Sourcing Unit: the periscope to navigate market turbulence

The pandemic was a perfect storm for all markets, in every sector. One truth that CoVid-19 reminded us of is how unpredictable the world can be. Energy price fluctuations are particularly affected, but for several years now, the digitalization of purchasing operations and the evolution of relationships between Enel Energia and companies have allowed the latter to shield themselves from uncertainty and market turbulence. The relationship between the customer and the supplier has turned into a partnership, a true alliance that allows companies to optimize decision-making timing and thus dilute risk. The control room of this partnership is the Sourcing Unit, the department that acts as a periscope to support companies in purchasing energy at the best market price.

Attilio Salvati, Head of sourcing and risk management power & gas, and Fulvio Mattiozzi guide us through the Sourcing Unit and its key tool: the contracts of price mix management, a decisive innovation for corporate energy procurement. «The market is constantly moving, literally changing hour by hour», they explain. In the past, companies would set the price of energy for the following year on a single date, when signing the contract. All the purchase price risk was concentrated in one moment: it could go very well or very badly. With the price mix management contracts, however, that risk is diluted: «At the beginning, only the framework conditions are chosen, while decisions on the energy price are distributed over multiple time horizons».

It was an important change. Price mix management adds a new ingredient to energy purchasing: flexibility. This formula allows the purchase to be split across several moments throughout the year. The total energy volume is divided by the client into several parts, and for each part they can lock in the price whenever they deem appropriate, at the wholesale value at that time, choosing based on market trends and future forecasts. In this way, companies can follow the price trend and stay away from fluctuations and volatility which, as we saw during the pandemic, can be rather violent. Both transparency and simplicity of purchase increase: with price mix management, companies have gained power and decision-making capacity.

The threshold to access price mix management is 5 gigawatt hours per year (more than a thousand times higher than the consumption of a domestic customer, which hovers around 2 to 3 megawatt hours). It is used by steelworks, cement plants, chemical and glass industries, supermarkets, practically the beating heart of the Italian economy and industry. Every relationship between these individual entities and Enel Energia is, as mentioned, a partnership. «The final decision on how much and when to buy is up to the customer, but the Sourcing Unit provides support and consultancy». This is where the periscope function comes into play: using Enel’s knowledge and experience to help companies decode a complex market, make the best decision, and purchase at the best price. For companies with large consumption, being able to make the right choice and dilute risk is crucial: one euro less per megawatt hour, for those who consume one terawatt hour a year, means saving one million euros.

«A 360-degree view is needed, because everything that happens in the world can be decisive, from an OPEC meeting to a tweet from the US president», explain Salvati and Mattiozzi. Power & gas prices are influenced by many factors: the movement of commodity indexes, trade wars between countries, summer and winter temperatures. «We always have to foresee the butterfly effect», the wingbeat in Brazil that in Edward Lorenz’s theory could cause a tornado in Texas. Salvati, Mattiozzi and other team members devour and process every kind of information: news, analysis, reports, documents, weather forecasts. Scenarios are always complex, and this complexity exploded with the global but asymmetric lockdown, which plunged the world into an unprecedented situation. Those were the most difficult months for the unit, although – as in other cases – «unity and teamwork made the difference. Despite the difficulties in coordinating from home, we managed to guarantee daily operations and, in more than one case, to support the customer in choosing the best time to fix the price». It’s a difficult time for all businesses, but with tools like price mix management, they can rest assured that on the energy front, they are covered.