Basis Risk and Production Guarantees

Basis Risk

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

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