Views from the top: - Smart Energy Decisions

Commercial, Distributed Energy Resources, Energy Efficiency, Industrial, Utilities, Commercial, Distributed Generation, Industrial, Sourcing Renewables  -  June 8, 2016 - By Amy Poszywak

Views from the top: Inside Microsoft's corporate energy strategy with Brian Janous

 Exclusive to Smart Energy Decisions

It's no secret that Microsoft is one of the earliest and largest corporate renewable energy buyers in the country. Consistently ranked in top ten lists of wind and solar power purchasers, the company is still in aggressive pursuit of more clean energy to power its operations as it forges ahead toward the goal of being 100% powered by renewables. Toward that end, Microsoft has emerged as a leader of the recently launched Renewable Energy Buyers Alliance, or REBA, whose mission has emerged in two parts: One, to help grow corporate demand for renewable power; and two, to help utilities and other power companies meet that demand. 

Brian Janous, Microsoft's director of energy strategy, has been instrumental in the company's journey to reduce the company's carbon emissions through renewable energy sourcing and energy efficiency over the years. Given his unique insight into corporate energy management and involvement with REBA, Smart Energy Decisions recently spoke with Janous to get his take on Microsoft's mission with REBA and learn more about the company's strategy for reaching its aggressive renewable energy targets. Below is an edited transcript of that conversation, which spans everything from the current state of utility engagement with large commercial and industrial customers to battery storage.  

Smart Energy Decisions: The Renewable Energy Buyers Alliance organization recently launched with Microsoft as a leading participant. What are your thoughts on the group and what is Microsoft's goal for its involvement?

Brian Janous: We've been on our journey as it relates to renewable energy for some time, and it's been a great learning process for us. We were fairly early in this market and structured some things that were different than what had been done before, and we gained a lot through that process, but through that as well, we've recognized a lot of inefficiencies in the market. In particular, how difficult it can be to get deals done sometimes; even with some of the luxuries that we have with a strong brand name and a good balance sheet and good credit and I've got an entire treasury group at my whim to help me figure out complexities around hedge accounting and other things that not every company has, they just don't have the luxuries of doing that. So it occurred to us that this market was somewhat limited in terms of its accessibility to a broad swath of buyers. We also recognize that while we've been able to do some large deals, there's value for us in the market creating more options for us. So that it's not always that we're having to structure things in a very particular way, or need a particular market environment to make something work, but rather, there being various options in terms of how we approach renewable energy.

So the value of REBA is bringing together customers that have been down that road, those that are trying to go down that road, as well as utilities and project developers to really brainstorm and work toward solutions that broaden the market for renewable energy.

So our number two question ties into the recent announcement Microsoft made about its data centers and the commitment to powering those more directly with renewable energy, as opposed to just offsetting their electric use by purchasing renewable energy credits, or RECs. We have seen a couple of other companies go down a similar path. What are you seeing in terms of the evolution there and what prompted the decision to do more direct buying of renewable energy?

Well, it's always been part of our plan, and where we wanted to go with the company, because we ultimately want the decisions we're making and the actions we're taking in the marketplace to drive toward a lower carbon economy. When we made the decision, back in 2012, to become carbon neutral, there was some discussion around RECs and what we were willing to do. We said it would take some time for us to get to where we want to go in terms of being 100% supplied by renewables by going this direct route, we do have these options for purchasing renewable energy credits, which have less overall impact but will start to move us in a particular direction. And the decision at the time from our from our executives was, 'look, let's just go all the way right now, and then let's continue to build up our muscle and evolve our strategy, and transition to be more substantially supplied by direct renewable energy.' So it really was always part of our evolution, and what we've been doing lately, and the announcement last week, was about setting some near-term, concrete commitments so that we can better measure ourselves and be held accountable publicly for the targets that we've laid out.

Along those lines, what are you looking at doing to get there specifically? Does that mean more power purchase agreements, are you looking at onsite generation, or what are the routes there? 

We're definitely looking at more PPAs, but we're also working with the likes of REBA and other partners in the industry to come up with other options, particularly, what we can do with utilities. That's a big focus of ours right now: working directly with our utilities to create better renewable options. That's what led to the deal we did with Dominion earlier this year, and that was our first direct utility deal. Everything we had done prior to that has been with a developer. So that's a big focus of ours right now, thinking about how to get utilities more engaged and involved in what we're doing. Because, personally, I think they are really key to unlocking this market. So we're really looking for our utilities to be more progressive and lead the way in creating options that work for a broader swath of customers.

Two of the largest Las Vegas casinos recently gave notice that they were going to leave their utility, NV Energy, and one of them, MGM Grand, said their reason for doing so is that they are unable purchase renewable energy at the magnitude and cost they want from NV Energy. So we were curious, is that an issue that you have seen at Microsoft, or how are you thinking about that story?

As I said, we have been very active in working with our utilities to try to find solutions. Because we think in the long run that it is better for utilities to be able to offer opportunities, particularly as it relates to smaller customers, than for customers to always have to go out on their own. Not to say there aren't scenarios where that really is the best option. I can't really speak to the MGM situation specifically, but I think stories like that certainly highlight the fact that customers are really serious about this and they want to see more options. I think if you go back a couple of years ago, utilities would probably say, 'yeah, customers are kind of interested in renewables but they don't really want to do anything drastic, or they don't want to pay for it, or they don't want to do this or don't want to do that,' and they kind of used that as an excuse. I think now, utilities are starting to see, customers are really serious about this, and this is a very high-level concern around what decisions utilities are making, what investments they are making in their infrastructure, and are they really providing the suite of options that customers want. We certainly have seen a market improvement in our utilities' willingness and desire to think through create solutions over the past couple of years, and I think groups like REBA are part of what's helping to really consolidate that voice of industry in this space, and help to drive utilities to action.

So it sounds like you have a pretty constructive dialogue with the utilities that you're working with?

We do. It's certainly not universal; we've got some that we feel like are more progressive than others. But I would definitely say the environment has improved across the board.

You touched on this a little bit, but if we could go back and talk a little bit more in detail about the decision Microsoft made to get into renewable energy quite a few years back. What prompted that decision and what was the first step the company took in that direction? 

The decision was really tied in with our decision to institute the carbon fee that we have in place. So those two things really came about at roughly the same time. We started looking at some renewable projects for our data centers, very much in the early days of corporate renewable participation, and one of the things we were thinking about is how we value these things ... how do we think about carbon inside of the corporate context. If we're going to go out and buy renewable energy, who is going to be responsible for this, who is going to own it? Some of the questions were just very practical ones, and that led us to the thinking that this should be something the whole company owns, and that started driving us toward this carbon fee model, and we said 'look, if we're going to go out and make these investments in renewable energy, in carbon offsets, we should have a model that allows those costs to be cascaded across the entire company.

Out of that came the carbon fee model we have today, where all of the business groups that use electricity by virtue of being inside of out data centers, whether it's Office 365 or Xbox Live or Azure, and also our corporate travel, all of that gets accounted in the centralized system and then there's a charge out that goes to all the business groups for the electricity they consume, or the carbon associated with that electricity, and the carbon associated with their travel. So that became then the vehicle for us to be able to use to say, okay, now we have this centralized pool of funds and that's how we're going to fund renewable energy across the country. So we're what is, effectively, this tax, to fund not only renewable energy but also energy efficiency projects. So that's how it all came about; we were marching down the road anyway, and then brought this carbon fee concept into play, and that's really become the foundation for everything we've done since then.

Turning to energy efficiency, what is Microsoft's thinking du jour? What are you looking at right now on the demand side?

There are a lot of things. Efficiency is a pretty core part of how we think about data center design, we've led the way in a lot of ways in the industry on things like value-added cooling instead of always having to put in chiller systems, and it also significantly reduces water consumption. So we have made a lot of investments like that, but we've also done a fair amount of work on the distributed energy and storage side. So the way we started was by saying okay, there's only so much efficiency - at least in data center design itself, you have a whole other issue of how you architect software - but as we think about just data center design, there's only so much efficiency you can eek out before you kind of start getting into diminishing returns. So now, we ask, where are the opportunities for increased inefficiencies once you've squeezed out a lot of that overhead? That really shifted our focus to behind the meter distributed energy assets, the generators, and [uninterruptible power systems, or UPS], and saying, 'these are highly underutilized assets.' They're plentiful, in that near all data centers have some form of backup generation, some form of storage on-site in the form of UPS, and these assets can be utilized as grid resources if you're willing to consider alternative configurations and different types of generation. So we've done a lot of work in fuel cells, we've got some pilots going on right now with flow batteries, looking at the use of something liked a flow battery as both a UPS system as well as a grid resource to provide ancillary services and balancing intermittent renewables. So this notion efficiency for us is fairly holistic for us and goes beyond just how we use energy but also how we use our energy assets.

So when you think about storage and batteries, is that the extent of what you're doing with flow batteries or are you exploring other types of batteries?

We're looking at other types too. We've spent a lot of time with a lot of work over the last year or two, more in the investigative stage, looking at battery chemistry. What we like about the flow battery is the longer duration cycles and the fact that they don't face the same degradation that lithium ion of acorn batteries deal with. Which means we can utilize it more without shortening its life, which is always a challenge. Why this is so interesting subject for us is that when you consider the typical reliability of the electric grid, you have these backup resources but they're probably not being used 99.9% of the time. So it's all that time that they're sitting there idle that we see an opportunity to leverage them as a grid resource, but, the more we leverage them, using them as a traditional battery, the more they would degrade, and then they'd have to be replaced. So we like the idea of having somewhat free reign to utilize the asset for grid services without having to deal with the degradation and issues. That's why flow batteries are particularly interesting to us, but we are looking at other chemistries.

Lastly, we've been talking with a number of energy leaders recently about how the role of the energy manager has evolved over the past couple of years, and how that is expected to continue to evolve as corporations get more and more directly involved with their energy use and sourcing. Do you have any thoughts on how your job has changed or how you are thinking about your role at Microsoft.

I've got a little picture in my office, it's from a brochure Deloitte put together several years ago, and it says 'every company is an energy company,' and then there's an asterisk, and it says, 'and if it isn't, it will be soon.' And to me, that captures a lot of the way that I approach what we're doing at Microsoft. It's the realization that, particularly in the cloud space — energy is the raw material of the cloud — it is what we convert to data to provide all the services that we support. And I think a lot of companies are starting to realize the importance of energy in their businesses, not just as a key input, but particularly as there's more of focus on things like carbon and sustainability, they realize that there are decisions that they made for years, and they have never thought about the implications from an energy standpoint or a carbon standpoint. So I think the role of the energy manager has changed in that they have to synthesize more information and they have to think more holistically about the decisions they make, and it's no longer just 'who am I going to contract with for power for the next year, or what's my utility rate going to be for the next year,' but really, 'how are we as a company thinking about energy as an input and carbon as a byproduct of the decisions we make?' So I think there's been a growing sophistication and need to really broaden that energy manager role to speak a lot of different languages that maybe they had not just several years ago.

SED's take:  We were fascinated by the wide range of topics and depth of thought Brian shared during each segment of this conversation. Microsoft is one of the most progressive companies in the industry, and Brian’s thinking is well down the road regarding the current energy transformation. There is something in this interview for everyone, and we hope you enjoyed it. We look forward to seeing the continued evolution of Microsoft’s energy strategy and the role that REBA may play to help accelerate corporate adoption of renewable energy. - John Failla 

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