The UK’s Met Office, the national weather forecaster and data provider, have launched a new service called Site Wind Index which will offer 30 years of climatology data detailing hourly wind speeds for customer defined sites and heights which is updated monthly and annually. The idea behind the service is to facilitate creation of insurance products to hedge lack of wind for the wind energy generation industry across the UK and Europe.
Our readers may be used to hearing about the damage and losses that too much wind can cause, but a lack of wind can be almost as damaging to a company’s financial performance if they rely on it to operate. Hence wind farm owners and wind energy generation operations have a need to hedge against a lack of wind. As wind energy capacity grows across the UK and Europe, the volatility in wind resource can have a significant impact on the sector, according to the Met Office.
The new Site Wind Index product offers a consistent data set for creating and settling low wind insurance contracts at any onshore or offshore location in the UK and Europe. The product offers a 30 year dataset of hourly wind speed information, both monthly and annual updates, customers can define their own site and height for the wind speed data and the Met Office stresses this is a consistent data set for the duration of the contract.
Alasdair Skea, Renewables Applications team manager at the Met Office, said; “Low wind insurance contracts need a consistent and reliable data provider. By using our in-house data and modelling, underpinned by our world-class science, Wind Site Index provides long-term consistency for the duration of contracts, so customers can feel completely confident in the consistency of the data they will be provided.”
It’s an interesting product from the Met Office and could open up new avenues for insurers, reinsurers and weather risk management solutions providers to create products that use the data. From the information we’ve seen the data could be used for insurance risk modelling purposes, creation of index-based low-wind insurance contracts, low-wind weather derivatives, parametric insurance products and possibly even parametric catastrophe bonds. It would be fascinating to see how the ILS market responded to an offering document which came to market for a low-wind parametric cat bond which sought to hedge the risk of low winds in specified locations over an annual period, for example.