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Protection
Against Electricity
Price Instability
Purchasing electricity generated by renewable energy resources can provide a financial hedge against unstable or rising fossil fuel prices. We have seen several occasions in the past 20 years when wars or economic booms have caused fuel prices to change sharply, making it difficult for businesses to predict or control operating costs. Wind, geothermal, hydro and solar energy in particular are not subject to fuel costs at all. And none of these indigenous resources are at risk of supply interruptions from external political turmoil.
Electricity generated by these renewable resources can offer a longer term fixed price, while regulated rates and contracts for electricity generated by fossil fuels usually contain a fuel price adjustment clause, or are only short term contracts. Electricity from fossil fuels may be able to offer fixed prices for longer terms only through financial hedges purchased in electricity futures markets.
Companies with large electricity needs might think about their purchases of electricity as an investment portfolio. It is always wise to diversify one's assets, including both stocks and bonds. Bonds haven't shown as high returns over time as broadly diversified stocks, but investors are willing to accept a lower return in exchange for less risk. Likewise, renewable energy sources may sometimes cost more than non-renewable fuels, but they offer less price risk over the longer term. Some utilities even guarantee that green power will be exempt from fuel price adjustments, and many renewable generators would accept a fixed price long term contract. To be sure, you should check with any prospective provider before you sign an agreement.
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