Texas’ lead in wind energy production may soon grow, thanks in part to two information technology juggernauts.
Google and Microsoft in recent months have announced major wind power deals in Texas that promise to add significant amounts of the resource to the state’s grid. The moves are part of the companies' efforts to offset the carbon emitted by their energy-sucking data centers.
In September, Google, in its biggest renewable energy buy, said it would purchase the entire output of the 240-megawatt Happy Hereford wind farm outside of Amarillo — power it will send the electric grid in Oklahoma, which powers a Google data center.
This month, rival Microsoft announced it has inked a 20-year deal to secure all power from the 110-megawatt Keechi wind project, which is being developed near Jacksboro, about 70 miles northwest of Fort Worth. That farm connects to ERCOT, the grid powering much of Texas, including Microsoft's San Antonio data center. Without Microsoft's backing, says RES Americas, Keechi’s developer, the project would not have been built.
Brian Janous, Microsoft’s director of energy strategy, chatted with the Tribune this week at a Texas Renewable Energy Industries Association conference in San Antonio. He discussed Microsoft's decision to invest in Texas wind energy, and how possible changes in state and federal policy may affect similar deals in the future.
The following is an edited and condensed transcript of the interview.
TT: Before joining Microsoft, you have said you were were a bit skeptical about whether the company would put your energy expertise to good use. What changed your opinion? What role does energy play in the company's business plans?
Janous: When I first started considering working for Microsoft, I was curious about how significant energy issues were to an IT company. And as I started looking at the growth in cloud [large amounts of data stored on virtual servers that can be accessed from anywhere] and how critical energy is to operating that type of business, it was very compelling to think about scaling energy consumption, and how a company like Microsoft could address broad energy challenges.
TT: Microsoft is funding its Texas wind purchase in part by a self-imposed “carbon fee.” How does that fee work, and how does it help the company's bottom line?
Janous: Internally, we hand down a carbon fee to all of our business groups. It is based on the emissions they incur as in their overall energy consumption, including travel. We pool that money to buy renewable offsets. The program makes us more aware of all the emissions we emit, and it has helped us to weigh the benefits of the Keechi wind project. Before we had the fee, we knew there was some value to reducing emissions that way, but we didn’t have any specific numbers to point to. The carbon fee gives us those numbers.
TT: Let's get into the nuts and bolts of the Keechi farm investment. Why did you choose wind?
Janous: With respect to wind, we’ve certainly seen improvements of the past several years, in terms of the installed cost of wind projects. Those prices are ticking down as turbine efficiency improves.
TT: And Texas?
Janous: The real value has been in the state's significant investments in its transmission lines that go out to West Texas [These are part of the state's Competitive Renewable Energy Zone effort.]. Texas has been very progressive on that front. It has realized that it needs to connect its massive wind resources out west to the many people who live elsewhere. For us, it is a real challenge to understand how renewables interact with the grid. You are trying to make sure projects don’t burden the grid with power that may not be needed in a particular location. Texas’ more robust transmission infrastructure makes its wind resource more valuable. It ensures we can deliver energy to the load centers where it needs to be.
TT: So when you are weighing a Texas project, you are essentially looking at the whole grid, considering places most in need of more power?
Janous: Yeah, that’s part of it. That all gets distilled down into the complicated way the grid works and the way that generation is priced in the market. There are thousands of pricing points across the ERCOT grid — all of these different nodes. The nodes provide price signals about where generation is most valuable. The question that always comes up is, shouldn’t Microsoft be putting this stuff right next door to its data centers? Not necessarily, because we’re not always siting data centers right next to where the best renewable resources are. We’re more interested in thinking about how we can develop the most efficient renewable resources to the grid.
TT: For folks who may be confused about how Microsoft benefits — economically, and not just environmentally — through these wind purchases: how does that work?
Janous: There are multiple levels of the energy market. Most of us interact at the retail level, where we buy — from a generator or third-party supplier — the power we use each day. Another layer sits on top of that: the wholesale market. That’s where generation is traded between utilities, generators and utilities, or between private developers and end users. That is where our wind contract sits. The deal doesn’t really impact the cost or supply of retail energy delivered to our data centers, but in some ways, it acts to offset costs. We want to manage long-term costs across our whole energy portfolio. If natural gas prices end up rising, for instance, we will pay more for the power we’re buying from our local utility. But since we own the power from this wind project, which would become more valuable in that senario, we would see a benefit. It creates some price protection.
TT: On to policy. Congress is considering whether to extend the generous wind production tax credit, set to soon expire. How might this affect future projects?
Janous: In the near term, it will certainly make a project like this more difficult to get done. But there are a number of other regulations that will support the development of renewables, such as the federal investment tax credit for solar, and a lot at the state level. We continue to see the prices of renewables come down year after year. So over time, those tax credits become less important. Still, one of the challenges for renewable energy in the U.S. is that natural gas is so inexpensive here. That competes with everything. It is certainly a headwind for the renewable industry, but at the same time, natural gas provides huge opportunities of its own.
TT: Perhaps the biggest issue in Texas energy right now is whether the state has enough capacity to meet the surge in energy demand during the hot summer months, and whether Texas should shift from an “energy only” to a “energy capacity” market to spur more generation. Could such grid issues discourage a company like Microsoft to broaden its footprint in Texas?
Janous: Yes, absolutely. Grid reliability is critical to us. Blackouts and rolling brownouts are in no one’s interest, and so we need to find a solution that does provide compensation for generators to encourage the significant capital investments. We have other parts of the country that have instituted capacity markets. You can debate the effectiveness of each of those approaches, but we do need to have some clarity for generators. Having the grid go down is very costly to us. We are certainly following that issue.
TT: Along those lines, with much of Texas still gripped by drought, how big of a role does water — or a lack of it — play when you’re weighing expansion?
Janous: Water is absolutely a concern. We use lots water in the data center; we use it for cooling. We’re very interested in the water issue. That’s a critical issue here in San Antonio, and we certainly commend the city for its recycled water system. We try to look for those types of solutions when we can.