Basis Risk and Production Guarantees

• Basis risk is the risk of a deviation of actual generation from modeled generation
• In times of generous Feed in Tariffs such subsidies provided a kind of safety cushion against basis risk
• With tightening regulations (particularly auction systems) tolerance towards basis risk decreases
• For this reason risk takers tried to improve pure index approach whereby some of them offer production guarantees, each taking a bit different approach​​
• Major challenge is to compare different approaches when evaluating pricing

Production Guarantees

• Most approaches excluce technical unavailabilities, grid operator cut-offs etc. (as not weather related)
• Depending on risk taker they also exclude losses covered by turbine manufacturer guarantee, enhanced credit questions etc.
• Technique gets involved as availabilities are read out of turbine's SCADA boxes
• Contracts are more complicate than simple wind speed derivatives BUT one receives a guarantee for return on investment
• Meanwhile also complete production guarantees including coverage of technical outage are available
  
• ​We highly recommend to seek professional advise before entering into these kind of agreements