Microsoft Transfers Risk of Power Prices That Vary With the Wind

Brian Eckhouse (Bloomberg) -- Microsoft Corp. has helped develop a way to protect corporate buyers of clean power from electricity prices that go up and down with the weather.

The company is using a risk-management tool called a volume-firming agreement for almost 500 megawatts of wind projects, according to a blog post Tuesday. The contracts with the insurance giant Allianz SE reallocate weather-related risk away from corporate buyers of power.

Facebook Inc., AT&T Inc. and other major corporations have become major buyers of wind and solar as they seek to meet sustainability goals while helping power operations. Companies signed deals for 5.6 gigawatts of capacity worldwide in 2017, and have already surpassed that total for this year. However, not all of them are savvy in managing volatile power prices. Power-purchase agreements typically lock in specific prices for decades, even though hourly electricity prices can vary.

“It’s given a lot of companies buyer’s remorse, and it’s made others hesitant to even buy renewable energy,” said Kyle Harrison, a New York-based analyst at Bloomberg NEF. “If it’s going to affect their bottom line, it’s not a risk smaller companies will take.”

A volume-firming agreement is designed to supplement these long-term power-purchase deals by passing the weather-related risk to another party, such as an insurance company. Microsoft worked with multiple companies to develop the contract, including Allianz, REsurety, a Boston-based risk-management company whose founder helped develop the concept, and Nephila Climate, which specializes in weather-risk transfer products. They say the idea could benefit other corporate buyers of clean-energy.

“This is an after-market product that smooths out your ride,” Kenneth Davies, Microsoft’s director of innovation for energy strategy and research, said in an interview. “We are no longer susceptible to when the wind blows and how much.”