ArcVera Renewables has published its report “ERCOT Market Cold Weather Failure 10-19 February 2021: Wind Energy Financial Losses and Corrective Actions”. The study set out to quantify the lost energy production and calculate the financial impact of the rare Texas winter weather event.It is focused on wind farm outages reported by the Electric Reliability Council of Texas (ERCOT) grid operator for the period 14-19 February 2021, when the grid experienced extensive wind farm downtime, lost energy production, and high hub-settled electricity prices. Three repricing scenarios are evaluated using market pricing before the imposition of $9000/MWh prices by ERCOT.
The findings of the study show the lost energy production from wind farms, aggregating individual wind farm results, was 629,700 MWh with a financial impact of this lost production, whether the financial loss to the owner or gain by others, estimated at $4.18B. This represents an average financial impact on any project of $44.4M. For hedged projects, the financial impact of this lost proxy production is even greater, with an average financial impact of $45.4M.
The study makes three assessments:
- Hedged financial structures in ERCOT need to properly reflect realistic meteorological conditions, extreme weather stress tests, and, therefore, more realistic production assurances.
- Hedged products need to recalibrate their strike prices to reflect the asymmetric risks presented by the availability of different resources during extreme electricity demand, ERCOT minimum and maximum prices, and market interventions by regulators.
- Wind farm owners and their hedge counterparties need to partner with turbine OEMs to develop reliable, cost-effective weatherization technologies to reduce the asymmetric risks from future icing events.
