By 2030 just 6% of European wind energy capacity will be protected against market risks by government support schemes compared to 75% today, raising new opportunities to transfer the growing financial risk from wind volatility, according to a Swiss Re study.
Wind hedges, in the form of a derivative or insurance cover, could help the industry by reducing the uncertainty of variable wind generation by transferring the risk of underproduction from the producer to a hedge provider.
In the event of a shortfall, the hedge provider compensates the producer for any losses if the wind falls below a certain threshold.
Stuart Brown, Head Origination Weather & Energy APEMEA, explained that although volume hedges for wind have been available for several years, the take-up has been limited because they weren’t needed.
“But as merchant risk becomes more dominant, the value added by hedging production may come to be make-or-break for greenfield, re-structuring and PPA wind development. We’re pleased to see work being done to try to quantify that value added,” said Brown.
According to GCube, weather risk due to a lack of wind, or resource risk as its known in the sector, is the major threat to wind energy markets and wind farm operators, with the inability to transfer the weather risk adequately often leading to sub-par project performance.
In order for the wind energy sector to offset this risk, reinsurance and risk capital is required.
Swiss Re estimates that risk transfer could save energy firms EUR2.5 billion for new wind assets installed between 2017 and 2020 and up to EUR 7.6 billion for new wind power installations between 2017 and 2030, by increasing their debt capacity to finance wind power projects.
