Wind production index cover

Wind production index cover is insurance that pays a wind farm owner when a wind index, converted into theoretical output through the turbines' power curve, falls below a threshold over the period. A 100 MW wind farm financed on eighteen years of debt lives on one assumption, the P50 energy yield from the wind resource assessment. One low-wind year and the debt service coverage ratio (DSCR) drops below the covenant. Wind production index cover pays that volume shortfall without any turbine breaking down. The index starts from wind speeds, measured at the site met mast or, more often, taken from a reanalysis. The usual ones are ERA5, from the European Centre for Medium-Range Weather Forecasts (ECMWF), and MERRA-2, from NASA. They give a long, consistent series and a source neither party controls. Hourly speeds run through the turbines' power curve, get summed over the period and are compared with a strike, say 90% of P50. Below it, the contract pays an agreed price per missing megawatt-hour, up to a limit. In 2021 wind speeds over parts of northwestern Europe were among the lowest in four decades, according to Copernicus. Ørsted put the hit at about DKK 2.5 billion over nine months against 2020: volume risk is anything but theoretical. The structure looks like a weather derivative, and the choice between policy and derivative comes down to insurable interest, hedge accounting and counterparty. Basis risk lives between the index and the revenue meter: turbine availability, wake losses, curtailment ordered by the grid operator, icing, and the gap between a thirty-kilometer reanalysis grid cell and the site's terrain. A turbine failure belongs to machinery breakdown and business interruption cover; the index does not see it, by design. Power price stays outside the contract unless the structure combines volume and price. Those show up next to baseload power purchase agreements (PPAs). Under those, the owner has to deliver megawatt-hours it did not generate and buy them back on the market, often at a high price precisely when the wind is down everywhere.