Proxy revenue swap
An over-the-counter derivative that swaps a fixed payment for the theoretical revenue of a wind farm, measured wind times market price. First deals in Texas in 2016, including Old Settler, 151.2 MW.
Floyd County, Texas, July 2016: the Old Settler wind farm, 151.2 MW, owned by Apex Clean Energy and Northleaf Capital Partners, closes about 330 million dollars of debt and tax equity on the strength of a new kind of ten-year contract. The first proxy revenue swap had been signed in May of that year, after structuring work that began in 2015 between a weather risk taker, a wind analytics firm and an energy procurement adviser. Two flows. The farm receives a fixed amount each quarter. In exchange it pays a theoretical revenue, the proxy revenue: the output it should have delivered given the wind measured on site, run through the turbines' power curve and an availability agreed in advance, multiplied by the hourly ERCOT hub price. The contract therefore covers volume and price together, hourly shape included. A turbine down for repairs changes nothing in the proxy: operational risk stays with the farm. The difference from a fixed-volume PPA lies in delivery. Under a fixed-shape hedge, the producer must supply a block of energy hour by hour, wind or no wind, and buys back any shortfall on the spot market. Winter Storm Uri, in February 2021, showed what that means at the 9,000 $/MWh price cap, and an analysis by Resources for the Future cited the PRS among the structures that allocated this risk better. Against index-based insurance, the line is legal: insurance pays when an index crosses a threshold and requires an insurable interest and a premium. The PRS settles both ways; in a windy year with high prices, the farm pays. Lenders see a merchant revenue turned into a near-fixed one over the life of the debt. Basis risk does not go away: between the reference anemometer and the price at the farm's node, the gap stays with the producer.
Textbook case, in numbers. A 150 MW farm signs a PRS at 14 million dollars fixed per year. Low-wind year: measured wind gives 430,000 theoretical MWh at 28 $/MWh, or 12.04 million; the farm receives 14 - 12.04 = 1.96 million. It actually produced 420,000 MWh, sold for 11.76 million: total revenue 13.72 million, and the missing 0.28 million is its 10,000 MWh of downtime, which the swap does not cover. Windy year: 560,000 MWh at 32 $, or 17.92 million; the farm pays 3.92 million and lands back on its 14 million.
PRS, wind revenue hedge, proxy generation swap, revenue put for wind
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