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Energy and weather

Innovative insurance and derivative solutions against costs from weather risks

Solutions for virtually any power-generation-related risk

105%
Rise in global electricity demand by 2050
85%
Share of renewables in electricity generation by 2050 to meet the 2° target
~44%
of Germany's power consumption in the 1st half of 2019 came from renewables

The long-term conversion of our energy landscape is a task with many facets: more money is being invested in renewable energy sources, new technologies are boosting the efficiency with which energy is used, and alternative fuels are increasingly gaining ground.  

With the significant shift of energy production to wind, solar, and hydropower, the influence of weather risks becomes an essential factor. Renewable power generation is directly exposed to the volatility and unpredictability of the weather. We believe that an appropriate performance risk solution can be found for virtually any power-generation-related risk.

Some 44% of Germany's power consumption in the first half of 2019 came from renewable energy, increasing year on year. This trend can be observed globally. Within the next few decades, renewable energy production will continue to take over the global energy mix.  

Solutions for power plants and utilities

In a power-hungry world with ever-higher outputs and demands on technology economies, power plant owners, investors and end-customers depend on an uninterrupted service. 

With our industry leading know-how, we can assess the relevant weather risks and offer investors interested in new power plant technologies the necessary planning certainty, thus supporting the conversion of our energy supply sector. 

  • Revenue downside risk caused by a warm winter
  • Supply price risk from cold winter
  • Revenue risk from warm winter/cold summer
  • Supply price risk from cold winter/hot summer 
  • Unit outage risk
  • The client: Natural gas distributors and retailers
Client Concern  Product Offers
Warm Winter: not selling enough gas to meet expected return on capital.  “Volumetric Hedge" - pays client if winter is warm (low sales), using weather-only products.
Cold Winter: not having enough gas to meet peak daily demand, buying at high prices.  "Supply Hedge" - gives client right to take physical gas on cold days when price is high.
  • The client: Power producers and sellers
Client Concern Product Offers
Cool Summer: not selling enough electricity (for A/C) to meet expected ROC. "Volumetric Hedge" - pays client if summer is cool (low sales), using weather-only products.
Hot Summer: not having enough capacity at peak hours, buying at high prices. "Supply Hedge" - pays customer when demand and price spike.
  • Temperature: Average temperatures, frost days, heating degree days (HDD), cooling degree days (CDD)
  • Wind speed
  • Solar irradiation
  • Hydro
  • Commodity prices

All types of power generation and distribution:

  • Thermal power
  • Gas turbines
  • Renewable energies
  • Distribution networks and equipment
  • Utilities
  • Risk management and risk assessment
  • Technical information and product-oriented exposés
  • Automatic claims management
  • Engineering seminars for clients, held at our headquarters in Munich and/or at our branch offices around the world 

Specific weather risk solutions for renewable energies

Renewable energy sources using wind, water, and solar irradiation are future technologies destined to reduce our dependency on conventional energy sources in the long term. They are now also considered a profitable investment. However, the returns on such projects are susceptible to a very particular kind of risk – a fact which is often overlooked – for there is no way of influencing the weather. 

Smoothing cost volatility can help to keep financial key figures stable even in years with record average temperatures and little rain during the summer. With the right weather risk management tool, poor years for hydropower production are no longer an excuse for a substantial loss of profit. Having this cost stabiliser can bring value to your business in terms of credit rating. 

To enable hydropower plants to operate safely and profitably in the long term, Munich Re supports successful plant operators at every stage, from planning, construction, installation and commissioning, to the operation of completed projects.  

Structures:

  • Plain vanilla option, collar or swap   
  • Multi-year contact  
  • Settlement on the basis of precipitation or discharge index   
  • Deductible  
  • Substantial tick size and limit 

The weather risks covered: 

  • Precipitation and streamflow 
  • Cumulative precipitation
  • Cumulative rain days 
  • Reservoir level 
  • Streamflow 
  • Critical days / Trigger events

With Munich Re's smart risk transfer solutions, you can ease the financial pain caused by output volatility due to the variability in solar irradiation. Smoothing revenues with our "Lack of Sun" cover is an essential component of state-of-the-art project risk management. 
The index-based coverage to compensate solar farm owners for lost revenues/extra costs due to low levels of sunlight includes: 

  • Lost revenue – energy and renewable credits 
  • Replacement cost of power – market or cost of alternative generation 

Innovative business needs flexible solutions
You can task our team of highly experienced, weather risk experts to structure a tailor-made solution to your individual risk profile, or set the parameters for an off-the-shelf product. This assumes the dependence between irradiation and power production to be linear on a yearly basis. The sole variable used to determine a loss is the independently measured aggregated annual irradiation. All other parameters such as performance factor and feed-in tariff are fixed in the policy so that every kWh/m2 below strike level in irradiation is equivalent to an additional payout of x (tick size) up to a pre-agreed limit. Solar proxy structures are based on solar irradiation and other weather factors measured at onsite met towers or from satellite ("ReAnalysis") data. 

Multiyear-cover possible 
Munich Re’s commitment to supporting eco-friendly technologies, coupled with excellent financial standing, enables additional contract features such as multi-year structure term and substantial capacity. 

Your benefits

  • Flexible structure – downside protection, production collar, and more. 
  • Optimizes project risk-return profile.
  • Recover either fixed dollar amount or market index price for MWh lost. 

Solar thermal generators 
Suppliers, project-development companies, operators of and investors in solar thermal power plants are players in a fast-growing market. Munich Re offers innovative insurance solutions that allow them to exploit the market’s economic potential. 

Obviously, the key production factor for operators of wind farm projects is the wind. But the wind speed cannot be influenced, giving rise to a new type of entrepreneurial risk. 

Munich Re offers covers that compensate for reduced earnings whenever wind turbines cannot produce enough power due to gales or a lack of wind. Additionally, wind cover can insure traditional power producers who may suffer when wind supply is high (i.e. prices drop). 

Wind generation risk cover objectives: 

  • Protect against poor wind conditions 
  • Stabilize revenue 
  • Improve risk-return profile of wind project 
  • Increase capital efficiency 

How it works:

  • Gather hourly wind measurements 
  • Convert to expected energy via a power curve 
  • Sum energy (MWh) over term 
  • Coverage attaches at production trigger (MWh) 
  • Payments per MWh for deficit below production triggers 

Our cover concepts are based on modelled or actual production that is calculated from wind data, specific turbines' power curves, the wind farm's efficiency, and a stipulated price per megawatt-hour. If the modelled turnover fails to reach a pre-defined threshold (strike), the cover cushions the impact of the loss. Wind proxy structures are based on wind speed measured at the turbines, at a nearby weather station or based on satellite ("ReAnalysis") data.

The major benefit of our solutions is a steady and predictable cash flow and higher revenue certainty. A comprehensively covered wind farm project may lead to leveraged gains, reduced lending rates, and diminished reserve accounts. If the cover is included in the financing process, the financing cost savings may even exceed the insurance premium. 

Since our wind generation risks cover can be in force for several consecutive years, it offers investors long-term protection against a loss of income due to a lack of wind. Depending on the location of the wind farm, we also offer a combination with derivatives addressing volatility in both wind strength and energy price. 

Insure your actual annual wind power generation: Munich Re’s innovative Wind Energy Yield Cover (WEYC) incorporates all of the additional risks related to the performance and availability of wind farms. Investors are protected against an actual shortfall in revenue measured against the expected cash flow in any operation year. Once the wind farm falls short of the predefined minimum annual power generation, the WEYC pays out. The following aspects are taken into account: 

  1. Actual annual power generation (based on SCADA, curtailment excluded) 
  2. Technical non-availability of WTG (if not covered by service contracts or other insurances like OAR) 
  3. Fixed power prices 

What we need to know from you:

  • Project location  
  • Project size and technology 
  • Location of measurement station(s) 
  • Historical hourly wind measurements at the site 
  • Historical hourly generation (if operational) 
  • Wind assessment study 
  • Expected wind farm efficiency 

Our cover offers many benefits: operators and investors receive steady revenues from wind farms and can concentrate on growing their new business without worrying about a lack of wind – even in relatively windless years. 

Caused by the mismatch between production and price i.e. wind output trends to peak when prices are lower, and solar output tends to have zero to low production during the mornings ramp-up and evening ramp-down in power-prices. 

Our solutions to ease revenue uncertainty:

  • Price-Indexed Proxy Volumetric Swap: 
    A financial structure that converts the output of a renewable asset into a fixed block by swapping the intermittency for a fixed volume. 
  • Proxy Revenue Swap: 
    A financial structure that provides a guaranteed revenue stream in exchange for the uncertain / variable revenue stream generated by the renewable asset. 
  • Proxy Revenue Put: 
    A financial structure that provides a guaranteed floor on the revenue generated by the renewable asset, with the buyer keeping all of the upside revenue. 
  • Price-Indexed Proxy Volumetric Swap and Load Swap / Slice of System: 
    A financial structure that combines the Proxy Volumetric Swap with a product that replicates the load shape of a buyer 

All of these structures can be transacted at Nodal Prices or at an Hub Price.

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