October.16.2018
Microsoft announced today a new renewable energy contract structure, known as a volume firming agreement, intended to reduce risk for buyers in corporate power purchase agreements (PPAs). In addition, the company announced it has signed several of these first-of-a kind transactions. The approach and transactions are aimed at expanding the corporate & industrial market for renewable energy through innovative provisions that leverage renewable energy, commodity and financial markets techniques. These volume firming agreements build on the proxy generation PPA model designed in partnership with Orrick’s Renewable Energy and Derivatives teams.
Orrick supported Microsoft’s work on these proxy generation PPAs throughout the process: First, Microsoft contracted for 750 MW of renewable energy from wind and solar projects, including the Pleinmont 1 and 2 solar energy projects in Virginia. Through these transactions, Microsoft utilized the proxy generation PPA structure, building upon the company’s early success with the 178 MW Bloom wind project in Kansas. These deals introduced the proxy generation PPA for the first time in solar energy procurement. The proxy generation PPA structure is designed to (1) simplify contracting, (2) align the interests of green power buyers and projects sellers as to fuel, operational and price risks, and (3) facilitate the use of risk mitigation instruments traditionally available in the commodity and financial markets, including newly announced “Volume Firming Agreements” or “VFAs.” Microsoft, Orrick and REsurety have co-authored a white paper, available here, to introduce the Proxy Generation PPA structure and its advantages to the market.
In addition to the launch of the white paper, Microsoft announced today deals associated with the VFA structure, totaling almost 500 MW of Volume Firming Agreements arranged by REsurety, Nephila Climate and Allianz Global Corporate & Specialty, Inc.’s Alternative Risk Transfer unit (Allianz). These VFAs overlay Microsoft’s existing PPAs for operating wind projects in Texas, Illinois and Kansas. As explained by Microsoft and REsurety here, “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 that these 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.”
“It has been an honor to collaborate with Microsoft on these pioneering transactions,” said Orrick Partner Giji John. “We believe these structures and risk mitigation techniques create unprecedented opportunities for corporate and industrial (C&I) buyers in advancing their financial, energy procurement and sustainability strategies. These structures show that it’s possible to pursue robust sustainability goals in buying renewable energy, while managing the risks of these purchases. It’s already an active market and I think this could be a tipping point towards exponential growth.”
The core Orrick team that advised Microsoft includes Giji, Nik Mathews and Andrea Memovic.