Risk Management Framework of a Renewable Energy Platform
November 10, 2021
Risk Management Framework of a Renewable Energy PlatformDownload Case Study
Our team of experts assisted a leading global renewable energy platform (the “Company”) in developing its risk management framework and establishing a new comprehensive hedging program.
The Company is a renewable energy infrastructure owner, developer and manager (e.g., solar and wind energy production and energy storage). As a firm operating globally and requiring significant financing, the Company is exposed to foreign exchange (“FX”) and interest rate (“IR”) risks, which were managed on an ad-hoc basis.
The Company had just received a large investment from a leading private equity firm (the “PE Firm”) and hired FTI to upgrade its operations ahead of its next growth phase. As part of its advisory work, FTI Consulting was tasked with designing the Company’s new FX and IR risk management and hedging framework.
Our team of experts reviewed the Company’s existing hedging strategies, governance, and risk controls. We assessed the effectiveness of legacy strategies and potential risk exposures derived from its unhedged positions.
Based on its review, we defined a comprehensive updated hedging framework and drafted an updated risk management policy following industry best practices and meeting the company’s objectives. As part of this framework, the team:
- Evaluated the types of derivatives appropriate for hedging FX and IR exposure that were suitable with the Company’s risk appetite and capital efficiency requirements;
- Constructed a flexible policy to accommodate future business growth and upcoming changes to include a mix of permanent financing through a multi-currency “warehouse” financing facility and project specific term loan financing;
- Identified appropriate lines of authority and governance to manage the hedging activities.
Leveraging our proprietary risk management system, FTI Quantum, we constructed a customized derivatives hedging strategy based on the Company’s current exposures and business forecast.