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Microsoft benefits from Allianz & Nephila wind farm revenue swap


Microsoft Corp. has revealed that it was a buyer in the first transaction to use the innovative wind farm weather hedging revenue product created by Allianz Risk Transfer (ART) with the help of Nephila Capital.

Allianz ART announced the first transaction back in May, as it partnered with largest manager of catastrophe and weather insurance or reinsurance linked investments Nephila Capital, alongside others, to create and commercialise a new wind farm volume hedging product.

Global software and IT firm Microsoft has now revealed that it was the buyer, as it announces a new arrangement to utilise wind farm energy to power one of its datacentres, helping to make its cloud based products more responsible and environmentally friendly.

Microsoft said that it has contracted with Allianz Risk Transfer (ART) to enable it to fix its long-term energy costs associated with a wind power investment, as it purchases power from the new, 178-megawatt Bloom Wind project in Kansas.

Microsoft said that this project is the first to use what it terms “a novel structure” developed by Allianz ART that is designed to “offset high upfront costs associated with the creation of large-scale wind projects.”

This is the Proxy Revenue Swap, which acts as a tool for hedging wind volume risks for wind farms. As we wrote previously, the Proxy Revenue Swap enables owners to secure “long-term predictable revenues and mitigate any power generation volume uncertainty that the Bloom Wind Farm faces due to any lack of wind resources.”

The product also helps those investing to buy energy from wind-farms with the ability to protect that investment, as in the case of Microsoft’s announcement, providing greater certainty and hedging out the wind volume risk associated with the production.

Microsoft said that it “is the first buyer to participate in this structure, which has the potential to bring clean energy projects online at a faster pace.”

President and Chief Legal Officer of Microsoft Brad Smith explained; “We have procured 178 megawatts from the Bloom Wind Project in Kansas through Allianz Risk Transfer (ART) to help bring this new project online.”

“It is important for investors in renewable energy projects to secure long-term, stable revenues, and our structure does just that,” commented Karsten Berlage, managing director at Allianz ART. “We are thrilled to be partnering with Microsoft on this groundbreaking project.”

“We are constantly looking for new ways to approach energy challenges and avenues of engagement with our utility partners,” added Christian Belady, general manager of cloud infrastructure strategy and architecture at Microsoft. “The team worked closely with ART to come up with a completely new model to enable faster adoption of renewables.”

Smith of Microsoft also said; “This structure offers a new model to enable faster adoption of renewables. It does so by lowering costs, reducing risks and improving certainty. By partnering with ART to deliver this new financial deal structure, we hope to help serve as a model that spurs other markets to accelerate the rate at which wind and solar energy projects come online.”

By hedging out the wind risk associated with an investment in a wind farm, investors or indeed buyers such as Microsoft, can smooth revenue and earnings volatility due to the weather, receiving payouts when wind is insufficient to support the generation volumes targeted.

Through its investments in wind farms Microsoft hopes to fully power one of its key cloud server data centres in Cheyenne, Wyoming. The wind energy provided by the wind farm covered by this revenue swap transaction will contribute a significant proportion of the generation required to achieve this.

ILS and catastrophe reinsurance fund manager Nephila Capital worked alongside Allianz ART to assist with the weather risk transfer and as a capacity provider. Nephila and Allianz have been working in partnership on weather and catastrophe risk transfer and reinsurance transactions for many years.

Allianz ART also announced the closure of a second innovative weather hedging revenue management transaction for a wind farm with the help of insurance linked asset manager Nephila Capital in July.

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