Renewable Energy Provider Caught in the Deep Freeze

[Jason]

In a surprising turn of events, Clean Currents, a popular renewable energy provider based in Silver Spring, Maryland, announced that it could no longer continue operating. The decision was based on a sudden increase in renewable energy costs early this winter, with energy costs soaring above $1,000/megawatt/hour. Because Clean Currents operated by giving customers fixed rates for energy, they could not handle the losses, the Washington Post reported. There were no reports of how or whether Clean Currents tried to hedge the risk of surging energy costs.

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[Pablodro]

In a surprising turn of events, Clean Currents, a popular renewable energy provider based in Silver Spring, Maryland, announced that it could no longer continue operating. The decision was based on a sudden increase in renewable energy costs early this winter, with energy costs soaring above $1,000/megawatt/hour. Because Clean Currents operated by giving customers fixed rates for energy, they could not handle the losses, the Washington Post reported. There were no reports of how or whether Clean Currents tried to hedge the risk of surging energy costs.

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Clean Currents was caught in the futures game, apparently not realizing they were in the game until it was too late. If they had firmed supply contracts or properly hedged positions with reliable suppliers, they would have been OK when the spot price for renewable power took off. When the black swan weather event whacked the renewable power spot price, they could not cover their obligations and were forced to fold.

Some pundits are spinning this story as a cautionary tale about renewable energy and RECs, which misses the point. The variability of renewable power may be the proximate cause of Clean Currents' failure, but the story is really about proper risk management. Everyone knows that sometimes the wind doesn't blow and the sun doesn't shine. Clean Currents seems to have made the mistake of betting their company on being able to back fill from affordable sources in such an event.

Clean Currents could have made contractual and financial arrangements in advance that would have minimally affected their cost of service but would have saved their company. It is a failure of management (and to a lesser degree, of regulators) that allowed the story to unfold this way. Sadly for them, their company and jobs were lost due to this misstep. Sadly for all of us, renewable energy suffered an undeserved black eye as well, because of their mismanagement. Used properly, RECs could have played the part of hero in averting this disaster, instead of being left as the villain who was blamed.

[pleppik]

Clean Currents was caught in the futures game, apparently not realizing they were in the game until it was too late.

That sounds about right. Any business which sells at a fixed price and buys at market rates needs to understand hedging and futures.

IMHO, that's not a good place for a startup to be. It takes years of experience to understand the dynamics of a particular market and how to avoid self-destructing. That's not really compatible with trying to drive hyper-growth.