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Original Risk: A Society for Change Agents

Nephila & AGCS back innovative solar project weather risk transfer


Nephila Climate, the climate solutions are of ILS fund manager Nephila Capital, and the Capital Solutions unit of Allianz Global Corporate & Specialty (AGCS), have again come together to provide a risk transfer solution to support a renewable energy project construction financing.

It’s the first time a so-called proxy generation Power Purchase Agreement (pgPPA) has been utilised by a U.S. solar energy project as part of its financial arrangements.

These innovative transactions are a specific renewable energy contract structure that is intended to help manage weather related risk.

Weather, in the case of a solar energy project of course that’s to do with sunlight, is a significant input to the energy production and by arranging a risk transfer solution than can smooth this risk and reduce future volatility, it can assist in gaining the necessary construction financing for such projects.

In this case the pgPPA contract will cover Lightsource bp’s 153 megawatt Briar Creek solar farm, located in Navarro County, Texas.

Specialist renewable energy risk analytics firm REsurety Inc. provided valuation and risk analytics necessary to support the transaction, and will serve as the calculation agent for their ongoing tracking and settlement across the duration of the pgPPA.

Nephila Climate sources pure weather risk exposure for its weather and climate linked insurance-linked funds through these arrangements, working in partnership with AGCS who provides the pgPPA to the client, in this case Lightsource bp.

“Nephila Climate is pleased to be playing a part in the realization of the Briar Creek solar farm, and Lightsource bp’s mission to deliver affordable and sustainable solar power in the US and around the world,” explained Ariane West, Director of Structured Finance, Nephila Climate. “Risk transfer solutions designed to meet the needs of the renewable energy market are essential to support investment and financing of infrastructure on the scale needed to achieve zero carbon targets. We are proud to be working with market leading partners to create those solutions.”

“This deal is a great example of the evolution of renewable energy products here in the US,” Kevin Smith, CEO of Lightsource bp in the Americas said. “Innovative power contract structures such as virtual and proxy generation PPA’s are valuable tools we can leverage to meet the needs of our corporate partners, manage risk, and continue to finance and build new solar projects for our low carbon future.”

“AGCS is excited to collaborate with Lightsource bp on this novel renewable energy hedge structure and risk management tool,” added Vijay Suchdev, Managing Director at AGCS. “We are committed to working with our partners to achieve their sustainability goals and to supporting the long-term global growth of renewable energy.”

RESurety Inc. explained what these transactions mean for project sponsors and investors in the renewable energy space, “In a pgPPA, the settlement index is calculated based on the resource — how much sun was shining, in this case — rather than the actual energy generated at any specific time. So it reduces the uncertainty of the contracted power volumes, by removing the risks of outages, equipment failure, or curtailments from the contract settlement.”

That helps to bring greater certainty to the project financing and reduces the potential for volatility.

Similar weather risk transfer arrangements for renewable energy industry players have also seen Nephila working with AGCS and RESurety to transfer wind related risks for wind farm projects and a solar energy project in Australia.

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