Nephila & Allianz complete first wind farm revenue swap in Australia

by Artemis on June 19, 2018

Nephila Climate, the weather and climate risk focused unit of ILS and reinsurance investment giant Nephila Capital, and often partnering insurer Allianz have together completed the first wind farm proxy revenue swap transaction in Australia, hedging price and volume risks including weather exposure for a new wind farm project in Victoria.

Wind farm imageIt’s the first time the wind farm proxy revenue swap has been utilised in Australia, having previously completed four transactions in the United States.

Nephila Climate and Allianz have completed four of these arrangements for wind farms (the most recent earlier this year), and also expanded the concept to solar energy as well in another recently announced deal first.

The transactions protect the project owners and financiers against the financial risks associated with uncertain production volume, timing of energy generation and also future energy prices.

Hence an important component is the hedging of weather related risk associated with investments in wind farms, which means the investors, buyers or owners, can smooth out their revenue and earnings volatility, receiving payouts when wind is insufficient to support the power generation volumes targeted. These revenue smoothing deals can also be key for project owners to secure the financing needed to develop wind and also solar farms.

The latest deal actually involved two related transactions to offset future price and volume risk for the Lal Lal wind farm project, which is under development in Victoria, Australia. The 228 MW Lal Lal project expects to begin producing wind energy in the third quarter of 2019 and is owned by a partnership consisting of InfraRed Capital Partners, Macquarie Capital and Northleaf Capital.

The first part of this deal is a Proxy Revenue Swap with Lal Lal, providing a high degree of revenue certainty, thanks to Nephila Climate and Allianz assuming production volume, timing of energy generation and future energy price risks.

The second part of this deal will assist Orora Ltd., a large consumer of electricity, lock in the costs of buying baseload green energy from the Lal Lal project, without the production variability that is more traditionally associated with power purchase agreements.

As a result, the same concept, of smoothing and increasing certainty of revenues linked to output, can be put to work for both the project owners and also one of the projects ultimate customers and combined this marks the first time a Proxy Revenue Swap has been applied to wind energy in Australia.

The completion of this deal means that the Proxy Revenue Swap product has now been transacted on more than one GW of renewable energy (across wind and solar) development projects.

Nephila Climate’s CEO Richard Oduntan commented on the deal, “NCx is delighted to provide innovative solutions to another wind farm development while simultaneously helping a commercial and industrial consumer of electricity purchase green energy in the form that suits their needs.”

Allianz’s Managing Director Karsten Berlage added, “We are excited to create and commercialize this new risk management tool for the Australian renewables industry following our successful provision of hedging solutions for investments in North America.”

This is the latest example of the partnership between Allianz Risk Transfer and Nephila helping to solve weather risk related issues in the renewables and green energy space, putting to work the pairs underwriting sophistication and credit strength, to facilitate these transaction for wind farm project owners and developers.

Specialist ILS and catastrophe reinsurance fund manager Nephila Capital participates alongside Allianz ART, facilitating the weather risk transfer and as a risk or reinsurance capacity provider.

The pair have been working in partnership on weather and catastrophe risk transfer and reinsurance transactions for many years, developing innovative solutions to vertical focused problems such as for renewable energy projects like this one.

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