insights
What is energy price hedging and how does it work?
Hedging makes energy costs plannable without giving up every market opportunity. Volumes, contract terms, and clear risk limits are what matter.
Energy prices can move by 50 percent or more within a year. The crisis from 2021 to 2023 showed this clearly, and structural drivers such as CO2 prices, gas dependency, and capacity bottlenecks have not disappeared. Companies that do not hedge are speculating, whether they intend to or not.
Hedging means protecting against price risk by buying futures products. Electricity is bought at a price agreed today, for delivery in the future.
Why hedging matters for industrial customers
Industrial energy prices can move by 50-100 percent within a year, as the 2021-2023 crisis showed. Companies that buy energy without hedging are fully exposed to those swings.
Hedging creates planning certainty - a central requirement for industrial customers that need to:
- Calculate production costs and sign long-term contracts with their own customers.
- Make investment decisions based on energy costs.
- Protect margins against commodity price swings.
How hedging works on the EEX
The European Energy Exchange (EEX) in Leipzig is the central trading venue for German power. Products traded there include:
| Product | Delivery period | Typical use |
|---|---|---|
| Year futures (Cal) | Full next year | Baseload hedging 1-3 years ahead |
| Quarter futures | Single quarter | Fine-tuning 6-18 months ahead |
| Month futures | Single month | Short-term hedging 1-6 months ahead |
| Day-ahead market (EPEX) | Next day | Residual-volume procurement, daily optimisation |
| Intraday market | Current day | Balancing deviations |
Meteoric’s hedging strategy
Meteoric does not follow a rigid hedging template. The strategy is developed individually for each customer based on:
- Load profile - which volumes are needed, and when?
- Risk appetite - how much price variability can the customer tolerate?
- Market situation - are prices historically high or low?
- Production planning - are there seasonal swings or campaign operations?
The basic principle: baseload is hedged long term when market prices are attractive, while residual and peak volumes are procured short term. That is the opposite of a passive annual contract.
What hedging is not
- No speculation - no open, unhedged positions are taken beyond the customer’s actual demand.
- No guarantee against price increases - hedging protects the hedged horizon, not indefinitely.
- No one-off purchase - hedging is a continuous process requiring regular market monitoring.
The difference from a classic annual contract
| Classic annual contract | Meteoric hedging | |
|---|---|---|
| Timing | Once per year, when the contract expires | Continuously, during attractive market phases |
| Flexibility | None | Portfolio steering across multiple time horizons |
| Market expertise required | No | Yes - Meteoric handles it |
| Typical result | Market price at the expiry date | Systematically better entry prices |
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