Buying Your Energy - Whatever the Weather

8 Aug 2019

Part of running an energy company efficiently is forecasting how much energy customers will use throughout the year. That way we can make sure the energy we think our customers will use is 'hedged' in the market. This means buying energy ahead of time to reduce our exposure to the commodity prices for gas and electricity, meaning that we can lock in a competitive price point to pass on to our customers.

Given the day ahead commodity price for power has dropped 42% and gas 57% since November 2018, here at Outfox! we are able to offer market beating tariffs to our customers and remain the cheapest on the market.

Hedging can occur months in advance, during the month of consumption, or buying can be left to the day ahead or intra-day markets. We hedge our consumption in the market several months ahead to reduce risk and then forecast a shape of demand across a month. The more accurate our demand forecasts, the more money we save on potential imbalances. A key factor in this is the weather forecast for the days ahead, for example if there is a really cold day and it is not forecast properly then more gas is used than expected. We have to buy the difference between our forecast and the actual consumption (the imbalance) at the system imbalance price, which can vary depending on market conditions.

Hedge

There are general usage patterns during a year, for example, on average 75% of gas usage is spent during the months of October to March. We also aim to take into account specific patterns to improve our accuracy in forecasting. We buy in weather forecasts from several weather forecasting houses to get several opinions on the weather in the days ahead and our team of expert forecasters utilise mathematical and statistical models based on several weather variables to forecast energy demand for our customer portfolio in the short, medium and long term.

In addition, we factor in the consumption profile of our customers and demand behaviour based on hour of the day, day of the week, bank holidays and special days to take into account variations in consumption.

Trends

We always encourage submitting meter readings through my hero hub to ensure you are paying the right amount for your usage, but there is a science behind the estimated readings as noted above. If you do not submit a meter read, we use our estimation algorithms based on the above methodology to predict how much energy we think you used since your last meter read. If you think your usage is out of the ordinary, or that our estimation algorithms will not be accurate for your consumption, please submit meter readings as this will avoid erroneous estimated values for your consumption and bills generated using these values.

By Justin Hadi - Pricing and Forecasting Analyst