New Electricity Service providers

[Rm2s]

19 minutes ago, Voodooman said:

There is some confusion over what needs to be hedged, I think. A genco with a retail business selling fixed can easily hedge using oil derivatives. Left pocket, right pocket, margin locked in.

For an independent retailer to hedge wholesale prices, very volatile now, is more challenging.  In Business Times, it was reported that they hedge via futures, not sure why this instrument is no longer working but I read wholesale electricity price is not just a function of oil prices but is also driven by other factors like market demand, capacity, etc.  

Genco has dedicated team to hedge their fuel requirements. They always look ahead and find willing counter parties. Whether each of their hedging strategy works or not will depend on many factors. As they also know their own capacity to the day, they will be able to manage it by contracting the capacity up to certain % of their available capacity while maintain some flexibility to participate in the market when wholesale prices move.

For independent retailers, they relied mostly on wholesale prices and futures (so can genco). Unfortunately the future market is almost dead (trading volume like almost non-existence) so they can't really make use of it anymore.

Wholesale prices are mostly quite stable (on certain gas price level) because the capacity from each genco is declared to the authority, prices move when unforeseen event takes place; like some units has unexpected downtime (affects supply), weather (affects demand) and gas supply (affects the ability to generate in the first place) or even certain substation caught fire  (affects the ability to distribute from power plant) though it doesn't really happen that often. You can see the boring electricity market does have variables that will cause prices to move.

[Enye]

16 minutes ago, Rm2s said:

Genco has dedicated team to hedge their fuel requirements. They always look ahead and find willing counter parties. Whether each of their hedging strategy works or not will depend on many factors. As they also know their own capacity to the day, they will be able to manage it by contracting the capacity up to certain % of their available capacity while maintain some flexibility to participate in the market when wholesale prices move.

For independent retailers, they relied mostly on wholesale prices and futures (so can genco). Unfortunately the future market is almost dead (trading volume like almost non-existence) so they can't really make use of it anymore.

Wholesale prices are mostly quite stable (on certain gas price level) because the capacity from each genco is declared to the authority, prices move when unforeseen event takes place; like some units has unexpected downtime (affects supply), weather (affects demand) and gas supply (affects the ability to generate in the first place) or even certain substation caught fire  (affects the ability to distribute from power plant) though it doesn't really happen that often. You can see the boring electricity market does have variables that will cause prices to move.

wah...hopefully those dedicated teams have foreseen this a few months back and managed to find counterparties to hedge

if they did, now huat liao bonus gao gao.  if they didnt, is as good as no team.  vice versa for their counterparties.

or they are like the sia hedging team like that, lose big still got job one

😁

Edited October 20, 2021 by Enye

[Adrianli]

13 hours ago, Camrysfa said:

yes, thanks

but kinda decided to hold back signing up another for the time being....see whether the storm will blow over.

 

 

Same same here. As of today, I am on SP after Ohm left. Wait and see.

[Rm2s]

20 minutes ago, Enye said:

wah...hopefully those dedicated teams have foreseen this a few months back and managed to find counterparties to hedge

if they did, now huat liao bonus gao gao.  if they didnt, is as good as no team.  vice versa for their counterparties.

or they are like the sia hedging team like that, lose big still got job one

😁

Actually if those guys can predict so accurately they probably will do direct commodity future trading, probably ownself huat better. Haha!

[Enye]

11 minutes ago, Rm2s said:

Actually if those guys can predict so accurately they probably will do direct commodity future trading, probably ownself huat better. Haha!

maybe now small or new trading entities have a lot of difficulty to get credit from banks since the hin lung saga

so better to stay in a lucrative iron rice bowl job in a big company...lose money also never mind.  not own money anyway

😅 

[Voodooman]

1 hour ago, Rm2s said:

Actually if those guys can predict so accurately they probably will do direct commodity future trading, probably ownself huat better. Haha!

That sounds like speculation. If really for hedging, should be cashflow neutral leh, at least for the hedged portion.  😀

Edited October 20, 2021 by Voodooman

[Jamesc]

Nobody can predict anything.

Analyst buying fuel for airlines can only calculate 

air traffic increase 15 - 20% increase a year and buy based on that.

He cannot predict things like Covid 19.

Nobody can.

6 hours ago, Rm2s said:

Actually if those guys can predict so accurately they probably will do direct commodity future trading, probably ownself huat better. Haha!

 

[Jamesc]

Even if oil falls to minus $37 a barrel again

electric companies will not sell 3 year plans at 16c again.

Maybe 20 - 21c would be the lowest.

Because oil can go up to $80 a barrel again in just a few months.

  

[Voodooman]

32 minutes ago, Jamesc said:

Nobody can predict anything.

Analyst buying fuel for airlines can only calculate 

air traffic increase 15 - 20% increase a year and buy based on that.

He cannot predict things like Covid 19.

Nobody can.

 

Electricity, like food and water, is a necessity, so demand is more stable and don't disappear overnight. Pretty easy to hedge for gentailers for 1-2 years fixed rate contracts.

Edited October 20, 2021 by Voodooman

[Mustank]

14 minutes ago, Jamesc said:

Even if oil falls to minus $37 a barrel again

electric companies will not sell 3 year plans at 16c again.

Maybe 20 - 21c would be the lowest.

Because oil can go up to $80 a barrel again in just a few months.

  

competitors died so less competition

Even got new competitors

Don’t think govt will so easy let them next time do same trick

[Camrysfa]

10 hours ago, Adrianli said:

Same same here. As of today, I am on SP after Ohm left. Wait and see.

yay....let the dust settle

[Mustank]

22 hours ago, Rm2s said:

Actually if those guys can predict so accurately they probably will do direct commodity future trading, probably ownself huat better. Haha!

https://www.channelnewsasia.com/singapore/electricity-retailers-exit-singapore-what-it-means-consumers-2253931

WHAT’S HEDGING AND WHY ARE RETAILERS STILL EXPOSED?

EMA requires all electricity retailers in the Open Electricity Market to hedge at least 50 per cent of their contracted load against wholesale electricity prices.

Hedging is a process of locking in prices for the longer term to guard against increases.

This is generally a costly endeavour and smaller players may lack the financial muscle to do more, said Mr Tan.

[Voodooman]

6 hours ago, Mustank said:

https://www.channelnewsasia.com/singapore/electricity-retailers-exit-singapore-what-it-means-consumers-2253931

WHAT’S HEDGING AND WHY ARE RETAILERS STILL EXPOSED?

EMA requires all electricity retailers in the Open Electricity Market to hedge at least 50 per cent of their contracted load against wholesale electricity prices.

Hedging is a process of locking in prices for the longer term to guard against increases.

This is generally a costly endeavour and smaller players may lack the financial muscle to do more, said Mr Tan.

No wonder so many close shop. Wholesale price goes through the roof and you are hedged 50%. This is a high volume, low margin business. 

 

[inlinesix]

19 minutes ago, Voodooman said:

No wonder so many close shop. Wholesale price goes through the roof and you are hedged 50%. This is a high volume, low margin business. 

Retailer sales price is locked.

If input price is not hedged, really bang wall liao.

[Jamesc]

I wonder if anyone else can see a problem with this business model.

 

Edited October 22, 2021 by Jamesc

[Voodooman]

1 hour ago, Jamesc said:

I wonder if anyone else can see a problem with this business model.

 

It is a good business model.

Good times, set up a $2 company, buy low, sell high and collect dividends, bad times, fold and socialize the losses. 

 

[Voodooman]

23 hours ago, inlinesix said:

Retailer sales price is locked.

If input price is not hedged, really bang wall liao.

Full hedging is likely to be expensive, so I doubt any of the independent retailers hedged much of their exposure.  If they did, when wholesale prices shot up, their futures contracts would have been in the money, yet so many folded in such a short time.

I can only conclude with full hedging, there is no money in this business.

Heng I only trust gentailers. 
 

[Victor68]

On 9/30/2020 at 8:21 PM, ToyotaShuttle said:

when oil price go up, they will tell you that their procurement cost is based on oil price so need to raise the electricity price to you as well.

when oil price go down, they will tell you that they are burning pipeline gas and LNG so cannot lower elec price.

Like our petrol stations and supported by CASE