Nephila Climate backs proxy revenue swap for Ranchero wind farm

Nephila Climate, the weather, climate risk and reinsurance focused unit of ILS fund manager Nephila Capital, has provided capacity to back another proxy revenue swap for a wind farm project, again alongside Allianz Risk Transfer.

These transactions are becoming more frequent as the renewable energy sector, its investors and developers, increasingly gain an appreciation for the benefits of hedging out variability in their weather related energy sources.

In this case, Nephila Climate and Allianz Risk Transfer have provided a proxy revenue swap arrangement to support specialist investor in low-carbon energy infrastructure Quinbrook Infrastructure Partners portfolio company, Scout Clean Energy LLC, in securing the necessary construction financing and tax equity commitments on a 300MW wind farm named Ranchero in Crockett County, Texas.

The Ranchero wind farm project, which is expected to be operational by the end of 2019, has secured the 10-year Proxy Revenue Swap Allianz ART and which is also backed by Nephila Climate.

Insurance, reinsurance and alternative risk specialist Allianz and ILS fund manager Nephila Capital regularly work together on transactions in this field, with the proxy revenue swap a tool that enables greater certainty in revenues for project developers, investors and owners, both in the wind energy and solar power fields.

As is also typical of these transactions, specialist renewables focused broker REsurety supported the deliver of the Proxy Revenue Swap transaction with risk analytics and will serve as the calculation agent on an ongoing basis.

David Scaysbrook, co-founder and Managing Partner of Quinbrook, commented “It is especially pleasing to have closed a major new financing and commenced construction of the first project to be developed from scratch by the Scout team. Ranchero has the potential to be a significant new wind project for the Texas power market and enjoys a strong wind resource. Securing Allianz as Ranchero’s offtake partner supports our view of the quality of the project and its compelling wind resource fundamentals.”

“Quinbrook and the Scout team are pleased to have closed and launched construction of another utility scale wind project with distinguished partners and the opportunity to employ new financing and off-take structures in the Ranchero transaction,” added Jeff Hunter, Senior Managing Director of Quinbrook.

In arranging the swap, Allianz ART will have acted as the insurer for the hedging transaction, while Nephila acts as a source of reinsurance capital and absorbs the weather risks into its ILS funds, with the support of ReSurety who assist in structuring these transactions.

The proxy revenue swap is a financial derivative structure which offers the benefits of stabilising revenues for the project, no matter how power price fluctuates or weather patterns (so wind availability in this case) impact production of energy. As a result shape risk, as well as price and volume risk, are all hedged lowering uncertainty for investors and project owners.

These wind farm risk transfer transactions are an innovative mix of financing and reinsurance hedging, offering greater certainty to the burgeoning renewable energy sector’s investments. The same financial technology has been successfully applied in the solar power space as well.

For Nephila Capital and its ILS investors, the underlying weather-related risks it assumes through its reinsurance support for these transactions helps to augment its weather-risk linked investment strategies.