An innovative financial hedge for fluctuations in wind yield
Whether off-shore or on land, the momentous and global growth of the wind power industry comes with inevitable financial risks due to the resource’s inherent volatility.
The effects of these exposures are felt by a growing number of stakeholders in the wind energy value chain. Without a solution in the traditional marketplace to insure against renewable income unpredictability, stakeholders ranging from operators to developers and financiers are left absorbing the gap when wind yield impacts revenue flow.
Descartes’ parametric solutions offer a financial hedge against wind yield volatility. Customized precisely to client’s wind farm locations, turbine technology, and historical yield, we protect against loss of income due to an excess or lack of wind through a straightforward, index based solution that triggers based on objective, third-party data.
Our parametric wind yield product is structured using a combination of hourly satellite data and individual wind turbines’ power curves.
We develop an index calibrated to historical annual energy yield and the wind farm’s efficiency. Working hand-in-hand with the client and broker, we define the index triggers and corresponding payout amounts to flexibly meet their risk appetite.
The result is a simple, transparent policy that provides swift payment when the hourly recorded wind speed falls below a certain pre-agreed percentage of the modelled average during the annual policy period.
Descartes’ parametric products are tailor-made and adapted for all stakeholders and financing parties in a wind project’s ecosystems.
Parametric Insurance Case Study: Offshore Wind Power Volatility
Client Need: While offshore wind farms tend to have a high capacity factor, their generation output varies significantly, fluctuating up to 20% from one hour to the next (IEA, 2019)². This leads to substantial yield and income volatility over the course of a year for production facilities.
Pain Point: An off-shore wind company developing a new site in Taiwan must obtain insurance as part of financial terms set by its bank to receive a loan. The bank requires proof that the new site will be covered against all risks, including loss of revenue due to lack of wind resources. However the traditional market does not offer coverage for lack or excess of wind, thus the company must find an alternative solution in order to continue construction.
Our Solution: A parametric wind yield cover that swiftly pays out when power generation does not meet the pre-agreed target production thresholds. Exposure of the offshore site is monitored in real-time by official wind measurements provided by satellite data. The policy is structured based on analysis of more than 20 years of data and customized precisely to the off-shore location, exposure, and turbine technology.
The Result: The company was able to meet the loan requirements established by their bank and construction continued seamlessly. By holistically evaluating the data associated with the underlying cause of reduced yield for this particular wind farm, our model more closely resembles the client’s unique experience with wind volatility. This ensures that they only pay for what they actually need during construction and operation – leaving clients and lenders satisfied with declining project risk and increased profit security.