"The source of energy in the future is going to be clean energy, but no single source will dominate. You wouldn't put a solar on the windy planes of North Dakota if you could put a turbine there," said Rick Needham, Google's director of green business operations in a recent interview.
Last year Google invested more than $915 million in clean energy projects such as solar, wind and transmission. That's a lot of money, even for Google, which had $38 billion in revenues in 2011.
The investments don't appear to be core to the company's mission of organizing information, and they have attracted criticism, as well as some careless reporting, implying that the Internet giant is exiting the alternative energy business.
Does Google have an energy policy? Does it need one? Clean-energy investing isn't philanthropy for Google. It's business. In fact, it's a classic double-bottom line investment, one that is intended to deliver environmental as well as financial benefits.
"We originally came at this by asking how we can make ourselves a more sustainable company," Needham said. But Google executives have come to believe that the company can generate healthy, long-term returns by investing in wind farms, utility-scale solar plants and even solar photovoltaic panels on the rooftops of homes and businesses.
"It's a way of helping us to diversify our cash, put it into businesses that can earn good returns and that aren't correlated to other investments," Needham said.
Clean energy is the future, says Google
Last year’s press indicated that Google was dropping its clean-energy initiatives. Wrong. What happened was that the company shut down a small group of engineers who were researching solar power, among other things. The company is still working aggressively on data-center efficiency, procuring clean power for its data centers and investing in clean-energy projects elsewhere, as Needham explained.
These are big investments. Google put $100 million into Shepherd's Flat, an Oregon wind farm that is expected to be the world's largest, with 845MW of capacity. The company put $168 million into the Ivanpah Solar Electric Generating System, a solar thermal plant being operated by BrightSource Energy. It has invested in distributed, rooftop solar, through a $280 million project with Solar City and a $75 million fund with Clean Power Finance. Most recently, it invested $94 million, alongside private equity fund KKR, in a portfolio of four solar PV projects being built by Recurrent Energy.
Google isn't betting on any one kind of renewable power because its executives believe that wind, solar thermal and solar PV all has a role to play in generating electricity. While clean energy deployment still depends on government subsidies, he said: "We're getting to the place where the technology will allow you to have a low cost of power."
All of Google's large-scale energy investments (as opposed to its smaller, venture-like bets on startup companies) have 2 things in common. First, they are tied to specific projects which should deliver a steady stream of long-term revenues; utilities, businesses or individuals (in the case of rooftop solar) have agreed to purchase the power that these projects produce for a decade or two. Second, they are tax equity investments, under which the lenders - Google in this case, but typically big financial institutions - invest in renewable energy projects and become eligible for credits that offset their federal corporate tax obligations.
Tax equity investments are important to the future of renewable energy because other federal subsidies, notably a U.S. Treasury cash grant, have expired or are in danger of being phased out. According Bloomberg New Energy Finance, which researched tax equity finance for the Reznick Group, a big accounting and tax firm with a clean energy practice, the wind industry alone will require about $2.4 billion of third-party tax equity financing in 2012. The Bloomberg report says:
Incorporating other renewable generation sectors, the total tax equity financing need could be more than $7 billion. That requirement exceeds the investment appetite of the established tax equity providers, according to a clean energy trade group. Yet there is a vast pool of potential incremental tax equity supply: the 500 largest public companies in the US alone paid $137 billion in taxes over the past year.
This is where Google is filling an important financial gap. Other companies could, too. Apple recently reported eye-popping earnings which left it with $97 billion cash and short-term investments (although much of it is parked overseas). GE has $78 billion. Toyota has $48 billion. Microsoft has $43 billion. Here's a list from the WSJ of the companies with big cash hoards.
Interestingly, Google had a partner in its most recent clean energy investment: KKR, the big private equity firm, formed a new venture called SunTap to invest in US solar projects, including the projects being developed by Recurrent Energy in northern California.
By Marc Gunther
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