Extreme weather conditions in Texas, USA, have hit Terna Energy, leading to the collapse of energy production in the state and the suspension of three energy projects in Texas belonging to the Greek company.
The company's share closed last Friday with losses of 10.74%, while transactions were particularly high as 1,369,117 shares changed hands, with a total value of 17.55 million euros, corresponding to 1.09% of the total number. of its shares. On Monday, the shares were up around 1.6 percent midsession.
The problem is that the SPV (special purpose company) which controls Terna’s three wind farms in Texas, with a total capacity of 520Mw, had prepaid contracts for the sale of electricity which it could not meet due to the non-operation of wind farms. Theoretically it would have to buy the power from the market and then sell it, however, this in practice cannot happen as the price per kilowatt hour, due to the collapse of production, jumped to $ 9,000 / MWh versus the normal price of $20, making impossible to fulfill contractual obligations.
Fulfilling the contractual obligation at the price of $ 9,000 / MWh would lead to a disproportionately high financial burden, making the investment in Texas unprofitable overall. With the state of Texas declared in a state of disaster by the governor, Terna Energy invoked force majeure for not selling the amount of energy stipulated in its contracts, referring the case to the courts.
According to Terna Energy sources, there are three possibilities that may occur from now on:
- the reasons of force majeure are accepted and the economic consequences are avoided,
- a compromise is made,
- the company's request is rejected and it must comply with the contract.
If we take the worst-case scenario for Terna Energy, the rejection of force majeure, then it is certain that it will hand over the keys of the SPV, abandoning this investment in Texas. If this occurs, then the maximum loss will be the equity that Terna Energy has invested in this project, ie 90 million euros, as outlined in last week’s bourse filing.
As stated in the announcement: "At the moment, the final amount of any financial impact cannot be estimated. If it does occur, it cannot exceed 90 million euros. It is worth noting finally, that the obligations of all projects in the USA have not been affecting the parent company TERNA ENERGY or the subsidiary TERNA ENERGY USA and are limited solely to the projects themselves.”
However, according to analysts, in addition to equity, its annual EBITDA will take a hit of about 50 million euros per year, not a negligible amount, but on the other hand the company will be exempted from bank loans of about 300 million dollars taken to finance this investment..
Even if we reach the worst-case scenario, the company's total EBITDA will exceed the level of 300 million euros in 2022, on an annual basis. However, most analysts predict that force majeure will be accepted, especially after the intervention of President Biden, who declared Texas a state of "major disaster", strengthening federal aid to deal with the crisis.
Moreover, the issue of default is not only for energy producers, but also for many consumers, who have had power supply contracts with prices linked to wholesale prices and will be required to pay multi-thousand dollar monthly bills.
It is noted that, due to the extreme bad weather, gas stations, nuclear power plants, renewable energy sources, etc. have been shut down, in a situation also facing players in renewable power, such as the German RWE, which is expected to publish how it has been affected by the conditions.
According to the first announcement issued by RWE, on Thursday, as noted by Pantelakis Securities, losses for the German company in 2021 are estimated to reach up to 500 million euros.