Corporate power purchase agreements (PPAs) are inherently risky. With the increasing popularity of PPAs over the last decade, more complex risks have surfaced, which may inhibit their effectiveness as a risk management tool. And no insurance company is willing to offer protection products for such a risk.
Enter Microsoft.
The tech giant recently announced a solution to such risks: a “volume firming agreement” (VFA). The product is a combination of efforts from Microsoft and REsurety, along with patners Nephila Climate and Allianz Global Corporate & Specialty Inc.’s Alternative Risk Transfer unit.
According to Microsoft:
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 there 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.
The company is quick to note that VFAs are not a replacement for PPAs, nor is it a product Microsoft is selling. Instead, they are contracts that bundle with new or existing PPAs, mitigating risk to the buyer. So far, Microsoft has signed three of these contracts with Allianz, in conjunction with their partners at Nephila, covering three wind projects in the US in Texas, Illinois and Kansas, totaling almost 500 megawatts.
