Hedging structure allows Scout Clean Energy to manage risks associated with weather and price variability for its Heart of Texas wind farm.
HAMILTON, Bermuda, Oct. 4, 2019 /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.”
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