United States

United States

'First risk mitigation deals' signed for repowering projects

Asset manager Ares Management Corporation has concluded what is believed to be the first proxy revenue swap (PRS) for a repowering project in the US.

One of Ares Management Corporation's funds acquired the three Texan projects from developer BP Wind Energy in December 2018
One of Ares Management Corporation's funds acquired the three Texan projects from developer BP Wind Energy in December 2018

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Securing the risk mitigation contracts for three Texan wind farms helps hedge against uncertainty stemming from using a "variable, weather-driven fuel source" and power price volatility, Ares stated.

This helps protect cash flow for developer and investors, it added.

There are several variations of a PRS, but common to all of them is a calculation of the expected value of future energy production at a project, adjustments paid depending on actual performance, and the transfer of risk to a third party more capable of handling it.

They have previously been used for new-build wind farms, but Ares’ deals are believed to be the first for repowering projects.

Ares will now repower three wind farms in Texas’ Ercot region — the 145MW Sherbino Mesa II, 225MW Trinity Hills, and 60MW Silver Star projects — currently installed with Vestas turbines.

Ares did not confirm the new capacities of the projects.

One of the asset manager’s funds acquired the three projects from developer BP Wind Energy in December 2018.

At the time, Keith Derman, co-head of Ares’ Infrastructure and Power segment, said: "We expect this investment to benefit from an innovative repowering with efficient new technology and a highly-proven, strong wind resource."

Ares entered into ten-year PRS contracts with insurers Allianz Global Corporate & Specialty’s alternative risk transfer unit and Nephila Climate. Risk and analytics firm REsurety provided the data needed to support the transactions and will serve as the calculation agent on an ongoing basis.

Its CEO Lee Taylor told Windpower Monthly that project owners turn to risk mitigation strategies like the PRS for repowering projects for the same reasons as developers of new-build wind farms.

Securing a reliable, visible revenue stream is attractive to developers, he explained. Investors are also happier with the reduced risk of weather- and price-volatility.

"Proxy revenue swaps provide that future certainty for repowering as for new-build," Taylor added.

While the methods used to calculate the PRS stay the same for repowering or for new wind farms, already-operational wind farms are capable of producing more in-depth data about a project’s likely performance, Taylor explained.

For example, data of wake effect would be more comprehensive at an existing

wind farm and wind resource measurements could be carried out over several years of operation. Together these data could create a better picture of a repowered wind farm’s likely performance and a more robust PRS measurement.

"There is an improvement in the quality of analysis, so we can work with less uncertainty," Taylor said.

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