The renewable energy industry has grown substantially in recent years, led mostly by increased demand for wind and solar energy from a few large companies, like Microsoft. But it will take increased engagement from companies and utilities of all sizes to bring about an advanced energy economy that benefits everyone, and our planet—and that means we must do more to address the risk that still hinders many companies from switching to renewable power.
As part of our ongoing commitment to renewable energy, Microsoft has been working with our partners at local utilities and with organizations like the Renewable Energy Buyers Alliance to make it cheaper and easier to bring more green power onto the grid at large. We’ve done so through power purchase agreements (PPAs) to supply our datacenters with clean energy, by leveraging our technology to help improve grid efficiency, and by developing innovative financing solutions to lower risk and remove cost barriers to the development of renewable energy projects in markets where we operate.
Today, we’re pleased to announce that an innovative financing model we enabled in partnership with Capital Power and Allianz Risk Transfer as part of our largest wind energy purchase to date has been named North American Wind Deal of the Year by IJGlobal, an infrastructure journal and project finance magazine. In addition, Microsoft’s Director of Energy Strategy Brian Janous was named to the 2017 Energy Manager Today 50, Energy Manager Today’s annual list of elite commercial and industrial energy management achievers.
Read on to learn more about Janous’ role at Microsoft and how our company is working to address the issue of risk management in the renewable energy industry.
The following is an interview with Brian Janous, Director of Energy Strategy at Microsoft. Janous leads the development and execution of Microsoft’s global data center energy strategy, as part of the company’s overall commitment to environmental sustainability.
Q: Describe Microsoft’s recent agreement with Capital Power and Allianz Risk Transfer—what made it so innovative?
BJ (Brian Janous): Through a new 10-year Proxy Revenue Swap agreement with Allianz Risk Transfer (Allianz), Microsoft purchased 178 megawatts from Capital Power’s Bloom Wind Project in Kansas to help power our datacenter in Cheyenne, Wyoming with 100 percent clean energy. We were the first buyer to participate in this efficient and cost-effective finance model, which was designed to help project owners manage the revenue risk associated with developing large-scale wind projects.
Every major infrastructure project, whether a bridge, housing development, or wind project, requires as much financial engineering as it does architectural engineering with tools and raw materials. This project represents the first time that the reinsurance market was used to transfer risk away from a project—in this case the risk of uncertain production output when the wind doesn’t blow—benefiting both the project owner (energy producer) and the off-taker (energy buyer).
Q: What is reinsurance and why does it matter to renewables?
BJ: Reinsurance is simply a means to transfer risk. Reinsurance is widely used to manage other types of risk, but had never previously been used to help finance a renewable energy deal.
Despite its rapid growth and long track record, in many ways renewable energy is still viewed as a somewhat exotic and risky investment. The more we can normalize renewable energy by treating it like any other asset class, the more affordable capital we’ll be able to attract to the market to accelerate its growth.
Q: What business problem was Microsoft trying to solve that led to the development of this new finance model?
BJ: In the course of our own procurement, we saw a real need to modernize and improve the efficiency of the renewable energy market in order to help bring more renewable energy projects online faster. As an industry, we’ve made tremendous strides in improving the core technologies that will enable the transition to a low-carbon electric future and we’ve figured out how to physically integrate individual renewable energy projects into the grid once they’re financed. But we still lack the financial structures necessary to catalyze large-scale investment in renewables.
We need to develop market-based tools that can adequately address the risks caused by the natural ebb and flow of wind or solar production. For example, what happens when the wind doesn’t blow and no energy is produced for an extended period of time? How do we back up the grid to ensure customers still have power, especially if no wind is blowing across an entire region? How do we control the price of renewable power, so that customers don’t experience a rate spike when production is too low and utilities’ revenues don’t plummet when production is too high? These are questions that demand a lot more thinking and innovation from the industry, and which we think this new model begins to address.
Q: How does this new approach benefit Microsoft?
BJ: Microsoft is one of the largest and greenest energy customers in the United States. We’re always looking for new ways to power our cloud responsibly and fulfill our renewable energy commitment. But as our renewable energy portfolio expands—both through new clean power projects and the clean power we buy off of the grid—the question of how to manage that risk effectively is becoming even more important.
This deal through Allianz offered a low-risk and cost-effective way to power our datacenter in Cheyenne sustainably. That kind of clean energy security is crucial for our business and our customers.
Q: What are the long-term benefits? What impact do you hope this new finance model will have on the industry?
BJ: At Microsoft, our goal isn’t just to secure enough clean energy to power our own operations; our goal is to help modernize our entire grid to meet the needs of a 21st century, digital economy. The march towards decarbonization is as dependent on developing the right financial innovations as it is on technical innovations. Our hope is that the new finance model we have piloted with Allianz and Capital Power will be applied to more projects moving forward and that we’ll continue to learn from its success. By reducing risk and making it easier for both companies and utilities to invest in renewable energy projects, we can accelerate the transition to a greener grid for everyone.
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