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Contributory provision point contracts – a risk-free mechanism for hedging cloud energy costs

Owen Rogers* and Dave Cliff

Author Affiliations

Department of Computer Science, University of Bristol, Merchant Venturers Building, Bristol, UK

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Journal of Cloud Computing: Advances, Systems and Applications 2013, 2:10  doi:10.1186/2192-113X-2-10

Published: 30 April 2013


Cloud computing services rely on electricity to power compute-servers, network equipment, cooling systems, and other supporting infrastructure. As such, energy costs are a substantial outgoing to public providers of cloud computing services. On-demand pricing, where consumers are not required to give advance notice of requirements, does not aid the provider in planning future demand, and therefore makes it more difficult to purchase energy at discounted rates. In this paper, we propose an advance pricing mechanism for cloud computing resources based on provision-point contracts, commonly used by deal-of-the-day websites such as Groupon. We show how our Contributory Provision Point (CPP) contracts reward consumers with reduced prices for advance reservations, while allowing providers to make accurate forecasts of energy usage. We show how CPP contracts are risk-free for the provider, guaranteeing to be at least as profitable as on-demand mechanisms where electricity is purchased ad-hoc by the provider. Through a computer simulation, we demonstrate that CPP contracts can be more profitable for the provider compared to a traditional method of hedging electricity futures using a popular forecasting algorithm. Furthermore, we show that CPP contracts encourage consumers to forecast honestly by rewarding them with discounted rates, while remaining profitable for the provider, even when forecasts are not completely accurate.

Utility computing; Market-orientated computing; Assurance contracts; Hedging; Energy futures; Forward contracts; Derivatives