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Microsoft joins growing pool of companies buying offshore wind power in Europe

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Microsoft joins growing pool of companies buying offshore wind power in Europe

Microsoft Corp. signed up to buy electricity from an offshore wind farm project in the Netherlands, the latest in a number of deals that have seen power-hungry companies turn their attention to the giant arrays dotting Europe's coastline.

The company said May 23 that it would purchase 90 MW from the 731.5-MW Borssele III/IV project being developed by utility Eneco Groep NV to power its data centers in the Netherlands for 15 years starting in 2022. Brian Janous, Microsoft's general manager for energy and sustainability, said the agreement is the company's fourteenth renewable energy deal, bringing its contracted green power portfolio to over 1.5 GW.

Microsoft, along with other technology companies such as Alphabet Inc. and Apple Inc., has helped fuel a growing trend toward corporate renewable power purchasing that started in the U.S. and is now taking off across Europe.

SNL Image
Due to their size, offshore wind farms can usually support multiple off-take agreements.
Source: Associated Press

Corporate consumers have bought close to 5 GW of onshore wind power in Europe over the past five years, and lately, developers have also started striking the first deals for much larger projects offshore. That includes an agreement between Swedish utility Vattenfall AB and two companies in Denmark in 2018 and another signed by offshore wind giant Ørsted A/S in the U.K. in February.

Tech companies in particular "are facing the challenge to reduce their carbon footprints, mostly due to the vast energy consumption of their data centers," Eneco Chief Customer Officer Hans Peters said in a statement, adding that the Microsoft deal would enable Eneco "to continue to invest in large-scale renewable energy projects."

Stacking revenues

The Dutch utility has already signed several corporate power purchase agreements, or PPAs, for its offshore arrays, said company spokesman Arie Spruit, including similar deals for the Borssele project with network operator Stedin Holding NV, multinational Koninklijke DSM NV and airport owner Royal Schiphol Group NV.

The €1.3 billion Borssele project, scheduled to start construction later this year and operating in early 2021, is being developed by a consortium that also includes oil major Royal Dutch Shell PLC, a Mitsubishi Corp. subsidiary, maritime contractor Van Oord NV and private equity firm Partners Group Holding AG.

Shell and Eneco are each buying half of the output under 15-year agreements with the consortium. Eneco has signed PPAs to market its share of the output to stack revenues on top of the guaranteed price of €54.49/MWh the project will receive under the Dutch government's renewables subsidy program.

"We have nearly sold out our half," Spruit said, adding that the volatility of power prices was the main driver to find additional off-takers. "You need the additional income to make sure the project is profitable."

Beyond subsidies

Eneco is up for sale, and Shell, along with a partner, expressed its interest in bidding for the utility in January. The two companies are involved in a joint bid to develop another offshore project in the Netherlands, where auctions are now taking place without direct subsidies for the power they will produce thanks to steep declines in technology costs over recent years.

In countries from Spain to Finland, PPAs with corporate consumers have been emerging as a preferred option for locking in long-term revenues and thus securing financing to develop unsubsidized renewables projects, so far mainly onshore.

Although corporate PPAs are projected to keep rising for both wind and solar projects in the coming years, analysts have warned that there is a limited pool of viable off-takers on the continent, restricting the potential of such deals to keep financing developments as state subsidies are phased out.

"The market for those [long-term] PPAs is very thin," Marc Groves-Raines, the head of renewables at asset manager Allianz Capital Partners GmbH, which has invested in offshore wind farms, said at an industry event in April.

For now, developers remain bullish on their opportunities. Ørsted, the biggest offshore developer, is hoping to follow-up its first offshore PPA with Northumbrian Water Ltd. in the U.K. by selling parts of its current and future production in other countries such as the Netherlands and Germany, CEO Henrik Poulsen told analysts May 1.

"We will, of course, continue to look for corporate PPAs that will help offset any merchant risk we have across our portfolio in Europe," Poulsen said.