Climate change and security of supply have made it imperative for Europe to look at renewable sources of energy. Among the available sources, wind has emerged as the preferred option and this is evident from the fact that in 2008, wind formed the highest proportion of total capacity addition in Europe. Improvement in turbine efficiency, which in turn reduced the per unit generation cost of wind turbine together with policy initiatives by the various governments like emissions trading, renewable energy certificates and tax subsidies has made wind power competitive with traditional fossil fuel sources. However, among the many challenges faced by wind generators, one key challenge lies with hedging of the Imbalance penalty, which is due to the deviation in the amount of electricity bid and the actual production. This paper highlights the existing methodologies of imbalance hedging and then proposed a framework using weather securities to hedge the imbalance penalty. The paper starts with importance of imbalance cost for a wind generator and then moves to highlighting the key methods for hedging this such as combining the hydro generation with wind, dynamic sizing of energy storage system, use of imbalance storage system etc. Then it proposes a framework of using the Special Purpose Vehicle (SPV) wind hedging contract for mitigating the imbalance penalty and highlights its advantages & disadvantages over other methodologies.