Karsten Berlage, managing director and regional head of Allianz Alternative Risk Transfer North America, talks us through its innovative risk transfer product, the Solar Proxy Revenue Swap.
HOW DID THE IDEA FOR THE SOLAR PROXY REVENUE SWAP COME ABOUT?
Allianz has been a leading provider of weather risk solutions globally for more than 10 years. We have been o ering tailored parametric index solutions to corporate clients around the world, protecting against adverse weather conditions from rain, heat, cold, wind, etc. The alternative energy sector has been a focus for Allianz for some time in concert with our strong commitment to decarbonisation. We have successfully provided solutions for wind and solar assets on five continents. Australia has been a key market for Allianz weather business for a long time, covering various weather perils like heat, rainfall and wind.
To address the issue of protecting revenue steams for renewable assets, AGCS Alternative Risk Transfer and Nephila Climate pioneered an innovative risk transfer product – the Solar Proxy Revenue Swap. The Susan River and Childers solar farm projects in Australia mark the first time the Proxy Revenue Swap instrument has been applied to a solar venture anywhere in the world. AGCS’s client, Elliot Green Power, found it challenging to obtain finance for its projects owing to the uncertain nature of solar power generation and the associated revenues. By hedging out the weather-related risk associated with investments in a solar farm, investors, buyers or owners can smooth revenue and earnings volatility, receiving payouts when sunlight is insufficient to support the solar generation volumes targeted. This form of swap was designed originally to meet the needs of the wind energy industry, but it has now been adapted to also cover solar facilities and has the potential to make more solar projects bankable by de-risking project revenues.
The partnership between AGCS Alternative Risk Transfer and Nephila brings collective expertise in weather risk transfer and renewables, as well as insurance and reinsurance risk capacity, underwriting sophistication and credit strength, to facilitate these transactions for solar project owners and developers like Elliott Green Power.
WHAT ISSUES DID YOU COME ACROSS IN THE DEVELOPMENT OF THE PRODUCT?
Data availability is important and advancements in the area pave the way for innovation. Clients who are willing to be first movers and see the value of the solution, such as reduced revenue volatility and more favourable financing terms, are essential. As there is a multitude of stakeholders for these transactions, we need to make sure that there is an alignment of all interests.
HOW COULD THIS TYPE OF PRODUCT BE EXPANDED INTO OTHER AREAS?
Parametric weather index solutions may be applied to all weather-sensitive businesses. The vast majority of businesses have weather sensitivity on the supply, demand or operational side. Mitigating substantial weather risks through a highly rated insurance solution should be an integral part of comprehensive risk management, along other hedging solutions, and o en leads to better creditworthiness. Weather risks may be combined with other insurable risks in integrated solutions. Looking at the Proxy Revenue Structures as long-term volatility reduction tools, they may also be applied to other businesses in a broader financing context.
HOW WILL IT BENEFIT RISK MANAGERS MANAGING COMPLEX SYSTEMIC RISKS?
Some of the benefits include mitigating significant corporate risks, improving creditworthiness, addressing stakeholder concerns – lenders, rating agencies, shareholders, etc – as well as reducing volatility for better budgeting.