Distributed Energy Resources

ENGIE and Microsoft sign 230-MW renewable PPA

Microsoft and ENGIE have signed a long-term solar and wind power purchase agreement (PPA) that is structured to provide around-the-clock energy.

The deal calls for Microsoft to buy 230 MW from two ENGIE projects in Texas. The computer software company will buy the majority of the output from the 200-MW Las Lomas wind farm in Starr and Zapata counties and 85 MW from the 200-MW Anson Solar Center, which is being built in Jones County. ENGIE also will operate both projects, which are expected to come on-line in January 2021.

The PPA includes a volume firming agreement (VFA) that converts the intermittent renewable energy supply into a fixed 24-by-7 power solution aligned with Microsoft’s energy needs.

The VFA is a contract that augments a PPA by mitigating the risk to the buyer. It is intended to address the fact that a renewable energy PPA exposes the buyer to weather-related risks of producing power from the wind and the sun. The problem is that the power needs of buyers are static but renewable energy output varies day-to-day and hour-to-hour.

In addition, when a wind or solar project has greater than average output, the market value of the energy is often low, but when output is less than average, the market price is often high. That output variability and price volatility make buying renewable energy hard for smaller companies to justify signing renewable energy PPAs. But insurance companies are comfortable taking weather related risk.

The VFA concept was developed in late 2010, when investment management firm Nephila Capital approached several corporate renewable energy buyers with a way to help them address the risks in a PPA. Nephila eventually turned the idea into a company, REsurety, and signed deals with Microsoft and insurance company Allianz in 2016, laying the groundwork for future VFAs.

Microsoft has since signed three VFAs with Allianz in conjunction with Nephila, covering three wind projects in Texas, Illinois and Kansas, totaling almost 500 MW. Microsoft said it intends to purchase more renewable energy for its operations and to use VFAs to firm the energy and match its hourly consumption.

“As the market for VFAs and similar products grow, we believe it will create new incentives for those who now bear these risks to procure storage resources and other assets capable of physically balancing the intermittency of renewables,” Microsoft said in a blog.

In addition to the VFA, the deal with ENGIE also includes implementation of Darwin, an energy software developed by ENGIE using the intelligent cloud services of Microsoft Azure to optimize performance of ENGIE’s renewable assets. ENGIE’s Darwin software, among other things, enables real-time plant monitoring and control, performance monitoring and predictive maintenance.

“We are proud to support Microsoft in its plan to increasingly meet its energy needs with renewable power, and to do so in a highly customized way to meet 24/7 demand over many years,” Isabelle Kocher, CEO of ENGIE, said in a statement.