Who to blame: brokers or advisors or just the market?
Part of the reason for the unrest among retail energy buyers over current price levels is that a good many of them have been caught short by the rising prices of the past few months, and have made things worse for themselves by waiting, unsuccessfully, for prices to fall. So much is clear from talking to any cross-section of industrial gas and power purchasers. These are the people who talk darkly about market manipulation and call for the heads of Ofgem officials. But much of the problem actually lies with their advisors and brokers, according to analysts Datamonitor.
In particular, energy brokers — companies advising retail buyers, rather than the commission brokers who service the wholesale market — have encouraged their clients to indulge in a form of speculation to which few if any of them are suited, Datamonitor argues.
“Over the last few years, a common marketing message from retail brokers has stressed the importance of timing the market in order to seal contracts during the troughs of a volatile price curve. On its website, one broker states: ‘Today’s market is both dynamic and volatile… In a market with such a volatile trading pattern, how do you know when to agree a price — especially when prices quoted are only valid for the day of issue?’ Claiming to have the answer, retail brokers have dramatically increased the proportion of UK gas and power volumes that they place every year.”
Datamonitor highlights the difficulties of timing buying decisions, even for professionals with heavyweight analytical backing.
This opinion drew a short Anglo-Saxon retort from John Hall, founder of John Hall Associates (not the company quoted above). “Of course timing is an all-important factor, and in fact since April we have been advising our clients to secure their supplies. But there is a lot more to it than that.”
Although John Hall has a website that can be used to conduct online auctions, it is used sparingly. “We’ve seen companies go into the market and cover all of their volume needs in one day, and this has a direct effect on the price,” says Mr Hall, who claims that his company has helped clients to buy large volumes quietly in several tranches. In addition, he says that price should rarely, if ever, be the determining factor: terms and conditions are just as important, and he advises clients to drop potential suppliers who are not prepared to offer the kind of service they require.
In addition, JHA, like other advisors in this field, employs professional energy buyers with experience of the industry.
Ultimately, Datamonitor and JHA appear to be singing from at least part of the same hymn-sheet. Datamonitor concludes its paper thus:
“Different strategies will suit different companies… both brokers and suppliers have a role to play in helping customers design and attain the strategy that most suits their business needs.” PH
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