"European 'wind drought' drags down wind power generation, utility companies urgently seek hedging solutions."

In the past decade, European utility companies have spent around $380 billion to nearly double the region's wind power capacity. However, the "wind drought" currently facing the European region is forcing them to turn to the little-known weather derivatives market to protect themselves from the impact of long periods of no wind. Data from the Climate Change Institute at the University of Maine shows that the drop in wind speeds in Europe from February to April 2025 may be the largest since 1940. According to the German National Meteorological Service, the average daily wind speed in Germany in April was the lowest since 1996. Northwest Europe faces a wind drought in spring Despite the increase in installed capacity by Europe's largest wind power companies last year, the "wind drought" has had a significant negative impact on their wind power generation. Data shows that Iberdrola SA's wind power generation only grew slightly in the first quarter. Wind power generation from Danish energy giant Orsted AS declined. The offshore wind power production of Germany's largest electricity producer, RWE AG, even dropped by a third. The wind power generation of Swedish utility company Vattenfall AB, which owns multiple wind farms in Northwest Europe, decreased by 20% in the first quarter. Ivan Fore Svegaarden, CEO of Norwegian energy industry forecasting agency TradeWPower AS, bluntly said, "You can build 300,000 wind turbines, but it won't help. The weather is getting calmer, drier, and lasting longer with higher frequency." Patricio Alvarez, a senior analyst at Bloomberg Intelligence, said, "If weak wind speeds persist, companies like RWE AG could lose tens of millions of dollars." It is reported that the sharp decline in wind power is due to the frequent and unusually long-lasting high-pressure weather systems in Europe this year, which have caused unusually dry climates and very low wind speeds. Robin Girmes, former RWE weather trader and current head of RM Energy Weather GmbH, said, "People are worried that the trend of low wind speeds may continue." Nathalie Gerl, chief power analyst at the London Stock Exchange Group, said that while global warming makes the climate increasingly unpredictable, there is currently no clear meteorological explanation for why the windless period has lasted so long. Long-term forecasting models have a lot of uncertainty, but seasonal analysis from UK's MetDesk Ltd. shows that low wind speeds will continue throughout the summer. Therefore, wind power operators are purchasing contracts to prevent actual wind power generation from falling below expectations. This means that if a utility company expects to generate a certain amount of terawatt-hours of wind power during a certain period, but fails to do so due to inadequate wind speeds, they will be compensated by their counterparties such as Munich Reinsurance, Swiss Re AG, or other similar companies. Pierre Buisson, senior structurer at German reinsurance giant Munich Re, revealed that the number of wind power hedging trades this summer is higher than before. Ralph Renner, former power trader and project manager at Parameter Climate, which provides hedging advice to companies, said, "Wind power is hard to predict, with great volatility. These significant fluctuations significantly impact electricity prices, making wind power hedging increasingly attractive." "In the past two to three years, interest in wind power hedging trades has significantly increased, and the current 'wind drought' undoubtedly further intensifies this demand." It is worth mentioning that weather derivatives have existed for decades, mainly used to hedge risks from adverse weather conditions. While most commodities and energy markets have become more transparent due to regulatory pressures in recent decades, the weather derivatives market remains quite opaque. There is currently no data on the prevalence of wind power hedging, and the companies involved in this market refuse to disclose more details. The European Energy Exchange, the world's largest power exchange, and Nasdaq have both launched wind power contracts in the past decade, but they have not gained market favor. Currently, such transactions are usually signed directly between utility companies and companies offering hedging contracts. The wind power generation gap brought by the "wind drought" will pose financial challenges to utility companies. Despite falling from its peak, the cost of electricity in Europe is still higher than before the energy crisis, making it very costly for companies to make up for the shortfall in electricity generation. Pierre Off, European Region Weather and Energy Manager at Swiss Re, said, "This is a major challenge for energy companies." Patricio Alvarez said, "This is clearly a blow to operators. They have to fill the gap by buying electricity or restarting fossil fuel power generation, both of which usually have lower profit margins."