February 10, 2026
Navigating the Hub-Node Gap with Creative Contracting.
There is no single price of electricity in the United States. While the price of a barrel of oil is set nationally, electricity is set locally – and fluctuates based on grid mix, time of day, and many other factors in a given region. As we’ve discussed in our Forecasting Webinar and our recent blog on the impacts of Venezuelan oil on clean energy prices, all energy market dynamics are interrelated. So when it comes to deciding whether to build or invest in a clean energy project like a solar or wind farm, the difference in electricity prices by region, and volatility in price over time, make all the difference for project success.
What do local price dynamics have to do with a solar farm’s ability to pay back its loans over time? The devil is in the details. And the details are called basis risk.
Background: The US electricity system’s hub + node structure
The US electricity system is made up of tens of thousands of nodes, where load and generation connect to transmission and distribution lines to form a giant, interconnected grid. A node may be a single solar plant, a collection of gas turbines, a datacenter, or a substation feeding thousands of homes. Each of these nodes has its own power price.
Groups of nodes are organized into hubs. Hubs are virtual trading points, where the price is the average of all the nodes within the hub. (An example of a hub)
Most power purchase agreements (PPAs), where corporates or utilities agree to long-term contracts to buy power, are settled at the hub. Every month, the contract is settled by calculating how much money the developer would have made from selling their power to the grid at the hub price, how much money the developer is guaranteed by the PPA signed with a corporate or utility buyer, and “settling” the difference. If market prices were low one month at that hub, the buyer sends the developer money to get them to their guaranteed PPA revenue. If prices were high one month, the developer sends the buyer the extra money that came in the door.
Basis Risk Puts Revenue at Risk: Real World Example
Let’s look at a wind project in SPP South, at an anonymous location in Oklahoma. For this project, and many others like it in the region, node prices were often lower than hub prices in 2025, exposing the developer to basis risk. Let’s make the following typical assumptions about the project to determine the impact of basis:
- The project has a PPA that settles at the hub
- The fixed PPA price is $20/MWh
- The project curtails (stops generating) for when hub prices are below $0/MWh (i.e., negative)
As shown above, the developer made roughly $0.6M in January from the PPA after settlement (blue line), with some variation month-to-month based on their total generation (i.e., how hard the wind blew). However, they lost roughly $1.3M in January due to large negative basis (red line, caused by nodal prices being below hub prices), leaving them at a loss of roughly $0.6M (yellow line) for the month. The negative basis continued until August, leaving the developer with $4.4M less revenue in 2025 than they earned from the PPA, a 65+% drop. This erases any profit margin for the project, leaving it deep in the red and at risk of defaulting on loans.
Despite this wind project performing very well, the developer can’t meet financial goals – putting the PPA at risk. Shouldn’t there be a way to share risk between the developer and the corporate purchaser to avoid this issue?
The answer is yes – and folks are getting creative with how. One option is to settle at the node, but this passes all risk to the buyer. Another option is to share basis risk between developer and buyer, which can require complex modeling & contracting. REsurety’s services team helps customers with these questions all the time.
Contract clauses are one of many solutions to navigating a changing grid
As the grid continues to change, a tailored, risk-mitigating approach like basis sharing is essential for supporting long-term financial health of clean energy projects. These clauses protect developers from bankruptcy and ensure the continued generation of RECs for the offtaker, making them a balanced and increasingly common feature in modern PPAs.
Stay tuned to learn more about typical contract clauses to share basis risk between developers and buyers, and to learn more about additional approaches to solve basis risk like on-site BESS, behind-the-meter datacenters, and financial transmission right (FTR) trading. Until then, if you need advice on your current basis clauses – reach out!
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