CME Group plans to launch wind power derivatives across the US, Europe and Australia as renewable energy becomes a larger part of global electricity markets, according to a report by Bloomberg.
The proposed contracts would cover locations including Texas, the UK, Germany and Victoria, Australia, and could begin trading in the coming months, according to people familiar with the plans.
The products are expected to track modelled wind power generation using independent datasets, potentially provided by weather intelligence company Vaisala. The contracts would allow utilities, renewable energy producers and traders to hedge against financial risks caused by changing weather conditions.
Most weather hedging currently takes place through customised over-the-counter agreements, which offer flexibility but often lack the liquidity and speed of exchange-listed products. CME’s standardised contracts are designed to make weather risk management easier for market participants.
Extreme weather has increased interest in such products, with recent heat waves reducing wind output and contributing to sharp swings in electricity prices. Lower wind generation combined with rising cooling demand has placed additional pressure on power markets.
CME already offers temperature-based weather contracts in major cities across the US, Europe and Japan. The planned wind products would expand the exchange’s growing range of climate-related derivatives.
