Texas Hedging: Why Did Some Projects Emerge Unharmed While Others Are In Trouble?

The winter storm in Texas last month altered perceptions of the Texas electricity market (not to mention the heavy toll it took on the residents of Texas), including the reputation of renewable energy hedges. However, not all hedges are created alike, and whether a renewable energy project was financially jeopardized by the recent Texas storms or whether it saw minimal impact depends on the type of hedge that facility entered into well before the storm hit.

A hedge agreement is a contractual device used to lock in a predictable, per-unit price against commodity price fluctuations; however, although a hedge agreement transfers price risk away from the facility owner, volumetric (or production) risk often remains with the facility owner.