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case study

POWER HEDGING

Background

Power developer/operator purchasing a wind farm where there is no Power Purchase Agreement (“PPA”) or Fixed Price Merchant Offtake.

Risk of reductions in (“floating”) power prices adversely impacting project economics.

Floating rate loan facility provided by an international bank with a mandatory requirement to enter a 14 year power hedge.

Bank proposed that they act as both swap execution agent and counterparty so limited transparency to the client.

The client had to fulfil a mandatory condition but with no price transparency could not ensure it was receiving “on-market” pricing.

14
14 year power hedge
Speak to an expert

Hugh Sutcliffe

Director

E: Hugh.Sutcliffe@jcraca.com
T: +1 647 714 8371

Our approach

Ensure the client understood the market conventions, pricing methodology.

Provide transparency on the structure and pricing components.

Monitor a variety of pricing inputs (Natural Gas, Heat Rates, Spark Spreads) over time to reconcile with bank pricing.

Explore what we do

Benefits of our approach

  • Ensure the client understood the market conventions, pricing methodology.
  • Provide transparency on the structure and pricing components.
  • Monitor a variety of pricing inputs (Natural Gas, Heat Rates, Spark Spreads) over time to reconcile with bank pricing.

Benefits of our approach

  • Understanding of pricing methodology and provide confidence that the pricing was "on-market".
  • Bifurcation of credit charges to understand profitability to bank for future negotiations and ongoing relationship.
  • Timely implementation and best pricing: a professionally managed process ensured implementation of the hedge prior to loan closing and best pricing achieved with lending bank.
  • A transparent model to ensure "on-market" pricing.
  • Equipped the client with the information to question and negotiate swap credit spread on future transactions.

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How can we help you

Have you got a question about how you hedge your financial risks, or structure and arrange your debt?

Find out how we can help you by contacting us today.

 

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