Electricity and natural gas purchasing strategies

The Energy Market Agency S.A. offers a service to support the strategic procurement of electricity and natural gas, aimed at reducing energy supply costs incurred by customers. The offer is primarily directed at companies that purchase energy based on contracts linked to stock indices. As is known, energy prices on the exchanges change dynamically, so it is important to know how they may evolve in the future to be able to buy energy during periods of the lowest prices. Choosing the right time to purchase significantly affects the financial results of the company. Accurate forecasts of SPOT prices and futures contracts are needed for this. ARE S.A. offers its support in this area, as it has many years of experience in energy forecasting, a rich toolkit, and a team of experienced specialists.

Scope of the Offer

As part of the offer, ARE proposes to prepare recommendations regarding pricing strategy (included in a specially prepared Report), which will be optimal from the customer's cost perspective. The report will include:

1. A synthetic characterization of the electricity and/or natural gas market in Poland
2. An analysis of the customer's existing energy procurement strategy
3. An analysis of the customer's electricity and/or natural gas consumption
4. Recommendations regarding the optimal strategy for building the price of electricity and/or natural gas
5. Price forecasts for energy on TGE (SPOT prices and in futures contracts), taking into account risk analysis of price increases/decreases  

Methodology

The work will utilize a model of electricity prices that takes into account key factors influencing the level of RDN quotations:

1. The level of electricity demand in the National Power System
2. Expected load of individual generating units (coal-fired power plants WK/WB, gas-fired, biomass, biogas, hydro, wind, photovoltaic, professional electricity, industrial electricity, others)
3. Planned outages of generating units
4. Unplanned outages of generating units (based on historical analysis)
5. Electricity import-export capabilities and the situation in neighboring markets (taking into account transmission limitations)
6. Prices of primary fuels (coal, natural gas, biomass)
7. CO2 emission allowance prices
8. Other environmental costs
9. O&M costs (fixed and variable non-fuel).

The electricity price forecast model will include elements such as: the correlation of electricity prices with other market factors, the relationship between domestic market prices and prices in neighboring markets, and the impact of energy policy and market regulations on the formation of electricity prices. 

The mechanism for forming wholesale prices in the energy market will be based on the merit order curve (at a given moment, only power plants with a total capacity corresponding to demand are included in the system, ranked from the most efficient, competing with each other based on marginal cost - SRMC). The last generating unit closing the balance in a given hour will set the market price. Factors affecting the current and predicted situation in the fuel and energy market in Poland and Europe will be analyzed, including the risk of temporary restrictions on fuel availability.

In the gas price model, historical gas prices on the Current Day Market and quotes of futures products (BASE, Y, Q, M) on TGE, data from the TTF market, and the most up-to-date projections of natural gas prices imported to the EU, prepared by recognized research centers, will be utilized. Key factors (demand and supply) influencing the level of natural gas prices in Europe and Poland will be included in the price projections, such as:

• The level of domestic extraction
• The level of LNG supply
• The level of supply from other directions, taking into account the current situation in the gas market in Europe
• The level of gas storage fill in the country and the EU
• Projections of LNG prices for import to the EU.