Creating an optimisation
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      Selecting a risk management strategy when creating a new optimisation

      In application, the choice of risk appetite and the consumption percentage to be fixed are the main factors influencing the risk management strategy.

      CHOOSE A RISK APPETITE  
      CHOOSE THE CONSUMPTION PERCENTAGES TO BE FIXED

      FAQ
      Why talk about risk?
      What are the main parameters of the distribution of fixing?
      What is a high risk strategy?
      What is a low risk strategy?
      What is a medium risk strategy?

      CHOOSE A RISK APPETITE  

      The level of risk appetite decides the allocation of fixing advices.

      1. Choosing a risk appetite when creating the optimisation
        When creating the optimisation, you choose a risk appetite amongst 3 levels. It applies globally to all consumption periods of your contract:
        1. Low risk appetite strategy
        2. Moderate risk appetite strategy
        3. High risk appetite strategy
      2. Changing your risk appetite during optimisation
        You can change your initial risk appetite at any time during your optimisation. These changes will result in the instant recalculation of your fixing schedule.
        See: How to change the risk appetite of your optimisation?
        To change your risk appetite you can choose: 
        1. An global risk appetite that applies to all your periods.
        2. Different risk appetites for different consumption periods.

      To help you decide your risk appetite strategy take a test!

      1. Click on the link  'Test - What is the proper risk appetite for you?'

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      2. Answer the questions keeping in mind the buyer company's mindset and not your personal preferences. Make sure that the people who will evaluate the results of the optimisation agree with the answers provided in the questionnaire so that they share the responsibility.
      3. At the end of the test, the application will suggest a risk appetite for you.

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      CHOOSE THE CONSUMPTION PERCENTAGES TO BE FIXED

      The application offers you the possibility to decide, globally or period by period, the percentage of consumption for which you wish to receive fixing advice before the short term.

      1. When creating the optimisation
        The application automatically calculates a percentage to be fixed according to your choice of risk appetite. This default percentage applies to each consumption period.
        1. Risk appetite Low -> percentage to be fixed = 100%.
          Fixing advices by default of the application cover all volumes at least one month before consumption delivery*, which fully protects you from market fluctuation.
          *See: No advice for the supply delivered on the short-term
        2. Risk appetite Moderate -> percentage to be fixed < 100%. 
          Fixing advices by default of the application cover part of the volumes, leaving part of the volumes exposed to the risk of the short-term market.
        3. Risk appetite High -> percentage to be fixed < 100%. 
          Fixing advices by default of the application cover part of the volumes, leaving you the choice to leave them variable or to fix them in the last month before delivery. The percentage of consumption open to the market in the short term is higher than in the Moderate risk appetite.
      2. Changing the % to be fixed during optimisation
        You can change the % to be fixed during your optimisation. These changes will instantly recalculate your fixing schedule.  
        See : Changing the percentage of consumption to be fixed
        You have the possibility to change the % to be fixed:
        1. Globally so that it applies to all your periods.
        2. Period by period so that the % is different from one period to another.

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      WHY TALK ABOUT RISK?

      Gas & power prices (in €/MWh) evolve over time and there is no certainty about the extent of change.

      You know only at the end of the delivery of the product whether the price you obtained for the supply was among the best you could get.

      There is no sure strategy of getting the best price. Every attempt to get close to it also implies a risk of not having chosen the right moment to buy. You don't know in advance if you will lose or gain. The amplitude of potential gains is directly linked with the amplitude of the potential shortfalls.

      Companies need to decide what is their main goal, knowing that choosing one goal over another corresponds to choosing to run one kind of risk over another.

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      WHAT ARE THE MAIN PARAMETERS OF THE DISTRIBUTION OF FIXINGS ?

      The application works on 4 main parameters :

      • The distribution of fixings over time in and around the forecasted best price day.
      • The maximum number of fixings that can be made on a given date.
      • The importance of historical analysis over forecasts.
      • The degree of anticipation : fixing everything in advance or exposing part of the volume to the risk of short-term markets.

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      WHAT IS A HIGH RISK STRATEGY?


      A. Goal

      The buyer company wants to minimise its supply price by taking advantage of the market opportunities.

      B. Behaviour

      • When the company thinks there is an opportunity, it banks on it.
      • There is a tendency to wait in the hope of  better opportunities.

      C. Risks

      • The company could fix the price of larger volumes at a wrong time.
      • Sometimes a better opportunity that the company had hoped for doesn't show up.
      • If the company leaves part of the volumes at variable, it has no visibility on its budget and cannot block the price anymore even if the prices rise a lot.

      D. Distribution of fixings in the application

      Compared to the lower risk appetites :

      • Fixing dates are tightened around the lower point of the forecast curve: the risk is less diluted over time but the profits are greater in the event of a good forecast.
      • The buyer can fix the price of larger volumes on the day that the forecasts indicate is particularly interesting
      • Market forecasts have a greater influence than historical analysis on fixing advice: volumes that are fixed following a stop-loss or take-profit alert are less important in case of lower risk appetite strategy.
      • Part of the volumes is exposed to the risk of the short term market.

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      WHAT IS A LOW RISK STRATEGY?


      A. Goal

      The buyer company wants to avoid fixing its supply price at the wrong time.

      B. Behaviour

      • The company does focuses on avoiding the worst price rather than getting the best price.
      • The company prefers a budget vision to potential lower prices.

      C. Risks

      • If a real market opportunity presents itself, the company will not be able to take advantage of it as much as it could.
      • The company won't take advantage of the opportunities of the short-term market.

      D. Distribution of fixings in the application

      Compared to the higher risk appetites:

      • Fixing dates are more spread out in time.
      • A greater number of fixing dates are suggested: the user makes smaller fixings.
      • Historical analysis has a greater influence than the market forecasts on the fixing advice: volumes that are fixed following a stop-loss or take-profit alert are more important.
      • 100% of the volumes are fixed at least two months before the start of the delivery of the product to avoid exposure to the risk of the short-term markets.

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      WHAT IS A MODERATE RISK STRATEGY?


      A. Goal

      The buyer company wants to optimise the price of its supply while maintaining its budget.

      B. Distribution of fixings in the application

      Compared to the other risk appetites:
      • Fixing dates are distributed in and around the forecasted best price date while taking into consideration a small margin of safety in case the lowest price falls slightly before or after.
      • The user can make fixings on larger volumes instead of the minimum volume suggested by the application, but never on too large volumes so that the company can have some flexibility if an unforeseeable opportunity arises before the beginning of the delivery.
      • Historical analysis has a greater impact on the fixing advice compared to that in the case of a high risk appetite strategy: volumes that are fixed following a stop-loss or take profit alert are more important.
      • A  small percentage of the consumption remains exposed to the risks and potential opportunities of the short-term market.

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