As climate risk continues to evolve, the offshore wind industry is experiencing:
Challenges with project funding due to Nat Cat-driven damage
Disruptions to construction, transportation & installation, material damage & Delay in Start-Up (DSU)
Clients forced to pay significant additional project costs due to weather-driven damage & delays
Operation & Maintenance halts, including business interruption
Key benefits
Fresh capacity:
Parametric products offer a solution for offshore wind yield, as it is completely uninsurable.
Customised protection:
Flexible and straight-forward structure tailored to clients' needs & production.
Transparency:
Provide the client with their index performance over multiple years, where the payout is tailored to their specific production capacities.
Timely claims payment:
Gridded weather data enables clients to bolster their balance sheet when their wind assets are ineffective or cause a significant drop in revenue.
The traditional market does not offer coverage for deficiency or excess of wind, leaving wind farm operators financially exposed
Worldwide, corporations and governments are investing significant capital into the development of large renewable energy projects as part of their commitment to reducing carbon emissions. 2022 saw the total new investment in renewable energy amount to approximately $495 billion USD worldwide, including the offshore wind sector in Asia, Latin America and the Atlantic.
As wind farm development continues to expand across areas with high wind resource availability, financial exposures also increase due to wind’s inherent volatility. This rising financial risk impacts not only the producers themselves but other stakeholders, including developers and financiers. However, the traditional market does not offer coverage for wind resource volatility, leaving clients at risk for hefty additional costs due to Nat-Cat-driven damage or loss of revenue due to a drop in production.
“Wind droughts” also threaten wind resource volatility. The 2021 wind drought in Northern Europe, for example, took a particular toll on regions dependent on wind energy – Denmark (44%), Ireland (31%), Portugal (26%), Spain (24%), Germany (23%), UK (22%), and Sweden (19%). Due to the reduced average wind speed, Ørsted, an energy company based in Denmark, reported a $366 million USD loss. In their latest report, the IPCC predicts a 6% to 8% drop in average wind speeds across Europe by 2050. This not only confirms the precariousness of wind resource volatility, but also leaves clients’ revenues and their renewable assets uncovered.
This is where parametric risk transfer solutions step in, providing capacity and innovative cover against revenue volatility. Descartes’ bespoke and customizable covers deliver swift liquidity when power generation does not meet pre-agreed thresholds. Our parametric covers provide clients full financial security, protecting them against unanticipated revenue loss and supporting wind farm operators, investors and stakeholders as they navigate production fluctuations and their balance sheets. Parametric cover is primed to bring swift liquidity, enabling the net zero transition.
case study example
Case study example
Learn how a parametric cover could cover an offshore wind company in Taiwan:
Problem
An offshore wind company developing a new site in Taiwan faces future cash flow uncertainty due to inherent wind volatility. The client must purchase insurance as part of the terms set by its financing parties and prove it's covered against loss of revenue due to lack of wind. However, the traditional market does not offer coverage for deficiency or excess of wind; thus, the client needed to find a solution to continue construction.
Solution
With a Descartes policy, the wind farm could receive a cover that triggers when power generation does not meet pre-agreed thresholds. The client would receive a swift payout, enabling business continuity & economic balance for all parties.
Result
A parametric cover provides full financial security, enabling the client to avoid revenue loss if they experience a drop in energy production.
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