KEY MESSAGES
- Hedging is a crucial strategy for electricity producers, suppliers and consumers to manage and stabilise costs or revenues by locking in prices in advance, thus protecting against market volatility and enabling more predictable financial planning and investment.
- Effective hedging ensures suppliers’ financial stability, preventing situations where inadequate hedging leads to bankruptcies, as it happened during the energy price crisis when suppliers of last resort (SoLR) were forced to contract consumers who in turn often ended up with higher electricity bills.
- While imposing hedging obligations might seem like a sound way to strengthen suppliers and cut costs for consumers, it is not the right solution. Instead, having a solid licensing system or equivalent process to ensure that suppliers are financially robust and adequately hedged is far more effective than enforcing strict regulatory measures, such as mandatory hedging.
- Resilient and trustworthy suppliers hedge to secure the electricity they need at stable prices. Allowing suppliers the flexibility to choose their own hedging tools is essential for maintaining competition, diversity of offers, and optimising sourcing, ultimately benefiting consumers.
- Rather than focusing on mandatory hedging, efforts should target more impactful measures, like enhancing regulatory oversight, ensuring access to necessary financial instruments and promoting innovation. These approaches can strengthen the market without restraining suppliers’ flexibility or competitiveness.