For most industrial electricity buyers in South-East Europe, “hedging” still means one thing: fixing the price.
This definition made sense in systems where price volatility was driven primarily by fuel costs, outages, or macro shocks, and where hourly price spreads were narrow. In such systems, locking in a forward price neutralised most meaningful risk.
That era is over.
In renewable-heavy, thin, and increasingly coupled SEE power markets, price hedging alone no longer hedges the dominant risks industrial buyers face. The centre of gravity has shifted from price level to price shape. Buyers who continue to hedge only averages remain exposed where it matters most — in peak hours, intraday markets, and imbalance settlement.
The next phase of power risk management in SEE is not about better prices. It is about better alignment between hedges and physical reality.
Why price hedging is losing effectiveness
Traditional power hedging assumes a relatively stable relationship between:
- baseload prices
- peak prices
- real consumption profiles
That relationship has broken down.
Solar penetration has compressed prices during predictable hours while amplifying scarcity during others. Coal exit has removed inertia. Hydro has become more volatile. Cross-border coupling imports stress instead of absorbing it.
As a result, two buyers with the same fixed price can experience radically different financial outcomes, depending on when they consume power.
A hedge that fixes the average price but ignores timing is no longer a hedge — it is a partial exposure with a misleading label.
Shape risk is now the dominant risk
Shape risk refers to the mismatch between:
- the hours when electricity is contracted
- the hours when electricity is consumed
- the hours when electricity is most expensive
In SEE markets today, this mismatch explains a larger share of total cost variance than outright price movements.
Even in relatively calm price environments, buyers experience:
- rising evening premiums
- steeper ramping costs
- volatile intraday spreads
- imbalance penalties concentrated in a few hours
None of these are meaningfully addressed by traditional forward hedges.
The false comfort of “fully hedged” positions
Many industrial buyers believe they are fully hedged because:
- 80–100% of annual volume is covered
- prices are fixed or indexed
- sustainability metrics are satisfied
Yet in operational reality, they are exposed daily to:
- peak hours not covered by hedges
- residual market purchases at extreme prices
- imbalance settlements driven by forecast error
- intraday liquidity constraints
This is why finance teams are increasingly confused: the hedge exists, but volatility persists.
The problem is not execution. It is hedge design.
How traders see industrial hedges
From a trader’s perspective, many industrial hedges are incomplete by construction.
A trader does not ask whether energy is hedged annually. They ask:
- which hours are exposed
- how steep the ramps are
- where forecast error sits
- who carries imbalance risk
Seen through this lens, many industrial buyers are not hedged — they are short flexibility.
Markets price that shortage relentlessly.
The transition to shape hedging
Shape hedging does not replace price hedging; it extends it.
Instead of fixing a single price, buyers must manage hourly exposure. This can involve:
- differentiated hedges for baseload, peak, and super-peak hours
- dynamic hedging closer to delivery
- operational flexibility as a hedge substitute
- portfolio-based procurement instead of single contracts
The objective is not to eliminate volatility, but to control where it hits.
Why SEE accelerates this shift
SEE markets accelerate the transition to shape hedging because:
- systems are relatively small and thin
- renewable penetration grows faster than flexibility
- imbalance pricing is sharp and asymmetric
- cross-border effects amplify stress
In larger, deeper markets, shape risk can sometimes be absorbed. In SEE, it is immediately visible.
This is why procurement strategies imported from Western Europe often underperform when applied mechanically in SEE.
Shape hedging is not only financial
Crucially, shape hedging is not purely a trading exercise.
Operational decisions increasingly act as hedges:
- shifting load away from peak hours
- tolerating short curtailments
- sequencing energy-intensive processes
- integrating on-site flexibility
From a trader’s view, this is equivalent to owning optionality. From an industrial view, it is regaining control.
The boundary between operational optimisation and financial hedging is dissolving.
Why fixed strategies will fail
A static hedging strategy cannot cope with dynamic systems.
Solar output, weather, interconnector availability, and demand patterns evolve daily. Hedging strategies must respond accordingly.
Buyers who fix everything years ahead lock in assumptions that will almost certainly be wrong. Those who retain optionality — even at a cost — outperform over time.
The organisational shift required
Moving from price hedging to shape hedging requires organisational change.
It demands:
- closer cooperation between procurement, operations, and finance
- better data on load profiles and flexibility
- acceptance that electricity must be managed continuously
- willingness to engage with markets rather than avoid them
This is uncomfortable for organisations used to annual tenders and long approvals. But it is unavoidable.
Transition point
The evolution from price hedging to shape hedging marks a structural turning point for SEE industry.
Electricity risk can no longer be outsourced entirely to contracts. It must be actively managed, with tools that reflect how power systems actually behave.
Those who adapt will stabilise costs despite volatility. Those who do not will remain exposed — no matter how green or fixed their contracts appear.
Elevated by clarion.energy