For the fifth consecutive year, investment in new renewable power capacity was roughly double the investment in fossil fuel generating capacity, reaching USD 249.8 billion in 2016. The world now adds more renewable power capacity annually than it adds in net new capacity from all fossil fuels combined. However, wind and solar energy producers and distributors face unique challenges in both volumetric and price risks. The remarkable progress being made in renewables requires innovative risk mitigation solutions in order to ensure that the pace of investments in wind and solar continues.
Meteo Protect, an SAP Startup Focus Member and Europe’s leading provider of weather risk management solutions, structures index-based hedging solutions for renewable energy producers and distributors. These are invaluable in helping to reduce or even eliminate a renewable energy provider’s exposure to volumetric and price risks or a combination of the two given that wind or solar farm power is intermittent, unlike power from gas and coal which can be generated on demand.
For instance, when there is a surplus of wind production, the price of electricity may fall, and when there is low wind production, electricity prices tend to rise. During a period of low power consumption, significant wind production can lead to negative power prices, as was the case last December in Germany. On the other hand, low wind speeds during cold snaps can necessitate the expensive use of back-up power sources to generate power which leads to increased power prices. Price fluctuations like this can lead to problems for an energy producer as its residual power production (positive or negative) has to be bought or sold on the market.
Therefore, a wind producer may wish to use a hedging product to either eliminate all exposure to wind short fall using a swap; reduce exposure to wind shortfall using a collar; or, reduce exposure to wind shortfall and benefit from wind potential using an option. In each case, it depends on the unique risk profile and market needs of the producer.
Meteo Protect will be attending European Utility Week in Amsterdam on 3-5 October. During the programme, Meteo Protect’s energy sales team will be available at the SAP booth to provide demos of web-based underwriting and pricing platform to produce completely customized insurance for any weather-related risk for the utilities sector. The policies are underwritten and managed by Meteo Protect’s award winning platform, Vivaldi, running on SAP’s HANA technology and certified by SAP. Meteo Protect is a Lloyd’s coverholder, and has received ample industry recognition, including most recently Celent’s Model Insurer Award for data mastery and analytics.
Meteo Protect currently works with ten of the fifteen largest energy companies in Europe in helping them to reduce or even eliminate their exposure to volumetric and price risks. Meteo Protect offers hedges in insurance or derivative form depending on their accounting and regulatory requirements. Such hedges may allow renewable energy producers to lock-in prices up to 10 years in advance thanks to multi-year covers and, under some conditions, there is the possibility to have a monthly or quarterly settlement. In this way, Meteo Protect is playing a vital role in supporting the development of the renewable energy market and playing a key role in international efforts to combat climate change.