Wind Worked Until It Didn't -- The Texas February Freeze -- The WSJ -- March 5, 2021

From The WSJ:

The Texas wind industry suffered a devastating financial blow during last month’s electricity crisis, which hit roughly half of the state’s wind farms and may force some to seek bankruptcy protection or relinquish control to Wall Street.

With ample breezes and open spaces, the Lone Star State has become the biggest producer of wind power in the U.S. It now derives roughly 23% of its power on an annual basis from the renewable energy source.

But a financial arrangement that helped wind companies thrive in Texas now threatens to crush many operators, after an unusually strong winter storm led officials to drastically raise wholesale prices in the state’s deregulated power market and caused blackouts that left millions in the dark for days.

Many wind farms in Texas, to get construction financing, enter into long-term hedged contracts with financial institutions in which the wind farm operator agrees to provide a steady stream of electricity to the counterparty.

If it cannot deliver electricity—because the wind isn’t blowing—the operator agrees to pay to purchase electricity on the wholesale market, or agrees to pay the counterparty to purchase it on its behalf.

In return, the financial institution, often a Wall Street bank, agrees to pay a set price for the electricity. The bank can then resell the electricity on the state’s wholesale power market, potentially clearing a profit.

When the wind is still and operators need to purchase power to fulfill their obligations, it typically costs somewhere between $0 and $50 per megawatt hour. But during the February blackouts, when some wind farms stopped running after ice built up on their fan blades, operators were forced to pay $9,000 a megawatt hour. (The average price in 2020 was $22.18.)

Over a four-day span at such prices, a midsize wind farm could easily end up owing $50 million or more for electricity.

The wind farms that had to purchase power for days at the record-setting $9,000 per megawatt hour price—the highest allowable under the Texas rules—effectively wound up owing more money than some of the farms are worth.

For instance, in a state court filing, the owner of a 210-megawatt wind farm mostly in Deaf Smith County in the Texas panhandle said its counterparty on its hedged contract, JP Morgan Chase & Co., said it owed $71 million—while its annual revenues were only $15 million.

Much more at the link, but finally some clarity. 

See also, The Economist analysis.