Gasum Portfolio Services helps Vargön Alloys navigate the energy market and get the best offer from counterparties

Vargön Alloys is one of the largest producers of ferrochrome in Europe and the only one in Sweden. Ferrochrome is a metal used in manufacturing stainless and special steels. The plant, located in Vargön, has Sweden’s only smelter that operates around the clock.

The electric smelter operates every day of the year using extremely high temperature, about 2,800 °C, to produce ferrochrome. The production process is energy intensive and depends on reliable supply of electricity.

“Electricity is a significant resource and one of the most significant costs for us. It requires active risk management from us – especially as the market is volatile,” says Managing Director Anders Lehman from Vargön Alloys.

To reduce the price risk and increase security of supply, in 2024 Vargön Alloys partnered with Gasum Portfolio Services. The partnership includes consulting on portfolio management and electricity price hedging.

“Vargön Alloys is one of Sweden’s biggest electricity consumers. They have the best knowledge of their business, and we have the energy market knowledge. Through close cooperation we can support their business in the best way possible,” says Andreas Bäck, Portfolio Manager at Gasum Portfolio Services.

Forecasting and flexibility support smarter production planning

Vargön Alloys’ production, and the demand driving it, are usually seasonal which makes the possibility to plan important. The partnership includes regular discussions concerning market and production forecasts. The frequency of contact depends on market and production conditions. Given that the volatility of the electricity market isn’t anticipated to cease, the possibility to increase cost-effectiveness through optimizing production will remain an asset to Vargön Alloys.

Gasum Portfolio Services is independent from any electricity producers which means it can take offers from several different producers. Thus, Vargön Alloys can ensure the best price for the hedge by comparing prices from all counterparties. Gasum Portfolio Services also provides Vargön Alloys with a 10-day-spot forecast that allows the company to arrange their production processes to avoid price spikes, when possible. The partnership is a consultative one. Gasum Portfolio Services provides Vargön Alloys with recommendations, and the company makes the final decisions itself.

“We wanted a reliable and knowledgeable partner. As we had worked with Gasum in the past, we knew we could trust their expertise. It is also a plus that Gasum is independent from electricity producers. The possibility to take the best bid from several different providers makes a real difference,” says Lehman.

Strategic procurement strengthens cost predictability

The volatile electricity market has made procurements a strategic issue. This means that companies also need to understand their exposure, improve forecasting, manage imbalance exposure and make procurement decisions that support both cost predictability and business continuity.

“Power market is getting even more complex and our goal is to help our customers navigate it. The key is to understand the customer’s business so we can give the best possible advice,” says Andreas Bäck.

Lehman describes the experience with Gasum Portfolio Services as positive. The partnership has reduced Vargön Alloy’s exposure to volatile electricity prices which contributes to cost savings.

“The service hasn’t required any fundamental changes from us and has pushed us to think ahead. It has helped us to make informed decisions on both purchasing electricity and optimizing our production,” says Lehman.

With an expert partner, Vargön Alloys doesn’t need an internal team with market knowledge. They are free to concentrate on their core business knowing that they have a hedge protecting them from price fluctuations. Independent advice, market expertise and transparent competitive tendering help Vargön Alloys turn complex electricity-price management into a simpler, more proactive process.