Problem for the wind industry: There’s not much wind in Europe anymore

After spending about $380 billion over the past decade to double wind power capacity in Europe, utilities are now turning to an obscure market to hedge against a prolonged period of calm weather, Bloomberg reports.

The lack of wind is a reminder that no matter how many wind turbines you erect, actual electricity production will be dictated by how strong the wind is. Calculations by experts at the University of Maine show that wind speeds in Europe between February and April 2025 may have seen the biggest decline in their multi-year average since 1940.

As a result, utilities are turning to the weather derivatives market, where they can hedge more of this summer’s weather than in the past, says Pierre Buisson, a specialist at reinsurance company Munich Re. He said he has recently been working on four or five large hedging contract requests, more than usual, and now the focus has shifted to the summer months.

“Interest in wind hedging has increased significantly in the last two or three years, and the current lack of wind has added fuel to the fire,” says Ralph Renner, a former electricity trader who now works at Parameter Climate, which advises companies on hedging options.

Wind farm operators buy contracts that protect them against periods of less than expected wind. If a utility expects to produce a certain amount of terawatt-hours of wind energy in a given period but fails to meet its targets due to insufficient wind speeds, the firm will receive compensation from a counterparty, such as Munich Re, Swiss Re AG or similar firms.

The region’s biggest wind power producers added capacity last year. Spain’s Iberdrola SA reported a small increase in output in the first quarter, while Orsted AS’s output fell. At RWE AG, Germany’s largest electricity producer, offshore wind production fell by as much as a third. None of the companies would provide details about their wind hedging.

“Companies like RWE could lose tens of millions of euros due to a prolonged period of low wind speeds,” said Bloomberg Intelligence analyst Patricio Alvarez.

The lack of wind is the result of high-pressure systems that have become unusually frequent and long-lasting in Europe this year. That has created unusually dry and calm weather.

While long-term weather forecasting models are fraught with uncertainty, an analysis by MetDesk Ltd. shows that periods of low wind speeds will persist throughout the summer, which could further increase the need for hedging.

“Wind is difficult to forecast and wind volatility is extremely high. This high volatility can have a significant impact on prices, which makes wind hedging extremely attractive,” says Ralph Renner of Parameter Climate.