US Futures Exchange to list wind derivatives

The contracts are intended to provide a financial hedging vehicle for wind resource owners, developers, financiers and consumers of wind energy, and will begin trading this summer. They will be based on the Nordix Financial Wind Indexes created by Weather Bid, which measure deviations from average wind speeds used in wind power generation.

The exchange says these products are the first to reflect the needs of the greater renewable energy community. “As generation capacity of renewable energy continues to grow exponentially, so has the need for standardized hedging tools similar to those found in traditional energy markets,” said Satish Nandapurkar, chief executive of USFE.

The product launch comes at a time when the notion of wind derivatives for wind farm operators in the US is gaining traction. Markets such as the New York Independent System Operator (NYISO) and the Electric Reliability Council of Texas (ERCOT) are seeing more activity from merchant wind farms – those built without traditional power purchase agreements with utilities – in short-term and spot power markets. This is therefore increasing the need for better hedging tools.

The Nordix Financial Wind Indexes are composed of deviations from 20-year historical wind speed averages compared with present daily figures. USFE will initially list seven index futures contracts based on two wind regions in New York and five wind regions in Texas as defined by the National Oceanic and Atmospheric Administration’s (NOAA) National Center for Environmental Prediction division. The futures contracts will be settled monthly.

“It’s expected that the US wind market will grow by more than 8,000 megawatts over the next two years,” said Elliot Stern, president of Weather Bid. “The exchange environment offers numerous benefits to customers who already trade over-the-counter contracts based on our indexes.”