Nephila Climate (NCx), the weather and ESG-driven specialty division of Nephila Holdings Ltd. announced the first use of a Proxy Revenue Swap (PRS) for the re-powering of a wind project. Ares Management Corporation, a global alternative asset manager, is the first to use the PRS structure for a repowered project.
Ares Management has chosen a PRS structure to protect long-term cash flows from a three-project portfolio in ERCOT, totaling about 400 MW of nameplate capacity.
A PRS is a hedging contract that provides renewable energy projects with protection against exposure to the risks inherent in relying on a weather-driven fuel source, in addition to power price volatility.
A fund managed by Ares’s Infrastructure and Power strategy used three different PRS contracts to facilitate the financing for the acquisition and re-powering of the wind power portfolio from BP in the ERCOT region. The three-project portfolio included Sherbino Mesa 2, Trinity Hills and Silver Star.
“Just as the PRS has now become a standard product for de-risking merchant renewable energy projects, we expect it to play a key role in helping sponsors to finance the repowering of wind projects,” said Richard Oduntan, CEO of NCx. “With a forecasted surge in repowering projects over the next several years, we are pleased that the Ares PRS transactions will be the vanguard of many more to come.”
The projects entered into 10-year PRS contracts with Allianz Global Corporate & Specialty, Inc.’s Alternative Risk Transfer (ART) unit, in partnership with Nephila Climate. REsurety, Inc. provided the risk analytics needed to support the PRS transactions and will serve as the calculation agent on an ongoing basis.
“We continue to break new ground with PRS in using it to support the re-powering of wind projects,” stated Karsten Berlage, managing director, Allianz ART. “We are pleased to collaborate with NCx yet again on another ‘first,’ and to help ARES manage the long-term revenue risks for these projects.”
According to Bloomberg New Energy Finance, the market for re-powering is expected to surge in the next two years with 1.25 and 2.02 GW of re-power projects predicted to be completed in 2019 and 2020, respectively, in the U.S. alone.
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