The question of how to purchase electricity is currently one of the most debated topics both in industry and within the business community. Opinions are often voiced that companies are gambling if they rely on the spot market instead of using long-term forward contracts. The reality, however, is much more pragmatic and is based on two main reasons. The spot price is significantly lower, as the spot market provides industrial companies with immediate savings. Depending on market conditions, the difference often ranges from several dozen to even hundreds of percent. For companies where energy represents a substantial part of costs, such savings are decisive. At certain times and under specific market conditions, the gap between spot and forward prices is so large that from the consumer’s point of view, signing long-term contracts seems less advantageous today.
“To illustrate, it’s as if a customer had to choose between buying a bread roll in a shop today for 70 cents or ordering it every day for the next three years at €1—and having to pay for it all upfront. With such an offer, no one would be surprised that there’s little interest,” says Branislav Klocok, CEO of OFZ and a member of the Presidium of the Council of Slovak Exporters.
Another obstacle is the system of financial guarantees. If a company wants to conclude a long-term contract—say, for three years ahead—the supplier requires a financial guarantee covering the entire volume of the contract. This means the company must have enormous cash reserves upfront, which most simply cannot afford. Therefore, it is inaccurate to speak of “gambling” on the spot market. On the contrary, it is the only way energy-intensive companies can survive in an environment where price stability is a luxury, but liquidity and flexibility are matters of survival.
“Spot prices have long been a topic of debate. On one hand, they can bring savings, but at the same time, it must be emphasized that long-term contracts provide cost predictability. The most suitable solution, therefore, appears to be a combination of long-term contracts and spot purchases, with the ratio of these two forms always being individual and dependent on the consumer’s demand curve,” adds Peter Blaškovitš, co-founder of EXPORT ANALYTICA.
“From the perspective of exports, the inequality within the EU single market is troubling. For example, in France, thanks to the ARENH system, energy-intensive companies have access to nuclear power at €70/MWh, compared to Slovak companies, which can purchase electricity on forward contracts at €105/MWh—50 percent more. And we are talking about the same industrial production in the same single market, with the same products. This situation places our manufacturers at a disadvantage and makes them uncompetitive,” concludes Lukáš Parízek, Chairman of the Council of Slovak Exporters.
