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Is the spot safer?

image credit: Spot's annual average is very close to firm available prices
Rafael Herzberg's picture
Consultant energy affairs Self employed

Rafael Herzberg- is an independent energy consultant, self-employed (since 2018) based in São Paulo, Brazil* Focus on C level, VPs and upper managers associated to energy related info, analysis...

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  • Apr 7, 2020
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Is the spot safer?

Since the beginning of the free power markets in Brazil, contracting a fixed price is the preference. The justification is centered on predictability.

However, fixed prices are associated with a contracted volume. So there is a risk of a "leftover" or a "missing" volume in each month (consumed vs. contracted volume).

In pandemic times this risk has become a certainty as for most deregulated energy consumers, they will bear a significant loss because they will combine a large "leftover" in volume with a very low price for its sale.

The alternative for those who want to prevent this situation is contracting on the spot. Then the risk at stake is "just" the price but the volume will always be what is needed!

For a part of my consulting clients I developed a portfolio with a fixed volume part at a fixed price and another at the "spot". So they respond very well to situations of low activity.

Does it makes sense?

Yes! The average of the annual spot is historically very close to the value practiced by the market for long-term fixed prices.

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Thank Rafael for the Post!
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