EnerConnex Q & A with energy experts, Brian Dafferner and Tom Dufraine.
Hear the latest on energy markets from EnerConnex’s Managing Director, Brian Dafferner, and Senior Account Executive, Tom Dufraine.
Given market conditions, how would you advise a customer today?
BD: It is important to understand where we are in any given market cycle. Each state is different as it relates to supply/demand, generation mix, and regulatory structure. On a macro level, natural gas (Henry Hub) is a good indicator. Natural gas prices have more than doubled over the last 12 months due to rising demand, increased exports, and depleting storage levels below the 5-year average. This has helped push power prices significantly higher in most markets. This has also created backwardation in the forward curves – pushing shorter term pricing higher while longer term prices remain lower. One important thing to note is that the current price environment remains low relative to the historical all-time low points in each market. There may or may not be savings opportunities, however, now is generally a good time to consider a longer-term hedging strategy.
TD: If customers are coming in higher than the utility default rate, I recommend that they move back to the utility for a short period of time while I carefully monitor the market for buying opportunities. I’ve only been experiencing this with smaller customers.
Backwardation in the market seems to be narrowing, however there are still opportunities for contracts starting well into the future beyond 2024. For those customers that have long-term contracts, we are testing the markets to see if there are opportunities to extend beyond 2024, especially if rates are coming in around what they are currently paying to establish budget certainty well into the future. I am running pricing through incumbents to determine if this is the best strategy rather than guessing.
For those customers that have contracts up for renewal this year or early next, I am recommending shorter terms of 12,18, or 24 months which is a shift from my longer-term recommendations of 36 and 48-month terms back in 2020. My philosophy is to go short in high markets and long in low markets.
What factors do you consider?
BD: Customer tolerance for risk, market volatility, where we are in the market cycle, forward price curves, market sentiment, customer contract expiration date.
TD: Weather, changes in regulatory costs, customers growth strategies, inflation, timing of contract renewals, customer sustainability goals.
How is weather playing a part in your decision making?
BD: I typically do not focus on weather as it is a short-term market driver. Extreme weather conditions typically push prices higher while increasing volatility. In these situations, it usually makes more sense to avoid making decisions during these periods while allowing the market to recalibrate.
TD: Economic and regulatory changes play a large part in decision making these days. However, we are keeping a close eye to see how Hurricane Season fares and will play a role in markets over the next 6 months. Lastly, in terms of renewables, weather has definitely played a role in my recommendations as we have seen the cost of REC’s increase significantly over the last year, since the deep Texas freeze. Previously we could fold in at least 10% green at no premium, now all percentages of green seem to come with a higher price tag.
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