Nephila helps Ares Management to three wind power proxy revenue swaps

Nephila Climate, the weather, climate risk and reinsurance focused unit of insurance-linked fund manager Nephila Capital, has entered into three wind power proxy revenue swap transaction to facilitate the financing of an acquisition and re-powering of a wind power portfolio.

Alternative investment manager Ares Management Corporation utilised the proxy revenue swaps to hedge out risks and production variability related to a weather-driven fuel source as well as power price volatility, ultimately a tool that helps to smooth expected earnings from wind power project investments.

For Nephila Capital, who works alongside Allianz Risk Transfer on these transactions, the arrangements enable it to access weather risk linked investment opportunities for its ILS fund portfolios.

The is the first time the proxy revenue swap structure has been used for a repowered wind project, in this case covering a three-project portfolio in ERCOT that totals around 400MW of capacity.

An Ares managed Infrastructure and Power strategy used three different proxy revenue swap contracts to help in financing the acquisition and re-powering of the wind power portfolio from BP in the ERCOT region. The specific sites were Sherbino Mesa 2, Trinity Hills and Silver Star.

“Just as the PRS has now become a standard product for de-risking merchant renewable energy projects, we expect it to play a key role in helping sponsors to finance the repowering of wind projects,” Richard Oduntan, CEO of Nephila Climate commented on the arrangement. “With a forecasted surge in repowering projects over the next several years, we are pleased that the Ares PRS transactions will be the vanguard of many more to come.”

Allianz Global Corporate & Specialty, Inc.’s Alternative Risk Transfer (ART) unit and Nephila Climate worked with specialist renewables focused broker REsurety, Inc. who provided the risk analytics needed to support the transactions and will serve as the calculation agent on an ongoing basis.

“We continue to break new ground with PRS in using it to support the re-powering of wind projects,” explained Karsten Berlage, managing director, Allianz ART. “We are pleased to collaborate with NCx yet again on another ‘first,’ and to help ARES manage the long-term revenue risks for these projects.”

The opportunity continues to grow in the proxy revenue swap space, so for Nephila the opportunity to access more weather risk linked investment opportunities is growing as well.

Bloomberg New Energy Finance said that market for re-powering wind projects should surge across the next two years, with 1.25 and 2.02 GW of re-power projects forecast to be completed in 2019 and 2020 alone.