Swiss Re Insurance-Linked Fund Management

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Swiss Re in first-of-its-kind index-based wind farm weather hedge


Swiss Re Corporate Solutions, a division of the global reinsurance firm, has provided Infigen Energy with a pioneering wind farm hedge, protecting it across areas of Southern Australia, New South Wales and Western Australia from low-wind weather cycles.

Swiss Re described the new transaction as the first-of-its-kind, as unlike other, traditional wind hedging risk transfer products this deal minimises basis risk by utilising “actual energy production across multiple sites.”

In contrast, traditional wind protection solutions are “tied to single-site modelled wind speed indices,” reinsurance firm Swiss Re explained.

The wind farm hedge will pay Infigen, a specialist renewable energy business that has projects across Australia and the U.S., a fixed amount per megawatt-hour for power not generated on account of low wind, covering parts of Australia for an excess of 500 megawatts of capacity.

As a result the risk transfer provides Infigen with a way to increase the predictability of its cash flow, while helping it to avoid earnings volatility.

“Wind farm operators are constantly looking for ways to better protect themselves in low-wind weather cycles. By indexing the risk to actual energy production, Swiss Re Corporate Solutions has enabled Infigen Energy to directly transfer part of the risk of variable wind resource outcomes,” said Jamie Summons, Swiss Re Corporate Solutions’ Head of Weather Solutions for Asia Pacific.

Miles George, Infigen Energy’s Managing Director said; “We had been looking to devise a structure that would provide increased revenue certainty and allow us to better manage the variability associated with wind resource across our geographically diverse Australian portfolio.”

Adding; “We are pleased to have collaborated with Swiss Re Corporate Solutions on a unique structure that works for both parties.”

Swiss Re notes that tailored hedging solutions like this one can also be developed and used to protect a host of agricultural, construction, tourism and retail sales that are inherently impacted by adverse weather cycles.

The reinsurance giant also predicts an increase in demand for weather risk management solutions as the renewable energy sector continues to expand.

It said; “ By the end of this decade, a 50% increase in renewable energy investment is likely to more than double insurance and other risk transfer solutions spending in six of the world’s leading renewable energy markets. Depending on the scenario, annual expenditures on risk management services could reach between USD 1.5 billion and 2.8 billion by 2020.”

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