The mid-February winter storm in Texas has dramatically underscored the importance of reliable power generation. Record low temperatures, historic snowfall, and icy roads throughout the state led to disruptions in food and vaccine distribution, left millions without power or clean water, and resulted in the loss of dozens of lives.
Some have found it politically expedient to place the blame on wind power. Yet in reality, wind energy only constitutes a fraction of Texas’s power generation, and it typically functions effectively in very cold weather.
When appropriately winterized, wind power works very effectively in colder climates
While Greenbacker’s fleet of sustainable energy projects doesn’t currently extend to the Lone Star State, our company has extensive experience with renewable assets in cold climates. We own and operate wind farms in Minnesota (31 MW), Montana (25 MW), and Vermont (10 MW), and we’ve found them to work very effectively in the colder temperatures these states regularly face.
While turbines do occasionally ice over, that doesn’t happen just because the weather gets cold. In fact, when planned for ahead of time, colder temperatures are actually better for wind (and solar) power generation than hotter ones; cold temperatures increase electrical conductivity, whereas hot temperatures increase electrical resistance.
There’s only a small window of concurrent weather conditions in which turbine freezing is possible. Temperatures have to be within a few degrees of freezing, and relative humidity must be high enough to cause moisture to form ice on the turbine blades. Once conditions move outside of this window, freezing is no longer a possibility. In Texas, wind turbines weren’t prevented from turning because of extreme cold—rather, it was the disastrous combination of the very specific weather parameters outlined above that caused them to stop spinning.
Greenbacker’s risk-averse strategy favors long-term power purchase agreements
From a portfolio standpoint, small amounts of downtime due to turbine icing are normal, as are periods of excessive cold, even for wind sites in typically warmer climates. Yet these slight interruptions don’t hamper returns for our investors. Our financial and production models account for a certain amount of decreased power generation due to weather (e.g., blade icing) and curtailment, so they won’t result in the loss of predicted revenue—or cause long-term damage to our equipment. Nonetheless, such disruptions highlight the inherent benefits of diversification.
However, in keeping with our risk-averse business model and goal of delivering consistent performance for our investors, we don’t have projects in Texas. Most new-build wind and solar projects in Texas secure short-term hedges, rather than the longer-term power purchase agreements (PPAs) that Greenbacker favors. These hedges are typically paired with credit-worthy financial institutions and range between five to ten years, while the remaining project value relies heavily on uncontracted merchant revenue. Although hedges put a price floor in place, the project can still end up paying the hedge provider for a certain amount of production and pricing above the strike price (i.e., the project will owe more to the hedge provider if energy prices skyrocket, and the project is not able to produce electricity).
Texas’s energy crisis highlights how even during a renewable project’s brief contracted period, many factors can significantly alter a short-term hedge:
- Spot pricing volatility – Unexpected, extreme energy price fluctuations; some Texans are reportedly paying hundreds of dollars a day during the crisis for power on the state’s wholesale market.
- Basis – The difference in price between the project location and potential hedge location which could follow an average or index.
- Curtailment – A deliberate reduction in energy output in order to balance energy supply and demand or due to transmission constraints.
These factors can completely change a project’s overall economics. While renewable energy funds with greater risk appetite continue building financially hedged projects in Texas, Greenbacker has been focused on more traditional opportunities available with risk-adjusted returns better suited for our investors.
Greenbacker’s investment thesis is generally based on long-term contracted cashflow. Because we prefer lower-risk projects and long-term PPAs, the options for us in Texas are limited. Instead, we’ve been able to find more profitable and stable projects (with PPAs ranging from 15 to 25 years) in many other areas of the country.
Renewable energy solutions can offer greater reliability
Texas’s electricity usage has been gradually transitioning toward wind power, with the state generating more wind-powered electricity than any other.1 As policymakers search for ways to prevent a repeat of this winter’s energy crisis in Texas, the shift to more reliable (and cleaner) energy sources may accelerate. Additionally, as consumers seek more consistent electric service and less volatile power bills, more residential renewable solutions and home battery systems could be in the future as well. And we’re happy to lead the way.
Greenbacker owns and operates a portfolio of income-producing renewable energy assets, diversified across size, power source (e.g., solar, wind, and energy storage), and geography. Our fleet encompasses 235 projects across 29 states, and its operations are overseen by our experienced technical asset management team. Our investment team ensures that Greenbacker’s assets adhere to specific risk-reduction criteria, as we seek to bring renewable energy investment opportunities to market and deliver reliable returns for our investors.
Disclosure
This information has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, or to participate in any trading or investment strategy. This is a private offering made only pursuant to exemptions provided by Section 4(a)(2) of the Securities Act, Rule 506(b) of Regulation D and applicable state securities laws and solicitation is limited to clients with substantive pre-existing relationships. If any offer of securities is made, it will be pursuant to a definitive offering memorandum prepared by Greenbacker Capital Management LLC (“Greenbacker”) that contains material information not contained herein and which supersedes this information in its entirety. Any decision to invest in the strategy described herein should be made after reviewing a confidential private placement memorandum (“PPM”), conducting investigations and consulting the investor’s own investment, legal, accounting, and tax advisors in order to make an independent determination of the suitability and consequences of an investment. Greenbacker does not provide tax advice. Investors are urged to consult with their own tax advisors regarding an investment in the strategy described herein and the realization of any tax benefits. The information presented herein may involve Greenbacker’s views, estimates, assumptions, facts, and information from other sources that are believed to be accurate and reliable and are, as of the date this information is presented, subject to change without notice. There are material risks associated with investing in alternative Investments including financing risks, general economic risks, long hold periods, and potential loss of the entire investment principal. Potential cash flow, returns and appreciation are not guaranteed Please read the PPM in its entirety, paying careful attention to the risk section prior to investing.
Greenbacker Renewable Energy Company LLC is a publicly reporting, non-traded, limited liability company that acquires and manages income-generating renewable energy projects and other energy-related businesses.
Greenbacker Capital Management LLC. 11 E. 44th St., Suite 1200, New York, NY 10017
1 US Energy Information Administration, State Profile and Energy Estimates, March 19, 2020, https://www.eia.gov/state/analysis.php?sid=TX#5.
