Winter Storm Fern packed a punch last month, dumping well over a foot of snow across parts of the Northeast, and causing around an inch of ice accumulation through parts of the Southern Plains and Southeast. Temperatures plummeted, and approximately 1 million people were left without power.
But the real story of Winter Storm Fern? Power prices.
The storm demonstrated just how much influence wind, solar, and storage resources have on price formation. Given the high solar and wind penetration, we had our eyes on ERCOT, Texas’s grid. Would solar and wind underperform, pushing expensive natural gas and peaker plants online?
Winter Storm Fern also exposed a critical truth: fuel type dictates price risk during climate extremes. As heat usage spiked, we saw a massive price divergence between two distinct hubs in PJM – which spans from New Jersey down to West Virginia, and as far west as Chicago. This revealed the vulnerability of one hub’s heavy natural gas reliance.
For instant access to our in-depth analysis on Fern’s impact, complete the form below.
Winter Storm Fern: ERCOT & PJM Market Reports
DISCLAIMER: This blog post contains information related to REsurety and the commodity interest derivatives services and other services that REsurety provides. Any statements of fact in this presentation are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. No responsibility is assumed with respect to any such statement, nor with respect to any expression of opinion which may be contained herein. The risk of loss in trading commodity interest derivatives contracts can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them or their company. Please be aware that past performance is not necessarily indicative of future results.
All information, publications, and reports, including this specific material, used and distributed by REsurety shall be construed as a solicitation. REsurety does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.Image: iStock/Petmal.
Can Buyers and Sellers Fine-Tune Contracts to Share Costs?
In Part 1, we broke down the fundamental disconnect in the U.S. power market: Basis Risk. While most PPAs settle at a regional Hub (an average price point), projects actually generate power and revenue at a specific Node. When the local nodal price fails to keep pace with the hub price, that “gap” can erode margins and threaten a project’s ability to service its debt.
The Core Reality:The Hub is where the contract lives.
The Node is where the electrons (and the actual revenue) live.
The Gap (Basis) is what determines if a project stays afloat or sinks.
We walked through the settlement math to show how even a “guaranteed” PPA can be undermined by local price volatility. Understanding this math is the first step toward project survival.
Settling at the Node: Good for the Project, but Buyers Don’t Like It
The obvious solution would be to use nodal, real-time prices to settle the PPA. This structure is designed to mitigate basis risk for the developer, aligning net revenue more closely with the settled PPA payment.
Basis sharing clauses: Mitigate risk to protect RECs
A more typical option to handle basis risk is adding a basis sharing clause to the PPA. These clauses come in many shapes and sizes, but are all intended to distribute risk more evenly. Developers get partial protection from basis siphoning their PPA revenue. Buyers take part of that risk to ensure the project stays afloat, and produces the expected number of renewable energy credits (RECs) for their portfolio rather than curtailing to save cash.
Basis clauses typically cap the amount of basis the developer must absorb. Clauses can include:
Cap (i.e., ‘floor’): limit on the amount of basis the developer absorbs alone
Sharing: Once the cap is exceeded, how the basis is split (e.g., 50-50)
Maximum liability: A cap on the cap, limiting the total exposure for the buyer
Negative prices: Removes basis sharing if developer does not stop generating.
Let’s try a simple basis clause on our example project: a cap of $5/MWh, 70-30 sharing beyond the cap (developer-buyer), and the project curtails when the floating price (nodal price adjusted by the cap and sharing provisions) goes below $0/MWh.
This basis sharing clause revives the developer’s revenue (green line), losing just 12% from the PPA earnings. The buyer’s settlement increases, but they still receive an average payment of roughly $30k per month with relatively little variation (red line), keeping budgeting reasonable.
The basis sharing clause could be tweaked to further support the developer depending on the project economics. More detailed basis clauses can include limits on either the annual number of basis sharing hours, or MWhs. Clauses must be fine-tuned to balance performance for developers and buyers based on forecast generation and prices.
Stay tuned to learn more about other approaches, like on- site BESS, behind-the-meter datacenters, and financial transmission right (FTR) trading, to solve basis risk. Until then, if you need advice on your current basis clauses – reach out!
DISCLAIMER: This blog post contains information related to REsurety and the commodity interest derivatives services and other services that REsurety provides. Any statements of fact in this presentation are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. No responsibility is assumed with respect to any such statement, nor with respect to any expression of opinion which may be contained herein. The risk of loss in trading commodity interest derivatives contracts can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them or their company. Please be aware that past performance is not necessarily indicative of future results.
All information, publications, and reports, including this specific material, used and distributed by REsurety shall be construed as a solicitation. REsurety does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.Image: iStock/Petmal.
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!
DISCLAIMER: This blog post contains information related to REsurety and the commodity interest derivatives services and other services that REsurety provides. Any statements of fact in this presentation are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. No responsibility is assumed with respect to any such statement, nor with respect to any expression of opinion which may be contained herein. The risk of loss in trading commodity interest derivatives contracts can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them or their company. Please be aware that past performance is not necessarily indicative of future results.
All information, publications, and reports, including this specific material, used and distributed by REsurety shall be construed as a solicitation. REsurety does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.Image: iStock/Petmal.
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