Risk Management

Do we need an Energy Risk Plan (ERP)?

For large, complex organisations with geographically spread facilities and significant annual energy expenditures, developing and implementing a detailed written ERP is regarded industry best practice. Typically, these organisations have numerous stakeholders with varying perspectives on the management of energy risk. The absence of a unified energy risk strategy often results in the adoption and implementation of multiple competing strategies, leading to suboptimal outcomes and increased energy costs.

What is an ERP?

An energy risk plan (ERP) is a formal written policy document which outlines a structured approach to mitigate energy price volatility and enhance budget predictability based upon an organisation’s established energy sourcing objective and overall risk tolerance. An ERP generally includes three main components:

1. Administrative
2. Core Strategy
3. Opportunity/Emergency

The administrative section of an ERP addresses objectives, guidelines, and processes, usually covering items like (a) client sourcing goals; (b) contract procurement guidelines; (c) rules for coordinating with a consultant (NUS); and (d) contract or commodity trade approval processes. The core strategy section focuses on commodity purchasing, including (a) maximum and minimum hedging limits; and (b) pricing triggers. The opportunity/emergency section focuses on pre-approved actions for unforeseen market events to safeguard client interests, such as: (a) market pricing dislocations, and (b) adverse events.

Let NUS prepare and implement your ERP

The energy risk management team at NUS has extensive experience in drafting, updating, and implementing ERPs with large, complex organisations. Whether developing an ERP from scratch for businesses that have never developed or documented their policies or updating an existing ERP, we provide tailored support to clients. Given that business needs and markets are continually evolving, ERPs require regular updates. A professionally prepared ERP and its meticulous implementation enable businesses to de-risk their energy market exposure, optimize commodity pricing, and improve budget visibility.