Munich Re backs parametric wind hedge usingy kWh Analytics structure

Global reinsurance firm Munich Re has provided the capacity to support a parametric wind proxy hedge risk transfer product structured using a solution from kWh Analytics, for a 59MW, 14-turbine wind project in Maine, developed by a Greenbacker Capital Management affiliated investment vehicle.

The financial structure features the embedded wind proxy hedge, provided by reinsurer Munich Re, advised by kWh Analytics, and using its kWh Analytics Indifference Structure for debt sizing.

It marks the first time a parametric wind hedge has been paired with kWh Analytics’ Indifference Structure, with the aim being to reduce equity requirements for a project sponsor.

Because of the inclusion of this innovative structure, it has enabled the project sponsor to raise around 20% more debt capital for the wind power project, led by bank MUFG.

The goal is to mitigate the effects of wind speed variability, which can affect the ability of project sponsors to raise financing.

Using a parametric wind risk transfer hedge allows the sponsor to offset some of the risk of future power production shortfalls due to wind variability, which gives financiers more confidence and results in better outcomes for its debt capital placement.

It acts as a king of credit enhancement, heightening the projects attraction to lenders, leading to increased debt capacity.

“By incorporating the wind proxy hedge and kWh Indifference Structure, each dollar of premium paid for the product resulted in ~$6 of additional loan proceeds,” kWh Analytics explained.

Geoffrey Lehv, Head of US Accounts for kWh Analytics, commented, “We provided a proprietary debt structure, applying modeling, analysis, and risk management expertise to assist Munich Re in incorporating its parametric solution to a project financing. The resulting credit enhancement not only mitigates downside risk but also optimizes capital structure. This is about more than just financial engineering – it’s about accelerating the transition to clean energy by making wind projects more bankable and attractive to investors.”

Bill MacLauchlan, CEO Munich Re Trading LLC, added, “Deep project finance knowledge was crucial in structuring this transaction. By leveraging our team’s long-standing expertise in designing parametric risk-transfer solutions, collaborating closely with MUFG, and utilizing kWh Analytics’ unique position in the market, we successfully implemented an innovative risk transfer solution for this Sponsor.”

Alberto Mihelcic Bazzana, Director at MUFG, also said, “As a leader in project finance, MUFG is pleased to partner with Greenbacker, kWh Analytics, and Munich Re in developing new financing solutions that can expedite the energy transition process.”

The the kWh Analytics Indifference Structure can be applied in both wind and solar power contexts, so offers a way for developers and funders of these projects to offset the weather variability component using a hedging mechanism that features a parametric trigger.