GCube strengthens weather risk underwriting team
GCube, an underwriter for renewable energy initiatives, has strengthened its underwriting team to develop its weather risk transfer mechanism across the North American market.
Geoff Taunton-Collins has been appointed to the new role of weather risk analyst, effective June 1. He will support the delivery of the service throughout North America.
Launched in September last year, GCube’s weather risk transfer mechanism capitalises 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 a means of ensuring steady returns and facilitating revenue projections critical to the financing of wind energy schemes.
The firm said that development of its mechanism is in response to increasing demand from US wind project-financed wind operators, notably those refinancing or going through acquisitions.
It claimed 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.
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.
“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,” said GCube. “This has caused production shortfalls that have affected the ability of individual project operators and large portfolio owners alike to generate stable returns.”
It added: “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.”
GCube said that 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.
Bill Hildebrand, executive vice president, GCube, commented: “The United States is one of the most established markets for wind energy worldwide, with a great track record for long-term project performance. 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.”
