A number of specialty insurers are increasingly turning to parametric insurance solutions as an effective tool to help support clean energy deployment, particularly by stabilising revenues and improving access to project finance, according to Jason Kaminsky, CEO, kWh Analytics.

kWh Analytics is a leader in insuring the energy transition, underwriting property insurance and revenue firming products for renewable energy assets.

The company is highly involved in supporting renewable energy project finance transactions, most recently creating and implementing the wind proxy hedge to support developers of wind farms.

kWh Analytics offers the Wind Proxy Hedge product as part of its suite of Climate Insurance and risk transfer solutions for renewable energy projects. This product is aimed at reducing wind speed variability risk and helping project sponsors and lenders improve the bankability of wind farms.

Speaking to Artemis during a recent interview, Kaminsky emphasised that renewable energy is playing an “increasingly important role” towards meeting heightened load demand, thanks to its quickness to deploy, and the fact that it tends to be less expensive than ramping up coal production.

“However, as tailwinds from enhanced tax credits are projected to sunset, project economics have changed significantly, necessitating innovative risk-transfer solutions to enable financing solutions for both new and existing projects,” the CEO said.

Kaminsky also said that specialty insurers are evolving from providing traditional property and casualty coverage for renewable energy to becoming strategic risk management partners that help unlock the capital needed to move projects forward within the market.

“One of the primary ways we’re seeing this is through the use of novel parametric insurance solutions that protect against climate-related losses and stabilize project economics. Not only do these solutions provide asset owners with rapid financial relief when predefined weather conditions are triggered, but new products are being introduced to improve the project finance structure often used to fund these infrastructure assets. In some cases, they enable banks to adjust their downside stress tests in the financial forecast, thereby extending more capital to these types of projects,” Kaminsky told Artemis.

With extreme weather events continuing to rise, and demanding data centers underscoring the need for a robust and resilient grid, the key role that insurers can play towards enabling power supply growth is now more critical than ever.

The executive explained that renewable energy assets are often complex to underwrite and can attract very large limits.

“Lenders are not well suited to handle revenue volatility, and often underwrite to extreme downside scenarios. This is a perfect opportunity for insurers, who can price volatility. If we also consider that projects are now extending into more areas of the country, and into more marginal geographic zones, like ridgelines, with higher resource volatility, we can see why financing and insuring this asset class has allowed for new and creative ways of thinking,” Kaminsky said.

These factors have not only forced insurers to rethink traditional geographic risk assumptions for renewable energy projects and push insureds toward resilience-first approaches, but they’re also motivating them to establish unconventional ways to allocate risks in order to unlock critical financing.

According to Kaminsky, this is where parametric solutions can play a critical role.

“Parametric products can be utilized as hedging structures that are designed to ensure a stable revenue stream to cover debt service obligations for projects over their first several years of operation,” the CEO noted.

He continued: “Financial hedge solutions are not new to power projects; both a revenue put and a heat rate call option exist for methane gas-fired power plants. However, wind projects are one area of renewable energy where we’re seeing truly innovative risk transfer solutions, with a standard wind financial hedge, proxy revenue swap, and a wind proxy hedge floor all currently available in the market.”

In 2024, reinsurer Munich Re 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.

As we reported at the time, the financial structure featured the embedded wind proxy hedge, provided by reinsurer Munich Re, advised by kWh Analytics, and using its kWh Analytics Indifference Structure for debt sizing. This marked the first time a parametric wind hedge had been paired with kWh Analytics’ Indifference Structure to support a project finance loan.

Providing further context surrounding the product, Kaminsky said: “The structure paired the carrier’s parametric wind hedge with our proprietary indifference structure to mitigate wind resource volatility—a critical financing barrier in wind projects. By anchoring a revenue floor to proxy wind-speed data, the structure enabled the sponsor to boost its P99 scenario – a financing worst-case 1-in-100 year forecast – and secure ~20% more debt than it would have otherwise.

“Simply put, the hedge paid out if average wind speeds for a certain period of time dropped below a predetermined index. For every dollar of premium paid, the project realized approximately six dollars in additional loan proceeds – a clear case of innovation driving capital efficiency and bankability for renewable energy assets.”

Kaminsky affirmed that this solution was particularly significant for a variety of reasons.

“First, wind projects have historically been tricky to finance. The wind’s variability raises concerns among lenders, often resulting in less debt and reliance on more expensive equity. The Wind Proxy Hedge tackles this head-on: by putting a floor on wind speed, it essentially guarantees a minimum level of revenue even if the wind doesn’t blow as expected. This calibrates the hedge so that even in a worst-case wind scenario, the project maintains a solid financial condition for lenders.”

Furthermore, the CEO noted that the indifference structure is employed to customise the hedge strike price according to quarterly cash flows. In practical terms, the structure determines specific entry and exit strikes that align Wind Proxy Hedge payouts with the precise variations in cash flows across different sizing scenarios.

“When lenders run their downside P99 debt sizing models, they now include guaranteed Wind Proxy Hedge payouts in their cash flow calculations, effectively transforming the project’s risk profile. With the Wind-Proxy Hedge in place, projects become less risky to lenders, making wind a more attractive investment,” Kaminsky added.

Kaminsky also went on to highlight how this marked the first time that a parametric solution for wind has resulted in improved financing terms for the asset owner.

Removing the risk to lenders ultimately means more debt can be used to finance projects, which results in a lower cost of capital.

Perhaps the most significant contribution of the Wind Proxy Hedge is that its structure is replicable. Case in point, the duo successfully closed on a second parametric Wind Proxy Hedge risk transfer deal, which substantially improved the project’s credit profile and enabled higher debt capacity.

“Innovative risk transfer solutions like the Wind Proxy Hedge are opening new pathways for renewable energy project development, exemplifying climate risk transfer at its most impactful – not merely managing risk, but fundamentally restructuring it to accelerate development capital for clean energy deployment,” Kaminsky concluded.