Nephila and Allianz use first proxy generation PPA structure

07-10-2019

Nephila Climate, the weather, climate and ESG-driven specialty division of Nephila Holdings, has become the first institution to use a proxy generation power purchase agreement (pgPPA). The transaction saw the sale of power generated by the 180MW Heart of Texas (HTX) wind farm, located in McCulloch County, Texas.

The pgPPA allows buyers and sellers of renewable energy to manage the risks created by weather-driven renewable energy. It guarantees a rate per MWh, in contrast with proxy revenue swaps, which guarantee a revenue amount. This means it provides cashflow certainty to support financing, without requiring the project to pay for the transfer of risk that it prefers to retain.

HTX is being developed by Scout Clean Energy of Boulder, Colorado, which secured the pgPPA with Allianz Global & Specialy's alternative risk transfer unit, in partnership with Nephila Climate. 

REsurety provided the risk analytics supporting the long-term offtake transaction and will serve as the calculation agent for the life of the contract.

Richard Oduntan, CEO of Nephila Climate, said: "Nephila Climate's goal is to provide a holistic set of risk management tools to the buyers and sellers of clean energy.  These tools enable our clients to pick and choose which risks they want to shed, and which risks they want to hold, which can change project by project.”

Nephila described the pgPPA structure as “essentially the same as the popular virtual purchase power agreement structure favored by corporate buyers”, except that the contract settles on a proxy generation index, rather than the observed or metered generation. Proxy generation is an hourly index that specifies the volume of energy that a project would have produced if it had been operated as specified by the developer or owner. 

This difference ensures an alignment of interests, ensuring that the offtaker doesn't take on financial exposure to the owner/operator's decisions, such as when to plan maintenance or to install upgrades, Nephila explained. 

Lee Taylor, CEO of REsurety, said: "The success of structures like the proxy revenue swap for project developers, and more recently the volume firming agreement for renewable energy buyers, clearly demonstrates that both buyers and sellers of clean energy are increasingly in search of tools to manage the volatility of intermittent generation."

Karsten Berlage, managing director at Allianz Alternative Risk Transfer, added: "We continue to break new ground with these innovative risk management structures."

Nephila Climate, Scout Clean Energy, Allianz Global & Specialy, REsurety, Richard Oduntan, Lee Taylor, Karsten Berlage

Bermuda Re