The wind industry should consider more hedging schemes to protect against volume risk from uncertainty over output, according to a new report released today.
The report – ‘The value of hedging’ – by WindEurope and Swiss Re Corporate Solutions said hedging will help to reduce the variability of returns and improve cash flow predictability for owners if there is less wind in a given year.
Hedging mechanisms transfer the risk of the variability in generation from the project company to a counter-party willing to take on that risk, said WindEurope chief policy officer Pierre Tardieu.
“What they offer to wind farm owners is more certainty on their income. And that’s what can reduce a project’s costs of capital,” he said.
The report noted that an average wind farm of 30MW may need to hedge for +/-10% annual variations in the production forecast.
“By reducing the variability of the returns, cash flows move closer to the profile of a fixed-income investment, similar to a bond,” it said.
The report estimated that risk management services, such as hedging, could extract a value worth €2.5bn for new wind assets installed between 2017 and 2020, possibly rising to €7.6bn by 2030.
Image: Pixabay
Hedging ‘helps mitigate wind risk’
Solutions available to tackle variability says WindEurope and Swiss Re report
By EBS