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

Allianz Risk Transfer (Bermuda) Limited (ART) and partners have developed a 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.

Karsten Berlage, Managing Director of ART, said: 

“This new product line for the wind power industry will enable more efficient and cost-effective financing of wind generation projects”.

“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”.

“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”.

“The result is a level of revenue certainty never before available to the wind industry.”

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.