GCube has responded to increasing demand from US wind project-financed wind operators, notably those refinancing or going through acquisitions, by strengthening its underwriting team and rolling out its unique Weather Risk Transfer mechanism across the North American market.
Demand for tailored risk transfer solutions has reached an all-time high in the US wind energy sector as investors and project stakeholders look to mitigate the financial impact of volatile performance, following unprecedented low wind speed conditions throughout 2015 and 2016.
Large areas of the country, including the high-capacity regions of California and Texas, have recently experienced the lowest average wind speeds since records began. This has caused production shortfalls that have affected the ability of individual project operators and large portfolio owners alike to generate stable returns.
As a result, a number of leading US utilities, yieldcos and independent power producers have directly cited below par wind resources as a contributing factor to net losses in 2015 and Q1 2016. This financial underperformance, if left unchecked, threatens to undermine the reputation of wind energy as a low-risk, reliable investment – particularly with the emergence of new investors with less tolerance to lower returns.
While risk transfer mechanisms are an established means of smoothing profitability in many weather-dependent sectors, uptake in the wind energy market has been limited by the availability of accurate on-site meteorological data and the ability of third-party financial bodies to provide a product tailored to the unique exposure and requirements of wind energy owners and operators.
GCube is the only dedicated renewable energy insurer to offer such a product. Launched in September last year, GCube’s Weather Risk Transfer mechanism capitalizes on years of experience in the US renewables market underwriting marine, property and casualty insurance.
Based on a straightforward index trigger mechanism determined by on-site weather data records, the product counteracts the financial impact of underperformance by providing proportional payments to the buyer in the eventuality that wind speeds fall below an agreed threshold. In the long-term, this financial risk transfer approach provides an invaluable means of ensuring steady returns and facilitating revenue projections critical to the financing of wind energy schemes.
In response to growing recent demand from US wind project and portfolio owners, GCube has now committed to further enhance its Weather Risk Transfer proposition with the appointment of a dedicated Weather Risk Analyst, Geoff Taunton-Collins, who will support the delivery of the service throughout North America.
“The United States is one of the most established markets for wind energy worldwide, with a great track record for long-term project performance,” says Bill Hildebrand, Executive Vice President, GCube Insurance Services. “However it’s fair to say that the industry was caught off-guard by the sheer scale of the climate events that have caused the recent low winds.
“The good news is that, as short-term weather and performance monitoring approaches have improved, so too has our ability to mitigate the impact of performance fluctuations on project revenues. Keeping cash flows stable during abnormal weather conditions will keep investors on board, keep project financing on track and ensure the longevity of the industry.”
The Weather Risk Transfer mechanism has already been deployed by wind and hydroelectric project owners around the globe, in territories including the United States, the United Kingdom and Australia. GCube will be providing detailed case studies demonstrating the benefits of Weather Risk Transfer for US banks to an audience of brokers and insureds at its Onshore Wind Risk Seminar in Chicago on 19 July.
