Weather Risk Transfer

GCube Underwriting Ltd. and GCube Insurance Services Inc. (GCube) are pleased to offer a weather hedge mechanism for the wind and hydroelectric energy markets, enabling buyers to guarantee a floor on financial performance and unlock additional value for projects and their stakeholders.

For businesses and entities working in the renewable energy sector, the single greatest and most significant factor influencing availability and performance is weather. Wind and hydroelectric generators, in particular, face a persistent challenge as they look to manage the intermittency of wind and water resources.

GCube’s Weather Risk Transfer mechanism provides project stakeholders with a means to stabilise future cash flows and minimise the impact of adverse weather on revenue. In return for an insurance premium, it provides a financial hedge to offer vital protection against cash flow fluctuations by means of compensation in the eventuality of below or above par resource availability.

The Weather Risk Transfer contract is customized in each case to the buyer’s specific needs and weather risk exposure. Each contract is settled on the basis of weather data collected by a third-party from an agreed source close to the location of the buyer’s exposure.

A contract period is then agreed with the buyer, alongside an agreed weather variable such as wind speed or river flow. GCube then uses historical weather data to create a suitable index and index trigger, which determines when payment to the buyer occurs – for example when wind speeds fall below 70% of the calculated long-term average.

The buyer then specifies a notional payment that it wants to receive per index unit – ranging from hundreds of thousands to hundreds of millions of US dollars, or other agreed currency. Payment is due to the buyer if the index trigger is breached, proportional to the departure from the trigger.

To learn more about the Weather Risk Transfer mechanism:

Download the product sheet

or contact Geoffrey Taunton-Collins at geoff.tauntoncollins@gcube-insurance.com