Volatility can serve as a call to action for customers to further review a hedged position, discuss potential layering in of energy hedges, or lock in a fixed price. It depends on your strategic energy plan.

In the markets served by ENGIE Resources, implied annual volatility varies from one pricing point to another, and from one calendar or seasonal curve to the next.

Natural gas markets are the single most influential component of wholesale electricity markets. A Dallas Federal Reserve working paper cites the switch from coal to gas generation as a primary cause of real time wholesale price volatility. Volatility is driven by the bidding behavior of generators. 

In addition to natural gas, price formation is influenced by changing economics, unforeseen supply disruptions, renewable penetration, and extreme or rapid changes in weather. Speculative trading can also contribute to volatility as financial markets play a significant role in determining natural gas prices as traders buy and sell futures contracts based on their expectations of future price movements. Speculation can also amplify price swings.

Because natural gas prices are more volatile than coal, replacing coal generators with gas can result in higher average bids to supply generation and therefore higher wholesale price volatility. Market participants including load serving entities, have increasing exposure to market risk in the real time market. This brings increasing indirect costs in the form of capital reallocation to meet collateral requirements. End-use customers should stick with suppliers that are backed by strong balance sheets and investment grade credit ratings.

There is, however, an environmental trade off. The Dallas Federal Reserve  paper says that better environmental outcomes have come at the expense of greater financial strain.

Natural gas also contributes to volatility at the long end of price curves. Natural gas futures trade up to eight years into the future. Long term views of natural gas include analysis of factors including LNG exports, the growth of data centers, regulatory impact, and oil prices among other dynamics.

Your ENGIE representative can help you smooth out energy price volatility and regain some control over energy costs by hedging.

For more: https://www.dallasfed.org/-/media/documents/research/papers/2024/wp2408.pdf