Allianz Risk Transfer and partners develop innovative swap solution to hedge volatile revenues of wind farms

Press Release | May 5, 2016 | New York/London
  • 10-year Proxy Revenue Swap Hedge for Bloom Wind Farm in Kansas, US,  ensures stable revenues despite uncertainty of intermittent wind resource
  • Allianz Risk Transfer cooperates with Nephila, REsurety and Altenex to create and commercialize this new risk management tool for wind power
  • Advances in risk modeling and maturity of risk appetite enabled new scope of long-term risk transfer

Allianz Risk Transfer (Bermuda) Limited (ART) and partners have developed an innovative risk management solution for hedging wind volume risks for wind farms. ART has executed a 10-year Proxy Revenue Swap with Capital Power’s Bloom Wind Farm, to be constructed near Dodge City, Kansas.

This new risk management tool for the wind power industry was created and commercialized through a partnership amongst ART, Nephila Capital Limited (Nephila), REsurety, Inc (REsurety) and Altenex, LLC (Altenex). The 10-year agreement will secure long-term predictable revenues and mitigate power generation volume uncertainty related to wind resources for the 178 MW Bloom Wind Farm.

“This new product line for the wind power industry will enable more efficient and cost-effective financing of wind generation projects,” said Karsten Berlage, Managing Director of ART. Due to the high upfront cost of modern utility-scale wind projects, it is important for investors in such projects to be able to secure long term stable revenues to underpin the investment.

Previously, traditional price-focused hedging solutions have been commonly used to try to address this, but this newly created Proxy Revenue Swap offers an entirely new form of revenue risk management for the wind power industry. Similar in concept to a tolling agreement or capacity payment, this novel structure swaps the floating revenues of a wind farm – those driven by the hourly wind resource and power prices – for a fixed annual payment. This transaction is the first in a robust pipeline of future wind financings and would also be feasible in other wind farm markets globally beyond the US.  

The ART-led swap is unique in several aspects. “Recent advances in data availability for the US wind market as well as in risk assessment and modeling allowed this unprecedented scope of risk transfer within a single product, which is available for up to 10 years,” explained Berlage. “In contrast to more short-term and price-focused hedging approaches, for the first time price and wind volume risks of a wind farm have been managed at the tenor needed to support a project's capital structure and balance sheet”, Berlage continues. “The result is a level of revenue certainty never before available to the wind industry.”

Each partner contributed highly specialized expertise to create this innovative swap solution. ART and Nephila leveraged their collective weather risk transfer expertise, risk capacity, underwriting sophistication and credit strength. REsurety has provided the specialized risk analyses relied upon for the structuring of the Proxy Revenue Swap and delivers ongoing services as the calculation agent for the transaction. Altenex supports the management of power price-linked risk as part of the Proxy Revenue Swap structure.

ART and Nephila have a long-standing partnership in the weather and catastrophe risk markets and have worked with REsurety since 2012 to develop risk transfer products for the wind power industry. More recently, through a partnership established between REsurety and Altenex in 2015, protection against low wind output has been expanded to include power price risk as well as generation volume-linked risk exposures.

Allianz Global Corporate & Specialty (AGCS) is a leading global corporate insurance carrier and a key business unit of Allianz Group. AGCS provides risk consultancy, Property-Casualty insurance solutions and alternative risk transfer for a wide spectrum of commercial, corporate and specialty risks across 12 dedicated lines of business.

Our customers are as diverse as business can be, ranging from Fortune Global 500 companies to small businesses, and private individuals. Among them are the world’s largest consumer brands, tech companies and the global aviation and shipping industry, but also wineries, satellite operators or Hollywood film actors. They all look to AGCS for smart answers to their largest and most complex risks in a dynamic, multinational business environment and trust us to deliver an outstanding claims experience.

We constantly strive to deliver the best for our customers through our global team of around 4,400 employees from over 70 nationalities in 34 countries worldwide. As the one of the largest Property-Casualty units of Allianz Group, we are backed by strong and stable financial strength ratings and a global network in over 200 countries and territories. In 2018, AGCS generated a total of €8.2 billion gross premium worldwide.

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