Advance Market Commitment’s Fast Track Innovation: More Businesses Should Take Advantage.
Physicists joke that fusion energy is always “just” 30 years away. But despite this never-ending timeline, in May 2023, Microsoft agreed to purchase power from the fusion energy company Helion. Helion plans to deliver by 2028 and to generate 50 megawatts of power by 2029 — and will pay financial penalties if they don’t.
Knowing the challenges, why would Microsoft and Helion enter such a hard-to-keep deal? Because the framework they’re using — an Advance Market Commitment (AMC) — has been successful many times before. And the private sector is beginning to take notice.
An AMC is a binding economic agreement where demanders agree to purchase nonexistent or nascent technology from suppliers, and in doing so, incentivize suppliers to accelerate the technology’s development. The government and public sector have been successfully deploying AMCs for decades. Just look at the Bill and Melinda Gates Foundation, which organized an AMC to develop low-cost vaccines for pneumococcal disease — a deadly bacterial infection. In 2009, they, along with the UK, Canada, Russia, Norway, and Italy pledged $1.5 billion to purchase pneumococcal vaccines that met specific price and efficacy thresholds. As a result, three different vaccines were developed, bought, and distributed to low-income countries saving an estimated 700,000 lives.
The Gates Foundation’s AMC gave pharmaceutical companies the financial incentive and necessary development requirements to expedite vaccine production. More broadly, AMCs can help technologies overcome barriers that have historically slowed development such as high research and development costs, low short-term profitability, and a nonexistent market.
As Microsoft and Helion demonstrate, the private sector is starting to use AMCs to bring a diverse range of technologies to market. And there are clear advantages for the businesses that do, including first mover status, competitive pricing, and accelerated technology commercialization. To illustrate, consider Frontier, a private AMC targeting carbon capture and removal technology. Frontier evaluates emerging carbon removal and storage technologies, and purchases tons of removed carbon on behalf of members. As of 2023, members including Stripe, Meta, and Shopify have committed over $1 billion dollars to purchase carbon removal through Frontier.
This massive commitment, however, shouldn’t be seen as benevolence: it’s a prudent business decision. As climate change intensifies, and more companies choose or are mandated to remove and store carbon, Frontier members will have an early lead over competitors. Specifically, they will access the most promising technology first and at a locked-in, below-market rate.
Expanding beyond vaccine and carbon capture technology, businesses should understand that AMCs can help commercialize many technologies that are crucial to their current and future success. For example, an AMC could help wave power technology overcome technical barriers and unlock its potential to generate an estimated 64% of U.S. utility-scale electricity generation demand (based on 2021 demand).
More so, a privately funded AMC could create a market for artificial photosynthesis which can produce cheap, clean hydrogen, as well as sustainable manufacturing materials. Industrial-grade sails for cargo shipping, solid-state batteries, and countless other technologies could all be accelerated through an AMC. (Prototypes of these technologies exist today, but not at commercially significant prices or scales).
Leading businesses are always imagining, planning, and building the futures of their industries — and there are many potentially disruptive technologies on the horizon. With the pace of technology innovation today, staying on the cutting edge is more difficult than ever. AMCs, however, offer a powerful tool for businesses to commercialize advanced and disruptive technologies and remain at their industries’ forefront.
After all, many dismissed Microsoft’s fusion purchase as a PR stunt. But what if it works?
