Microsoft, like many big tech companies out there, has very high energy needs, and that can be hard to concile with sustainability commitments. Like its competitors, the Redmond giant has been increasing its use of renewable energy in recent years. It makes sense to leverage free energy sources like the wind and the sun, but renewable energy projects are more complicated than it seems.
As Microsoft explained in a blog post today, there are some significant risks associated with renewable energy agreements, because prices for renewabale energies can vary based on weather-related risks. “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,” the company explained today.
To manage those risks, the company has teamed up with various partners including REsurety, Nephila Climate and Allianz to create a new risk-management tool called volume firming agreement (VFA). VFAs are special contracts that can be added to existing or future power purchase agreements (PPAs), and they’re a way to transfer weather-related risks to another party.
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 said today that it already signed three VFAs with Allianz for three of its wind projects in in Texas, Illinois and Kansas. “As Microsoft continues to purchase renewable energy to power our operations, we anticipate utilizing VFAs to firm the energy and match our consumption on an hourly basis,” the company explained.