Risk hedge provides protection for wind farm operators

Reinsurance company Swiss Re Corporate Solutions has partnered with Infigen Energy on a wind risk hedge for a portfolio of wind farms, covering locations across South Australia, NSW and Western Australia for an excess of 500 MW of capacity.

The hedge reduces basis risk as it is based on actual energy production across multiple sites, as opposed to traditional wind protection solutions, which are tied to single-site modelled wind speed indices. The product pays Infigen Energy a fixed amount per megawatt-hour for power not generated due to low wind. The structure is said to increase cash flow predictability and help avoid earnings volatility.

“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,” said Infigen Energy Managing Director Miles George. “We are pleased to have collaborated with Swiss Re Corporate Solutions on a unique structure that works for both parties.”

“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,” added Jamie Summons, Swiss Re Corporate Solutions’ head of weather solutions for Asia-Pacific.

According to Swiss Re’s report ‘Profiling the risks in solar and wind’, demand for risk management services will increase as the renewable energy sector continues to grow. Tailored hedging solutions can be designed to cover shortfalls and to compensate for when the sun doesn’t shine or the wind doesn’t blow.