This innovative structure hedges wind speed utilizing the kWh Analytics Indifference Structure, enhancing the project’s P99 scenario and reducing the sponsor equity requirement.
Originally posted on Business Wire
JULY 23, 2024, SAN FRANCISCO, CA - kWh Analytics, the market leader in Climate Insurance, today announced the successful close of a groundbreaking wind proxy hedge risk transfer product for a 59MW, 14-turbine wind project in Maine, developed by a Greenbacker Capital Management affiliated investment vehicle that invests in sustainable infrastructure assets. This innovative financial structure included the use of a wind proxy hedge, provided by global reinsurer MunichRe, advised by kWh Analytics, and utilizing the kWh Analytics Indifference Structure for debt sizing. This implementation marks the first time a parametric wind hedge has been paired with the kWh Analytics Indifference Structure to reduce equity requirements for a project sponsor. The structure’s implementation enabled the project sponsor to raise roughly 20% more debt capital for this project, led by MUFG.
Wind is a notoriously volatile resource, resulting in distributions with tail events (i.e. P99) that can severely impact debt sizing. Wind speed variability far exceeds that of solar irradiance, presenting unique challenges for project financing. The wind proxy hedge paired with the kWh Analytics Indifference Structure addresses this volatility, significantly improving the project’s P99 scenario by adding investment-grade cash flow above the P99 wind speed. This credit enhancement makes the project more attractive to lenders, leading to increased debt capacity. By incorporating the wind proxy hedge and kWh Indifference Structure, each dollar of premium paid for the product resulted in ~$6 of additional loan proceeds.
Geoffrey Lehv, Head of US Accounts for kWh Analytics, commented on the innovation: “We provided a proprietary debt structure, applying modeling, analysis, and risk management expertise to assist MunichRe in incorporating its parametric solution to a project financing. The resulting credit enhancement not only mitigates downside risk but also optimizes capital structure. This is about more than just financial engineering – it's about accelerating the transition to clean energy by making wind projects more bankable and attractive to investors."
Bill MacLauchlan, CEO Munich Re Trading LLC, commented that: “Deep project finance knowledge was crucial in structuring this transaction. By leveraging our team's long-standing expertise in designing parametric risk-transfer solutions, collaborating closely with MUFG, and utilizing kWh Analytics' unique position in the market, we successfully implemented an innovative risk transfer solution for this Sponsor.”
Alberto Mihelcic Bazzana, Director at MUFG, said: “As a leader in project finance, MUFG is pleased to partner with Greenbacker, kWh Analytics, and MunichRe in developing new financing solutions that can expedite the energy transition process.”
kWh Analytics served as an advisor to Munich Re during the structuring process, drawing on their expertise in designing risk transfer products for renewable energy such as the Solar Revenue Put and Property Insurance. The engineering firm DNV provided a detailed analysis of the wind proxy hedge as part of their project review. MUFG acted as Sole Lead Arranger for the debt financing.
For more information about the wind proxy hedge and/or the kWh Analytics Indifference Structure and its application for solar and wind, please contact Geoffrey Lehv, geoffrey.lehv@kwhanalytics.com.
ABOUT kWh Analytics
kWh Analytics is a leading provider of Climate Insurance for zero-carbon assets. Utilizing their proprietary database of over 300,000 operating renewable energy assets, kWh Analytics uses real-world project performance data and decades of expertise to underwrite unique risk transfer products on behalf of insurance partners. kWh Analytics has recently been recognized on FinTech Global’s ESGFinTech100 list for their data and climate insurance innovations. Property Insurance offers comprehensive coverage against physical loss, with unique recognition and consideration for site-level resiliency practices, and the Solar Revenue Put production insurance protects against downside risk and unlocks preferred financing terms. These offerings, which have insured over $32 billion of assets to date, aim to further kWh Analytics’ mission to provide best-in-class Insurance for our Climate. To learn more, please visit https://www.kwhanalytics.com/, connect with us on LinkedIn, and follow us on X.
ABOUT Munich Re
Munich Re is one of the world’s leading providers of reinsurance, primary insurance and insurance-related risk solutions. The group consists of the reinsurance and ERGO business segments, as well as the asset management company MEAG. Munich Re is globally active and operates in all lines of the insurance business. Since it was founded in 1880, Munich Re has been known for its unrivalled risk-related expertise and its sound financial position. It offers customers financial protection when faced with exceptional levels of damage – from the 1906 San Francisco earthquake through Hurricane Ian in 2022. Munich Re possesses outstanding innovative strength, which enables it to also provide coverage for extraordinary risks such as rocket launches, renewable energies or cyberattacks. The company is playing a key role in driving forward the digital transformation of the insurance industry, and in doing so has further expanded its ability to assess risks and the range of services that it offers. Its tailor-made solutions and close proximity to its customers make Munich Re one of the world’s most sought-after risk partners for businesses, institutions, and private individuals.
About MUFG and MUFG Americas
Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the world’s leading financial groups. Headquartered in Tokyo and with over 360 years of history, MUFG has a global network with approximately 2,100 locations in more than 50 countries. MUFG has nearly 160,000 employees and offers services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing. The Group aims to be “the world’s most trusted financial group” through close collaboration among our operating companies and flexibly respond to all the financial needs of our customers, serving society, and fostering shared and sustainable growth for a better world. MUFG’s shares trade on the Tokyo, Nagoya, and New York stock exchanges.
MUFG’s Americas operations, including its offices in the U.S., Latin America, and Canada, are primarily organized under MUFG Bank, Ltd. and subsidiaries, and are focused on Global Corporate and Investment Banking, Japanese Corporate Banking, and Global Markets. MUFG is one of the largest foreign banking organizations in the Americas. For locations, banking capabilities and services, career opportunities, and more, visit www.mufgamericas.com.
ABOUT Greenbacker Capital Management
Greenbacker Capital Management LLC is an SEC registered investment adviser that provides advisory and oversight services related to project development, acquisition, and operations in the renewable energy, energy efficiency, and sustainability industries. For more information, please visit https://greenbackercapital.com.
Media Contact
Nikky Venkataraman
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kWh Analytics
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Alexandra Weiss
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Munich Re
E | alexandra.weiss@munichre.com
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