Moving forward with market volatility

Following the pandemic and the return of many businesses to regular operations, tight supply and demand balances have resulted in significant market volatility. Mild weather in early 2023 has resulted in moderating prices and created an opportunity to re-evaluate energy supply strategies.

Many factors contribute to price volatility: geopolitical unrest, increased reliance on intermittent generation, and weather are three main drivers that have impacted recent and current supply and demand balances and volatility.

Compared to the high energy prices we saw for much of 2022, we are now seeing relatively lower prices. This is largely the result of a rebalancing of natural gas supply and demand which was accelerated by mild weather in January and February 2023.

While we are currently seeing lower gas and electricity prices, volatility has existed historically and will be prevalent going forward. Renewable energy, for example, is susceptible to unpredictable swings in output and can create temporary tightness in power markets. Extreme weather conditions and strong summers or winters can also create market tightness, as we experienced with Winter Storm Uri and more recently with Winter Storm Elliot. Temporary tightness such as these examples not only creates short term market volatility but can also elevate forward prices as markets respond to the risk from these occurrences.

In last year’s Market Volatility blog, we discussed how understanding market trends in a high-priced market allows our customers to take a more proactive approach and prepare for the future. This still rings true today. We must continue to leverage data and information to plan for the unexpected.

Managed products are still a popular option, and if you made the decision to contract a managed product last year when prices were high—and have open positions—this is a great opportunity to lock in blocks at a fixed price while prices are lower. By locking in a fixed price for a percentage of your load now and setting targets to monitor opportunities for future blocks, you can better mitigate risk and make the most of your energy strategy.

It's also good to keep in mind that the least expensive unit of energy is the one that you don’t use. Load management can help reduce energy spend if your organization can curtail or create energy efficiencies.

Despite complex market conditions, developing a proactive market approach will help you manage your energy costs. My team at NRG is here to help you navigate market volatility and find a customized energy approach that best suits your business needs.