Renewables

Wind Farm Revenue Risk

Wind volumes across a year can vary by as much as 20%.

As subsidy regimes become less generous this annual wind variability can make it difficult to secure attractive long term funding for new or existing wind assets, meaning more marginal projects may not work.

Innovations in the reinsurance market mean that it is now possible to enter into long term (10 year) swaps that look to guarantee a fixed volume of wind, and even fixed the power price for energy produced by an asset. This effectively turns a variable revenue stream from an asset into a less volatile or fixed revenue stream over a longer period of time. De-risking a project in this way by giving more certainty over revenue enables projects access to better funding. One other advantage is that this kind of swap can protect against unscheduled outages.

In order to set up a swap payment, an expected production level for an asset is agreed over a given time period:

  • Year
  • Season
  • Day
  • Hour
  • Half hour

The “production level” in MWh: This would typically take into account planned maintenance, and may vary seasonally across the year.

If the power price is also being guaranteed then the swap payment to the windfarm owner would typically look like this:

  • For each settlement period (month) the windfarm owner receives: (Production Level (MWh) – Actual Wind Production (MWh)) * Price
  • If the power price is not fixed the swap payment to the windfarm owner would be calculated in line with the underlying power market (hourly or half hourly)
  • For each settlement period (hour) the windfarm owner receives: (Production Level (MWh) – Actual Wind Production (MWh)) * Power Price (Hourly)