Hold Them or Fold Them

The million-dollar question is when to go to market to renew electricity contracts.

For those customers who had contracts expiring in 2019, many held off going to market in Q1, as there was the belief that prices would soften. The announcement of the timing of the Federal election only added further delay for those customers needing to go to tender. General opinion was that a Labour win would bring about a much-needed energy policy change and help to reduce market rates. Neither happened and for those customers that were coming out of contract mid-year, it left little time to renew. Consequently, large contract volumes were hedged in in the lead up to the end of FY19, which only helped to drive up contract prices. With the end of CAL19 approaching, this may present a small window of opportunity for some pricing relief during Q3, providing the weather remains cool. Q4 historically is prone to market volatility as it heads into Spring, with widespread contract hedging for those coming off contract in December.

While December 2018 bucked the historical trend with base future prices dropping, it is important to remember that it is advisable to be governed by price rather than time and that the last quarter of the year can bring with it uncertainty and volatility, especially given the fact that the market is on tender hooks watching and waiting to see if the current Victorian outages come back on line when scheduled. Another vital point to be aware of is transfer risk; should customers decide to change Retailers they need to be aware that this takes time and that, should the decision to churn occur very late in the year that this may leave them exposed to high default pricing from their incumbent Retailer if they transfer late.