Alternative product specialist insurance and reinsurance firm Allianz Risk Transfer has closed a second innovative weather hedging revenue management transaction for a wind farm with the help of insurance linked asset manager Nephila Capital.
The deal saw Old Settler Wind executing a 10-year proxy revenue swap with Allianz Risk Transfer (Bermuda) Limited, with Nephila Capital, the largest manager of insurance and reinsurance linked assets, acting as weather risk transfer partner. The pair completed the first proxy revenue swap in May 2016.
The wind farm revenue swap enables the owners to make revenues more predictable and transfers risks associated with the wind variability related to energy generation volumes.
The proxy revenue swap, a product targeting the wind power industry, was created through a collaboration between ART Bermuda, Nephila Capital, REsurety, Inc. (REsurety), and Altenex, LLC (Altenex). This transaction is the second 10-year proxy revenue swap to be sold, and the first which enabled secure third-party commercial financing to be arranged, according to Allianz ART.
“Apex is pleased to have successfully closed the financing on this innovative revenue product, providing a new resource to further accelerate our nation’s shift to clean energy,” commented Mark Goodwin, president of Apex Clean Energy, which jointly owns the Old Settler Wind facility with Northleaf Capital Partners.
“This transaction validates our thesis behind the proxy revenue swap—that it enables best-in-class financing options for wind projects through a unique and holistic approach to managing revenue risks,” said Karsten Berlage, managing director of Allianz Risk Transfer Inc.
Nephila Capital is a strategic partner in weather risk management for Allianz ART, working in collaboration to manage and transfer weather risk exposures linked to the proxy revenue swap on behalf of its investors.
REsurety provided the risk analytics required to structure and price the proxy revenue swap and also serves as the independent calculation agent for the deal.
Old Settler Wind is a 151.2 MW wind farm located in Floyd County, Texas, that will generate enough clean electricity to power 51,000 average U.S. homes. The facility is part of a 217 MW portfolio that also includes Cotton Plains Wind and Phantom Solar, the debt financing and tax equity commitments for which were announced on July 14, 2016. The portfolio of projects is expected to achieve commercial operation in the first quarter of 2017.
By entering into the revenue swap, the owners of Old Settler Wind gain more certainty of revenues by helping to mitigate weather impact on power generation volumes. By putting the arrangement in place, effectively transferring the risk of wind variability, the owners of the wind farm would be able to provide greater revenue certainty to financiers, making the product an important piece of the commercial financing arrangements.
The newly developed wind hedging product, the Proxy Revenue Swap, enables the wind power industry to better manage and predict its revenues, a departure from more traditional price-focused hedging solutions.
The product is similar in concept to a tolling agreement or capacity payment, swapping the floating revenues of a wind farm, which are driven by the hourly wind resource and power prices, for a fixed annual payout.
The product links the potential downside associated with wind risk for wind farm investors and owners, with their revenues, which should help to encourage financing of wind farm facilities and ultimately should increase this risk transfer product increasingly attractive as wind energy use grows.