Nephila Climate, the weather and climate risk focused arm of the largest independent insurance-linked securities (ILS) manager Nephila Capital, has provided capacity to back a weather-linked wind farm risk transfer deal, to support the needs of a data center provider.
Working with its regular partners the Capital Solutions unit of Allianz Global Corporate & Specialty (AGCS) and specialist renewable energy risk analytics firm REsurety Inc., Nephila has provided reinsurance capital to underpin the weather risk related component of a de-risking arrangement to support data center provider Iron Mountain’s procurement of renewable energy from wind farms.
Iron Mountain, Inc., thanks to this arrangement and the financing for procurement it is linked to, will be able to continuously and cost-effectively power its data centers in five states using energy produced at the Ringer Hill Wind Farm in Pennsylvania and the Dermott Wind project in Texas.
As a way to reduce risk and costs associated with the procurement of renewable energy and to simplify renewable energy access for the data center provider, Iron Mountain worked with Birch Infrastructure who teamed up with REsurety.
The arrangement saw Birch utilise two weather-linked risk management products, as it aimed to improve on the standard virtual Power Purchase Agreement (vPPA) – a Settlement Guarantee Agreement (SGA) and a Volume Firming Agreement (VFA).
The goal is to enable Iron Mountain to limit its exposure to variability caused by weather and power market fluctuations while investing in offsite renewable energy.
Birch executed the SGA and VFA for Iron Mountain with Allianz Global Corporate & Specialty’s Capital Solutions unit, with Nephila Climate providing the weather risk transfer reinsurance capacity to support the arrangement.
REsurety provided the valuation and risk analytics required to support the transactions, and will serve as the calculation agent for their ongoing tracking and settlement.
“vPPAs are great tools for corporates to achieve their sustainability goals,” explained Lee Taylor, CEO of REsurety. “Unfortunately, on their own they can result in ineffective hedges on energy consumption costs or speculative exposure to commodity markets and weather. Birch and Iron Mountain recognized these challenges, and we are delighted to have supported their transition to this new solution – ensuring Iron Mountain achieves its sustainability goals and its financial goals, simultaneously.”
These arrangements are part of a suite of weather and climate related risk transfer offerings that Nephila offers to investors in, as well as buyers and sellers of, renewable energy. The transactions help to manage the variability risks inherent in weather-driven renewable energy projects and energy production.
Renewable energy weather-linked hedging products like this help those with financial exposure to a project mitigate the shape, price and volume risk associated with them, ultimately reducing uncertainty for investors and project owners or operators.
For Nephila Capital, as well as its ILS and reinsurance investment fund allocators, the underlying weather-related risks assumed with these transactions augment its weather-risk linked investment fund strategies, adding new exposure often over longer terms.
These wind farm risk transfer transactions combine an innovative mix of financing and reinsurance hedging, with the result being greater certainty for the growing renewable energy sector’s investments and corporate spend on renewables. The same financial technology has been successfully applied in the solar power space as well.