Better news for Ecofin US Renewables as new route to grid connection identified

picture of the Whirlwind wind farm in Texas at dawn or maybe dusk 230629 RNEW whirlwind

Ecofin US Renewables (RNEW) confirms that following the 21 June 2023 tornado in Matador, Texas, its 59.8MW Whirlwind Energy wind farm in Floydada, Texas, remains temporarily offline. As previously communicated, the tornado left the Whirlwind asset itself unharmed and affected only five project-owned transmission poles at the far end of Whirlwind’s transmission line along with the American Electric Power (AEP) owned substation in Matador, Texas through which Whirlwind transmits electricity.

The company is pleased to report that, based on AEP estimates, it expects to achieve interconnection during the fourth quarter of 2023 via an alternate route, past Matador through a substation in Paducah, Texas. This alternate transmission arrangement will allow 80% capacity throughput relative to full capacity (50 MW versus the full capacity of 59.8 MW) on an interim basis, with a corresponding reduction in forecasted cash flows.

Due to the importance of power sources such as the Whirlwind asset to the ERCOT (Texan power grid) system, AEP intends to build a new substation at Matador as quickly as possible and return Whirlwind to full capacity. AEP expects this process to take approximately 18 months, at which time Whirlwind will return to its prior interconnection route and to full capacity.

The company and its insurance provider are working together to file claims, where applicable, for business interruption and necessary repairs to the damaged project-owned transmission poles. The claims are yet to be finalised with the insurers, but it is expected that the insurance policy will provide coverage, at a minimum, for both the damaged transmission poles and for 120 days of business interruption losses that occur from outages (following a 45-day waiting period).

The company and the investment manager continue to dedicate significant resources to accelerate the Whirlwind remediation plan as outlined, working closely with all relevant stakeholders. Further announcements will be made as appropriate.

[We really feel for the company which was getting back on its feet following the appointment of a new management team.

45 days from 21 June takes us to 5 August. 120 days from then takes us to 3 December 2023. It looks therefore as though the likely hit to overall cashflows will reflect just the 45 day waiting period, plus the 18 month curtailment.

Some very back of the envelope figures follow: Whirlwind accounts for 59.8MW of RNEW’s total 176.9MW capacity and over the 12 months ended 31 December 2022 it generated 184.6GWh of 334.6GWh of electricity generated by the fund, but the solar output was lower than target so let’s assume Whirlwind accounts for half of RNEW’s revenues rather than 55%. A reasonable assumption then might be that RNEW loses 45/365 x 50% of its annual revenue (which was $13.4m last year) for the 45 day waiting period. Plus 9.8/59.8 of the expected Whirlwind income for a further 375 days beyond the end of the 120 day period (until the 18 months are up in December 2024 and Matador is back online).

That implies an unrecoverable loss of about $2m, which compares with a roughly $14m fall in RNEW’s market cap since the announcement. That fall looks way overdone to us, plus, in our eyes, RNEW’s discount was way too wide even before this episode.]

RNEW / RNEP : Better news for Ecofin US Renewables as new route to grid connection identified

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