Industry Analysis
Jun 17, 2024

West Solar Economic Curtailment Expected to Worsen

We may see ERCOT solar projects economically curtailing nearly 25% of their generation if storage is not rolled out on a massive scale. That's 1 out of 4 MWh.

And power pricing during solar hours is projected to go negative twice as often at West hub vs. North hub over the next several years.

See chart below.

This means that stakeholders of solar projects located in West Texas need to be especially aware of economic curtailment risk and the massive opportunity that it is creating for battery storage.

To mitigate this risk in solar PPAs, stakeholders might incorporate a "price floor" in offtake agreements. There are two main options:

Option 1: Implement a floor where no delivery occurs if pricing drops below $0 at the delivery point. This solution is simple and offers a ton of security for buyers but may massively degrade seller revenues over the PPA duration. RenewaFi's models suggest that this price floor is worth $6/MWh at North Hub and as much as $9/MWh at West Hub. More on this in a separate post.

Option 2: Buyers take delivery when pricing at the delivery point is below $0, but the buyer decreases its payments 'dollar-for-dollar' during negative intervals. In other words, if the PPA is $40 and the price at the hub is -$2, the seller would receive $38. This option is much preferred and provides ample protection for both buyer and seller in a PPA.

It's essential that projects, lenders, and buyers collaborate honestly and strategize to ensure that their solar projects can survive uncertainty in a volatile energy market like ERCOT.

Being able to understand and quantify these risks can be instrumental in safeguarding infrastructure investments in ERCOT.


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