two strategies to make an informed decision.
Alan Duncan, Founder of Solar Panels Network USA.
Each strategy entails price risk; depends on your risk tolerance
The main difference between fixed-priced and hedging energy procurement is the price risk that each strategy entails. With fixed-priced energy procurement, you lock in a price for your energy needs for a set period. This means that no matter what happens to energy prices in the market, you’ll always pay the same amount for your energy.
Hedging energy procurement, on the other hand, involves taking on some price risk in order to get a lower overall price for your energy needs. With hedging, you’re essentially betting that energy prices will go down during the period of your contract. If energy prices do go down, you’ll save money on your energy costs. However, if energy prices go up, you’ll end up paying more than you would have with a fixed-priced contract.
So, which strategy is best for you? It really depends on your risk tolerance and your overall energy needs. If you’re willing to take on some price risk to get a lower overall price for your energy, then hedging may be the right strategy for you. However, if you’re not comfortable with taking on any price risk, then a fixed-priced contract may be the better option.
This is a crowdsourced article. Contributors’ statements do not necessarily reflect the opinion of this website, other people, businesses, or other contributors.
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