Hedging structure allows Scout Clean Energy to manage risks associated with weather and price variability for its Heart of Texas wind farm.
Hamilton Bermuda /PRNewswire/ - Nephila Climate, the weather, climate and ESG-driven specialty division of Nephila Holdings Ltd. announced the first use of a Proxy Generation Power Purchase Agreement (pgPPA) for the 180MW Heart of Texas (HTX) wind farm located in McCulloch County Texas being developed by Scout Clean Energy of Boulder, Colorado. Scout secured the pgPPA with Allianz Global & Specialty, Inc.'s Alternative Risk Transfer unit, in partnership with Nephila Climate. REsurety provided the risk analytics supporting the long-term offtake transaction and will serve as the calculation agent for the life of the contract.
The pgPPA is the newest structure in a suite of risk management tools that allows buyers and sellers of renewable energy to manage the risks created by weather-driven renewable energy. Unlike the Proxy Revenue Swap (PRS) (more than 2GWs of PRSs are currently deployed) which guarantees a revenue amount, the pgPPA guarantees a rate per MWh. The project therefore retains exposure to P50 accuracy. This structure provides the cashflow certainty the project needs to support financing but does not require the project to pay for the transfer of risk that it prefers to retain.
"The renewable energy landscape continues to evolve, with buyers and sellers of clean energy having to manage increasingly large and complex risks," said Richard Oduntan, CEO of Nephila Climate. "In response to that need, Nephila Climate's goal is to provide a holistic set of risk management tools to the buyers and sellers of clean energy. These tools enable our clients to pick and choose which risks they want to shed, and which risks they want to hold, which can change project by project. We're delighted to be announcing the execution of this new structure with the Scout team a short few months after announcing our PRS transaction with them earlier this year."
A pgPPA is essentially the same as the popular Virtual PPA, or "vPPA" structure favored by corporate buyers. The difference is that the contract settles on a Proxy Generation index rather than the observed or metered generation. Proxy Generation is an hourly index that specifies the volume of energy that a project would have produced if it had been operated as specified by the developer or owner. This settlement mechanism is required to establish aligned interests: ensuring that the offtaker doesn't take on financial exposure to the owner/operator's decisions, such as when to plan maintenance or to install upgrades.
"The success of structures like the Proxy Revenue Swap for project developers, and more recently the Volume Firming Agreement (VFA) for renewable energy buyers, clearly demonstrates that both buyers and sellers of clean energy are increasingly in search of tools to manage the volatility of intermittent generation," said Lee Taylor, CEO of REsurety. "The pgPPA is simply the next iteration of a proven structure that enables each party to manage the risks that they are best equipped to hold."
"We continue to break new ground with these innovative risk management structures," stated Karsten Berlage, managing director, Allianz Alternative Risk Transfer (ART). "We are pleased to collaborate with the Nephila Climate and REsurety teams yet again for another 'first,' and to provide Scout with the revenue certainty they needed to launch construction of the project."
About Allianz Global Corporate & SpecialtyAbout Nephila
Nephila Capital Ltd is a leading investment manager specializing in reinsurance risk. Nephila offers a broad range of investment products focusing on instruments such as insurance-linked securities, catastrophe bonds, insurance swaps, and private transactions. Nephila Climate is a dedicated weather and climate risk transfer and ESG-driven business. Nephila Capital Ltd has assets under management of approximately $10.7 billion as of September 1, 2019 and has been managing institutional assets in this space since it was founded in 1998. The firm has over 130 employees based in their Bermuda headquarters, San Francisco, CA, Nashville, TN and London. Further information can be found at nephilaclimate.com or nephila.com
Allianz Global Corporate & Specialty (AGCS) is a leading global corporate insurance carrier and a key business unit of Allianz Group. We provide 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 not only the world's largest consumer brands, tech companies and the global aviation and shipping industry, but also wineries, satellite operators or Hollywood film productions. 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.
Worldwide, AGCS operates with its own teams in 34 countries and through the Allianz Group network and partners in over 200 countries and territories, employing over 4,400 people. As one of the largest Property-Casualty units of Allianz Group, we are backed by strong and stable financial ratings. In 2018, AGCS generated a total of €8.2 billion gross premium globally.
For more information, please visit http://www.agcs.allianz.com/ or follow us on Twitter @AGCS_Insurance and LinkedIn. Cautionary Note Regarding Forward-Looking Statements
REsurety is the leading provider of valuation analytics and risk management services to buyers and sellers of renewable energy. With deep expertise at the intersection of weather and power markets, REsurety has built unrivaled databases and analytical systems that enable a more precise understanding of the value and risk of intermittent power generation. Having supported over 5,000 MW of transactions since 2015, REsurety is rapidly changing the way renewable energy is bought and sold across the globe. For more information visit: www.resurety.com