Nephila Climate, the newly launched weather and climate risk focused unit of ILS and reinsurance investment giant Nephila Capital, has partnered with insurer Allianz to deliver a fourth wind farm proxy revenue swap transaction for Invenergy, North America’s largest privately held renewable energy firm.
Nephila and Allianz have been partnering on these innovative wind farm financing and risk transfer solutions since 2016, in transactions that aim to smooth out the revenue streams for wind farm owners and operators, using insurance and efficient risk transfer of weather volatility risks.
For this latest transaction, Allianz Global Corporate & Specialty’s alternative risk transfer unit has executed a 10-year Proxy Revenue Swap with Invenergy. The deal, for Invenergy’s Upstream Wind Energy Center, protects the new wind project’s revenues from financial risks associated with future energy prices and volatility in energy production.
With weather such a key variable in the ability of wind farm projects to meet their targeted energy outputs, the weather risk transfer components of these transactions is key, providing greater certainty to the financing side of the deals.
Construction is expected to be completed and energy production begin, for the 202.5MW Upstream project, in the fourth quarter of 2018.
This fourth transaction since 2016 takes the total Proxy Revenue Swap-hedged wind project capacity to nearly 700MW, with Allianz and Nephila partnering on the risk transfer aspects, while renewable specialist REsurety, Inc. provide the necessary risk analytics to support underwriting of the hedge and act as the calculation agent for the life of the transaction.
Commenting on the transaction, Jim Shield, EVP and Chief Commercial Officer at Invenergy, said, “At Invenergy, we apply innovative thinking to not just development, but also to financing of our clean energy projects. We’ve been considering the Proxy Revenue Swap structure since it came to market, and saw a great opportunity to apply this innovative new hedging structure to Upstream. De-risking our future revenues with this hedging structure was critical to securing the project’s financing.”
Allianz Managing Director Karsten Berlage also said, “Allianz was delighted to collaborate with the Invenergy team to help bring this project to fruition. The Upstream transaction serves as further confirmation of the value that wind projects see in the holistic revenue risk management enabled by the Proxy Revenue Swap product.”
Richard Oduntan, CEO at Nephila Climate, added, “We are very pleased to have executed this hedge to help Invenergy manage its revenue risk for the project, as further proof that the leaders in renewable development see real value in this structure.”
“The uncertainty of the weather as a fuel is an ever-growing source of risk for the energy industry, and the Upstream transaction is a terrific example of how the market is responding to that challenge through the adoption of new risk management tools,” further explained Lee Taylor, Co-Founder and CEO at REsurety.
These transactions closely link the potential downside associated with wind risk for wind farm investors and owners, with their revenues, smoothing future revenues, which can assist them in securing their financing.
By hedging out wind risk associated with investments in a wind farm, investors, buyers or owners, can smooth revenue and earnings volatility caused by the weather, receiving payouts when wind is insufficient to support the generation volumes targeted.
The partnership between Allianz Risk Transfer and Nephila, alongside REsurety, brings collective expertise in weather risk transfer and renewables, as well as insurance and reinsurance risk capacity, underwriting sophistication and credit strength, to facilitate these transaction for wind farm owners.
Specialist ILS and catastrophe reinsurance fund manager Nephila Capital works alongside Allianz ART, facilitating the weather risk transfer and as a risk or reinsurance capacity provider. Nephila and Allianz have been working in partnership on weather and catastrophe risk transfer and reinsurance transactions for many years, developing innovative solutions to vertical focused problems such as this.