Microsoft Pioneers New Way To Derisk Renewable Energy Investments

October 22nd, 2018 by Steve Hanley

In a corporate blog post on October 16, Microsoft announced a new tool to help take the risk out of investments in renewable energy, a move it hopes will help drive the renewable energy revolution forward. Intended for large corporate and industrial customers, it is called a Volume Firming Agreement and it can become part of any new or existing Power Purchase Agreement.

“At Microsoft, we are committed to driving a more sustainable future beyond our own four walls. That is why our corporate energy commitments are far broader than just megawatts. We intend to support and enable the transformation of the energy sector using our buying power and innovations so everyone can benefit.”

While there is no cost of fuel for renewables — making long term price predictions more reliable for renewables than for other forms of power generation — there are short term concerns with renewables that affect the spot market value of the electricity generated. Too much electricity means it has to be sold at below market rates. Too little and other sources have to be tapped to meet demand at above market rates.

What Microsoft has done, in cooperation with partners REsurety, Nephila Climate, and Allianz Insurance’s Alternative Risk Transfer unit, is create a market for those whose business is managing risk. Just as sports teams buy insurance to protect them in case their multi-million dollar superstar phenom gets injured, renewable energy providers and their customers can now buy insurance that will protect them if all that lovely renewable energy doesn’t arrive on time every time. Brilliant, huh?

“As the [renewable energy] market has matured, it’s become clear that other risks and complexities exist within the PPA structure that may inhibit their effectiveness as risk management tools. The failure to simplify this complex process and mitigate the risk assumed by the buyer could endanger the corporate procurement market, causing it to slow or stall out completely.

“VFAs are intended to be a simple fix to a big challenge with renewable energy PPAs, namely that these deals expose the buyer to all the weather-related risks of power production, and the inherent intermittent nature of wind and solar means there are hourly issues to be addressed. Put simply, the power needs of buyers are static but the power from the project varies on a day-to-day, hour-to-hour basis…..This variability and the financial impact are difficult for even the savviest energy buyers and a substantial deterrent to smaller companies, as well as retailers, looking to engage in the renewables market.

“But what is undesirable to buyers is very attractive to others, namely insurance companies whose core business revolves around taking weather-related risks, including temperature, rain, snow, wind and so on. VFAs effectively remove the risk related to how future weather conditions will impact the financial value of a PPA from buyers and reallocates it to people who want that risk.”

Microsoft is putting its money where its mouth is by being the first to create VFAs for the renewable energy PPA’s it already has in place, including three US wind projects located in Texas, Illinois, and Kansas. Combined, those three projects total nearly 500 megawatts of renewable energy.

“The partnership between [us and REsurety] leverages deep expertise in markets, risk and the challenges buyers face in these markets,” Microsoft says. “That is why we’re confident that innovations like the VFA will make it cheaper and easier to procure renewable energy, enabling corporate buyers of all sizes, as well as retailers, to play a role in enabling the transition from fossil fuels to clean energy.” Moving the renewable energy revolution forward is good thing for all living things.









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