How the Swedish Transport Administration Benefits from a Long-Term Power Price Hedging Strategy
Trafikverket, the state-owned Swedish Transport Administration, is responsible for the long-term planning of rail, road, shipping and air traffic infrastructure, as well as for the construction and operation of state roads and railways.
Every day, the company conducts electricity trading – to keep its facilities running and to satisfy the needs of its railway companies. Its annual consumption of electricity is approx. 2 750 GWh, of which 2 230 GWh go to train operators and 520 GWh to facilities.
The company has long believed that travelling in Sweden should be “smooth, green and safe". It has clear social and environmental responsibility that ensures that 100% of the electricity consumed comes from renewable electricity production.
But with electricity prices skyrocketing, cost efficiency is on everyone’s mind.
Price hedging strategy
At Trafikverket, the strategic procurement of electricity is handled by an energy committee that includes representatives of the operators SJ, Green Cargo, Hector Rail, and others.
As a large energy consumer, Trafikverket and its customers rely on the power committee to guarantee stability and economic benefits for customers. To achieve this, the committee uses a price-hedging strategy.
Lars Johansson, Power Committee Chairman at Trafikverket, tells us that in today’s extreme market situation, the long-term price hedging strategy works very well.
"Today, we clearly see the advantages of a price index hedging strategy to ensure a stable electricity price over time," he says.
Following this strategy, Trafikverket fixes the prices on the financial market on an ongoing basis. The goal is to reduce the price risk before the actual consumption takes place, while, at the same time, gradually hedging the price for future consumption of up to five years.
“The consistent work the power committee has done is now paying off. They have secured the cost of electricity for the Swedish taxpayer in an unpredictable market. This is also a great way to show social responsibility,” says Pelle Ekestubbe from Volue.
How they did it
The transition taking place in the energy markets is complex with price risk and volatility expected to continue. Tactical decisions are becoming increasingly difficult. Therefore, price hedging using Volue's index model in combination with first-class advisory services is a reliable way to ensure low stable prices over time.