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Nephila Climate takes weather risk to assist Scout wind farm financing


Nephila Climate, the weather, climate risk and reinsurance focused unit of the largest ILS fund manager Nephila Capital, has participated in another wind farm financing transaction, taking the weather risk out of the equation for operators and investors in the renewables project.

Wind farm imageNephila has long been involved in the weather and climate risk transfer market, be that through provision of reinsurance capacity to support catastrophe and weather related risks, or more complex financial arrangements to hedge out weather risk to reduce volatility associated with renewable energy projects like this.

These transactions, dubbed proxy revenue or generation swaps, or in this case also called a long-term offtake transaction by the operator, provide greater certainty to investors, operators and the construction of renewable energy projects by hedging out weather related supply and volume risk.

Nephila Climate has again teamed up with long-time partner on these transactions Allianz Global Corporate & Specialty’s (AGCS) Allianz Risk Transfer (ART) unit, as the insurer taking on the risk outside of the weather related component for this deal.

The 180-megawatt (MW) Heart of Texas Wind Farm ,located in McCulloch County, Texas, will operate with 64 of the latest-generation GE 2MW wind turbines.

Scout Clean Energy, a Colorado based renewable energy developer, owner and operator, is the company behind the wind farm, and a portfolio company of Quinbrook Infrastructure Partners.

Scout announced the successful closing of construction financing of $255 million from a lender consortium that includes KeyBank, Rabo Bank and Co-Bank and tax equity commitments underwritten by GE Energy Financial Services for the wind farm, putting it on a path to begin constructing the renewable energy facility that will eventually provide zero emissions energy to users in Texas.

The risk transfer transaction that has helped to get the project off the group involved a a Proxy Generation Swap from Allianz Global & Specialty, Inc.’s Alternative Risk Transfer unit, working in partnership with Nephila Climate who take out the weather risk component of the deal.

Specialist renewables focused broker REsurety supported the delivery of the Proxy Generation 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, “Heart of Texas is Scout’s third successful wind project closing in under two years, which is quite an achievement. Our respective teams overcame many obstacles and development challenges along the journey to get this project into construction. As ever, our lead project partners GE, BHE, KeyBank and Allianz, who also supported Scout’s successful closing of the 300MW Ranchero wind project, have delivered yet again for us, which is greatly appreciated.”

“Scout’s growth to date has been impressive. We expect Scout to pass through the 1-gigawatt threshold of operational wind MWs by the end of next year, which will be a critical scale milestone. With so much still to come in the Scout development pipeline across wind, solar and battery storage, this is an exciting phase for our respective teams and of course, Quinbrook’s investment partners,” added Rory Quinlan, co-founder and Managing Partner of Quinbrook.

“Heart of Texas will provide zero emissions renewable power for both Texas industry and thousands of homes, as well as supporting up to two hundred jobs during construction and up to seven permanent jobs during operations,” Michael Rucker, CEO and founder of Scout also commented. “Heart of Texas is our third successive wind farm closing as an owner-operator and brings Scout’s owned portfolio of wind generation to 700MW.”

These weather hedges and risk transfer deals are integral to the success of the financing of wind farm projects, providing investors and operators with greater certainty in their revenues and reducing the risks of weather volatility (wind specifically in this case) impacting future production revenues.

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.

They are a financial derivative structure, providing 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, price and volume risk are all hedged, recucing uncertainty for investors and project owners.

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

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