With single-digit reserve margin forecasts drawing solar, battery and peaker developers to Texas in droves, PFR reporter Shravan Bhat visited Houston last week to catch up with the Ercot community and assess the market for power price hedges.
HOUSTON--Traders are signing seven- to 12-year hedges for solar projects at $35/MWh at the Houston Hub and $29/MWh at the more congested Northern Hub, says a senior energy commodities originator. For wind projects, pricing is $24/MWh or lower.
Those prices are generous compared with what is on offer in other markets. For instance, two deal watchers in Houston spoke with disdain of a wind hedge signed in the Southwest Power Pool at a mere $9/MWh. “There’s no way that gets financed,” said a head of commodities at an investment bank. “Why was it even signed?”
The sources declined to identify the project or the hedge provider.
The disparity between pricing in Ercot and other markets helps to explain the rash of development and financing activity in Texas, especially for hedged solar projects, despite the lack of a capacity market.
Established solar developers like 174 Power Global, which broke ground on its 150 MW Oberon solar unit in Ector County on June 20, are vying with new entrants. Even Advanced Power, a developer better known for its combined-cycle projects, has been exploring Texas solar, says a deal watcher.
Besides solar, some financiers have been talking up the possibility of new build gas-fired peakers in Texas, especially smaller projects.
Castleman Power has been successful in this area, having so far raised project debt from Prudential for two 100 MW peakers in Victoria County with heat rate call options (PFR, 2/25).
Castleman has four more such units in the works, says a deal watcher here, but it is unclear how much more appetite Pru has for similar repeat deals with the same sponsor.
On the battery storage front, meanwhile, GlidePath Power Solutions’ fully merchant, 100% equity-financed 10 MW/10 MWh Prospect project attracted grudging admiration from a renewable energy developer who said he was “curious to see how that one pencils.” The project is due to be online in late August.
GlidePath is a portfolio company of fund manager Quinbrook Infrastructure Partners, whose North American investments are overseen from Houston. The firm's top team in Texas has undergone some changes in the first half of the year (PFR, 6/28).
Elsewhere in the Houston power community, senior trader Hugh Byrd has left Citi after six years (PFR, 6/26) while transmission guru Michael Skelly, now an adviser at Lazard, is on the road as part of the promotion of a new book about his work, "Superpower: One Man’s Quest to Transform American Energy," by the Wall Street Journal’s Russel Gold. The book came out on June 25.