“Retail energy has been a love of my life for the better part of 10 years”
One of the most unpredictable influences on energy retailers’ success is the weather and the associated impact on energy price. And while major events, like hurricanes or natural disasters, have an understandably big effect on the price and profits of power and natural gas retailers, it can actually be the smaller vagaries of weather that expose retailers to risk.
Even just a single day of weather that is 95 degrees instead of 85 degrees in Boston, MA, for example, can increase the load energy retailers serve by several thousand Mws, according to Brian Beebe, a Senior Vice President for Swiss Re Corporate Solutions. Energy prices cannot always compensate for these types of unexpected increases, leaving energy companies scrambling to manage their losses if they do not have a risk management plan in place.
That is why Beebe, and Swiss Re Corporate Solutions, have devoted themselves to offering risk transfer and diversified global insurance solutions for businesses facing potentially big losses from weather-related events.
“Events like weather-related supply shocks that can cause energy prices to rise violently or drop sharply is a very difficult peril for retailers to absorb, and we provide some risk transfer solutions that others don’t,” he explained to Energy Pages shortly after his participation in the “Wholesale Meets Retail” Panel at the Tenth Semi-Annual Energy Marketing Conference held October 11 in New York, NY.
Beebe’s expertise in the area of weather derivatives and other products retailers can use to mitigate weather-related risks goes all the way back to the mid-’90s, when such products first appeared on the market. And while he has been dealing with a variety of energy sources and clients for 25 years, his heart, and his focus, have been on retail energy for the last decade.
“Retail energy has been a love of my life for the better part of 10 years,” he says. “I’ve always really enjoyed working with retailers. Retailers sit at the intersection of the actual customer.”
Beebe’s job allows him to focus on providing these retailers, mainly the top 20-25 retail electric and natural gas marketers, with customized weather-related protections they need to literally weather the vagaries of changing temperatures and environmental conditions. His team, which handles clients in North America, works with a variety of electricity, natural gas, propane, and oil clients.
How exactly does a retail energy client gain protection from weather events and extremes in temperatures? One of the major risk transfer products Beebe’s team oversees is called the weather derivative. This product allows clients to receive payments when weather events create changes in demand that exceed certain thresholds. These payments can help clients offset losses they would otherwise have suffered due to unusually large or small demands for supply.
For example, that hot day in Boston might lead to losses as energy retailers spend more on spot electricity to keep up with increased customer demands.A weather derivative or insurance policy can help alleviate those losses by providing a payout based on the terms of the customized coverage. The payouts are based on what Beebe calls “transparent sources of weather data,” typically provided by government weather data from major airports and population centers.
Over the next 5 years, Beebe hopes to see the retail energy industry continue to grow, just as he anticipates that their need for the types of products his business offers will grow. In particular, he wants to see new retail market opportunities open up in the United States and globally that would allow energy retailers to provide their services in a deregulated energy market. Potential markets for expansion? California, with its 13 community choice aggregators already forming what he calls a “new supplier class,” Arizona, and Mexico, which is undergoing certain structural changes that could provide a friendly environment for retail energy suppliers as early as 2020.
In the meantime, Beebe and his team at Swiss Re Corporate Solutions will continue to offer the best possible risk management solutions to their clients.
“If anything, I see it expanding,” he says when asked what the future of Swiss Re Corporate Solutions’ specialties might be. “Weather-energy linked risk transfer has grown very rapidly since 2012. I think the reason is the United States has been hit with a series of weather-induced price shocks in power and natural gas that traditional energy products are ill-equipped to address.”
When it comes to the impact of weather on the retail energy industry, Beebe wants to make sure that businesses know their options. And by offering risk management solutions like weather derivatives, Beebe and Swiss Re Corporate Solutions are helping to protect the retail energy industry against major losses that could slow down the growth of an industry that they are excited about.
About Swiss Re Corporate Solutions
Swiss Re Corporate Solutions provides risk transfer solutions to large and mid-sized corporations around the world. Its innovative, highly customized products and standard insurance covers help to make businesses more resilient, while its industry-leading claims service provides additional peace of mind. Swiss Re Corporate Solutions serves clients from more than 50 offices worldwide and is backed by the financial strength of the Swiss Re Group.
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