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Weather risk cover: all you need to know as a clean energy asset owner

Words: Geoffrey Taunton-Collins, Weather Risk Analyst, GCube Underwriting Ltd.

As with any asset type, consistently ensuring reliable returns from renewable energy assets requires charting a course through a series of financial risks. For the wind industry in particular, given the fickle nature of the elemental force underpinning it, resource underperformance is becoming the principal concern for diligent asset managers and stakeholders over the lifetime of a project. There is now a growing awareness and recognition of the significant threat it poses to asset owners and their revenues.

In an attempt to deal with this threat, weather risk cover has existed in one form or another since the late 1990s. However only now has it emerged as a comprehensive and reliable solution for those looking to stabilise their returns. This has been driven by developments such as longer contract periods, advances to settlement indexes and project-specific product tailoring. Given the decline of the contingent PPA (in some markets) and the additional exposure to price risk this has brought, there has been a growing interest in managing resource risk as a means to alleviate overall increases in revenue volatility.

In conjunction with this greater awareness of the threat posed by fluctuations in weather resource, great strides have been made in the ability of insurers to provide reliable and affordable protection for periods of wind energy asset underperformance.

Improvements in data collection and analysis mean that contracts can be structured on the basis of actual production (or ideal production, using SCADA data from the generating assets themselves), rather than on meteorological data from devices that may be off-site.

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