ENGIE Delivers Innovative Clean Energy Solution to Microsoft
How ENGIE's Tailor-Made Solution Gives Microsoft 24/7 Renewable Energy and a Competitive Advantage against other Tech Giants
Microsoft has ambitious carbon reduction goals and sought a renewable energy supply that closely matched their energy consumption. ENGIE’s GEM and NORAM business units together offered Microsoft a highly innovative renewable energy solution which combined the energy production of a new ENGIE solar and wind project with the risk management capability of ENGIE’s Global Energy Management group.
ENGIE’s broad range of clean energy services and expertise will allow Microsoft to power its San Antonio data center with renewable energy firmed into a flat profile, 24 hours a day, 7 days a week.
The Problem
The tech industry faces a major challenge today when it comes to their energy supply: data centers are extremely energy intensive, and most major tech companies have ambitious goals to cut their carbon footprint. Microsoft, for instance, has pledged to become carbon-negative by 2030. To reduce the carbon emissions associated with data centers, most tech companies have committed to purchasing renewable energy. Often this arrangement results in the company purchasing intermittent wind and/or solar energy, which does not match the flat consumption profile associated with a data center. This mismatch generates substantial volume and price risk for tech buyers as well as most other corporate buyers of renewable energy in the US.
Since entering the energy market in 2014, corporate buyers have steadily increased their share of renewable purchases by volume from nearly nothing to becoming the leading driver of renewable energy procurement across the US. Of these corporate buyers, the leaders both in deals and innovation are tech customers.
As the procurement landscape shifted from utility buyers to corporate buyers over the last six years, so has the risk profile of typical off-take arrangements. Many risks are moving back to the project, as corporate buyers are not suited to bear these wholesale market risks. There has been some effort across the industry to standardize risk mitigation for corporate buyers, but it is clunky at best.
Microsoft is among the most sophisticated buyers of renewable energy globally. They look for experienced partners who not only offer a large, stable, competitively-priced, and long-term energy supply from new renewable sources, but also seek to appropriately mitigate the risk associated with the mismatch between renewable energy production and their data center consumption. Microsoft needed a partner with advanced risk management expertise. This is where ENGIE came in.
ENGIE's Innovative Solutions
In September 2019, ENGIE and Microsoft announced a market-first 15-year renewable energy supply transaction in Texas. Along with the construction of new wind and solar renewable projects in Texas and the sale of the associated power and Renewable Energy Certificates to Microsoft, ENGIE pioneered by adding an energy hedge (called a Volume Firming Agreement), which converts the intermittent renewable energy supply into a fixed, 24/7 baseload power profile for Microsoft’s San Antonio data center.
How the Contract Works
This contract will use renewable energy from ENGIE’s 200 MW new-build Las Lomas wind project in Starr and Zapata Counties in south Texas.
And renewable energy from ENGIE’s 200 MW new-build Anson Solar Center project in Jones County in central Texas.
To provide reliable, renewable energy to Microsoft's data center in San Antonio, Texas.
This contract is an innovative market-first because...
Offering wind and solar energy together takes advantage of their complementary production profiles. The combined profile is naturally a much better time-match to Microsoft’s energy consumption.
Adding a Volume Firming Agreement (VFA) to move from “as-produced” closer to “as-consumed” is at the cutting edge of risk management solutions.
A VFA with a 12-year tenor is the first of its kind on the US renewable market and likely longest worldwide; most similar agreements are only a few years long.
The partnership with Microsoft also includes the implementation of ENGIE’s Darwin software, a digital energy performance management platform, which exemplifies how ENGIE integrates digitalization to foster renewable development and meet customer needs.
ENGIE’s ability to combine its internal capability so successfully is unique on the market. Wind and solar development teams collaborating efficiently with an in-house sophisticated trading desk is something that has remained elusive to other actors in the US market and is something that sets ENGIE apart from others.
Most of all, this transaction positioned ENGIE as a leader in designing tailor-made solutions for demanding renewable energy buyers.
Results
- This contract will result in Microsoft’s purchase of a total of 11 TWh of renewable energy from 2021 to 2036 over the lifetime of the contract.
- Our solution resulted in customer satisfaction, 300 MW of new build renewable assets, and margin for various ENGIE business units.
- By directly owning the various pieces of the whole energy value chain, ENGIE can innovate, build client-specific solutions and differentiate from the traditional offers from out competitors.
Impacts on Environment and Society
ENGIE's global strategy
ENGIE’s ambition is to become the world leader in renewable energy development and a leader in the zero carbon as a service customer solution.
This initiative directly contributes to making our Country’s energy networks greener as it adds two new large-scale renewable energy assets in Texas. Both projects will be operated by ENGIE and are expected to come online by January 2021. These two projects represent over $400 million in new investment in renewable energy as well as increased local jobs and tax revenues in economically distressed areas of the US. Microsoft will receive a total of 11 TWh of Renewable Energy Certificates from these specific renewable assets.
The renewable energy at stake in this contract is enough to power more than 62,000 homes annually for the next 15 years.
Conclusion
Corporate customers presently drive renewable procurement in the US and it is expected that this trend will continue and expand globally, with data centers leading the effort as they are expected to consume 20% of global electricity by 2025.
Check out some of the data center locations across the United States already.
This offering directly supports the energy transition of our clients and the ambitious role that ENGIE will play in the Corporate PPA market. We are transforming our business model from providing as-produced energy to as-consumed in order to provide our clients with green solutions that are tailored to their specific needs and their sustainability journey.
After the deal announcement to the press in September 2019, ENGIE received multiple inquiries for similar offers by other tech giants, such as Google, Amazon, and other actors (industrial companies, FMCG, etc).
The ENGIE teams in North America, both from the GEM and NORAM BU, are actively working together on multiple business initiatives aimed at replicated similar hybrid transactions in Texas and other states for new customers.
Microsoft has also expressed its strong desire to repeat the same deal structure in the US and in other geographies.
With this deal, ENGIE demonstrated its ability to meet the increasingly sophisticated needs of customers with sustainability goals. By directly owning the various pieces of the puzzle and having recognized expertise through the whole energy value chain, we can customize renewable offerings to meet differentiated client risk, sustainability, and energy needs.
The deal we concluded with Microsoft paves the way for many similar structures; our ability to transform renewable energy related risks to the client’s highest benefit will drive the interest of more and more corporations. As such, ENGIE is extremely well positioned to become a reference model on the market of corporate PPAs.
