Re2, a climate risk transfer specialist located in Bermuda operated by alumni of ILS manager Nephila Capital, has announced the completion of a first of its kind Battery Revenue Swap for a Blackrock fund portfolio energy company.
Re2 Capital launched in 2022 with a mission to structure innovative climate risk transfer and financing solutions that can connect private investment capital and risk capacity to climate-linked opportunities.
Today, Re2 and Akaysha Energy, which is a portfolio company owned by a fund managed by BlackRock’s Infrastructure business, announced the successful completion of an innovative risk hedging arrangement for Akaysha’s Ulinda Park Battery Energy Storage System (BESS).
Re2 has developed the Battery Revenue Swap Agreement to mitigate revenue risk for BESS projects, for a period of up to 10 years.
The Ulinda Park Battery Energy Storage System (BESS) is being developed in Hopeland, Queensland, Australia, and expected to have a capacity of 155 MW/300 MWh, with operations slated to commence in 2025.
Richard Oduntan, CEO of Re2 commented on the transaction, “The implementation of risk management solutions driven by the private sector will be essential to the build out of energy storage systems at a scale necessary to support the continued growth of variable renewable energy. We are proud to be working with market-leading partners and excited to have had the opportunity to collaborate with Akaysha and BlackRock on this risk transfer transaction.
“The team at Re2 has a well-earned reputation for bringing innovative products to the renewable energy market, and we look forward to continuing to play a catalyzing role in the energy transition.”
Nick Carter, CEO and Managing Director of Akaysha Energy added, “The revenue swap product that we have developed with Re2 is exactly the sort of innovative offtake product that we need in the market right now to help accelerate the build-out of large-scale battery projects like the Ulinda Park Battery Energy Storage System (BESS).
“The 10-year revenue swap provides the right balance of contracted and unhedged revenue, while still allowing us to operate the project and bid into the energy and FCAS markets in the NEM.”
Revenue swap hedging arrangements have been seen in the renewable energy space in solar and wind farm development projects, as a way to smooth revenues and also hedge some of the weather risks linked to their revenue potential.
In this case, the instrument is parametric in nature, but does not feature a weather related trigger.
Rather, it acts as another parametric-like hedging tool, to help smooth revenues against the weather or climate cycle, as well as other economic factors.
Which is particularly relevant in this case as, Battery Energy Storage Systems (BESS) are critical to the sustainability of electricity markets that are increasingly dominated by weather-driven, renewable energy generation.
BESS operators look to optimise their assets, so that they store energy during periods of high solar and/or wind generation, for release when the sun is out and/or wind is low.
This risk transfer arrangement is therefore climate-linked, although not weather-linked, but could still be an appealing way to access risk-linked returns from the renewable energy market.