Ah, Google. The company that, more than any other, has fundamentally shaped the web is also trying to tap into any industry the Internet touches, or could possibly touch. Cell phones, television and the smart grid are just a few areas, and now we can add energy to that list. This month, in the first deal from Google’s subsidiary Google Energy — which can buy and sell electricity on the wholesale markets — the company announced it will buy 114 MW of wind power from an Iowa wind farm owned by NextEra Energy resources.
While Google has long maintained that Google Energy’s plans will focus on helping the search engine giant reach carbon neutrality, ultimately there’s one major reason why Google is tackling the energy markets beyond its carbon neutral claim: data centers.
Data Center Clean Power
The majority of Google’s energy consumption and energy-related costs come from data centers. According to estimates from a report from MIT and Carnegie Mellon, Google spends about $38 million annually on electricity for data centers. Google’s green business operations manager Rick Needham told me back in May that Google created Google Energy “so we can have more flexibility in procuring power for Google’s own operations, including our data centers.”
On the surface, Google Energy’s Iowa wind power deal is about carbon neutrality; in Iowa, Google is selling the power from the wind farm back to the grid operator in exchange for Renewable Energy Credits (RECs), which are tradeable energy commodities and can offset Google’s carbon emissions. Unlike most RECs that can be purchased without any direct clean energy created, Google’s RECs in Iowa will be attached to the actual generation of clean power. Google spokesperson Jamie Yood told me that Google had not specifically purchased so-called “naked” RECs (RECs not associated with the production of clean power) before because they felt the environmental benefits aren’t as good as energy efficiency or creating clean power.
But Yood also told me Google wasn’t going out of its way not to use the clean power for its data center operations in Iowa, saying, “[R]egulatory structures don’t allow us to buy and use power from an independent power producer for our data center in Iowa. That’s the main reason we’ve structured the deal with reselling the energy to the spot market.” To me that sounds like carbon neutrality isn’t necessarily the primary reason for Google’s wind power purchase.
More specifically, Google’s Green Energy Czar Bill Weihl told us at Green:Net earlier this year (two months before this latest wind power purchase agreement (PPA) was announced) that Google was interested in buying clean power via a PPA contract from an independent power producer and could theoretically sell the power on the wholesale markets for a period of time until it could use the power directly for a data center. As Weihl put it “So we’re not just throwing that money away,” until we can use it. (Not in this case: “Throwing that money away” equals REC credits and carbon neutrality.)
Weihl explained it like this: Google has data centers with power contracts already in place today, but a wind farm builder commonly needs a commitment from a buyer (that would be Google) upfront in order to build and finance a wind farm with a better interest rate from a bank. In other words, to buy wind power Google has to commit to buying the power potentially before its other power contracts have expired. It would then sell the power on the wholesale markets until it could potentially negotiate with the local utility to resell the clean power for Google’s data centers.
When Stacey joked to Weihl during the video interview: “So if I’m building a wind farm I should find out where your data centers are, and call you.” Wehl responded: “And lots of people do that.”
Low-Cost Energy
Having control over the cost of electricity for its data centers isn’t just about Google being green; it also helps cut energy costs. Lux Research analyst Ted Sullivan told me that wind PPAs (wind is the cheapest utility-scale clean power out there) commonly set wind power rates around six cents a kilowatt hour for a 20-year contract, depending on location, and sometimes it can be cheaper with federal subsidies. As Sullivan put it, “That’s pretty cheap.”
Since the power purchase agreement is over 20 years, Google is basically hedging against a long term rise in energy and natural gas prices (a common fuel for utilities’ power plants and data centers). The cost of wind and solar are free, but the cost of natural gas can fluctuate dramatically. Google is hedging against the situation where natural gas rises above the price of its wind PPA. Just having control over the long term price of energy for a data center can be a positive aspect of a PPA for Google.
Energy Trading?
Beyond data centers, some analysts are also wondering if Google could be using its newly gained power to buy and sell energy as a way to get into the energy trading business. The most infamous of the energy traders was Enron, but a newer crop has emerged in recent years. Lux Research’s Sullivan says it looks like Google is setting up an internal energy trading group, and Sullivan wonders if Google will move into energy trading to bring in revenues.
Given Google’s goal to manage the world’s information, there’s an untold amount of information around energy consumption habits, utility data and weather data that could be used to help Google capitalize on energy trading for “extreme profits.” In particular, if Google moves even more into the smart grid space (the company already has its energy management tool PowerMeter and has invested in Silver Spring Networks it could use the information from electricity subdivisions, nodes and power generation as intelligence for savvy trading. “They are definitely a big player to watch,” says Sullivan.
At the end of the day I think Google wants to get as much clean power for its data centers as possible, but at the same time it has to make economical decisions. As Weihl put it to Stacey at Green:Net, one of the big reasons there is not more renewable energy in the world is because it’s expensive, and for renewable energy to become a viable option the costs needs to come down. The most important thing that Google can do is buy power from wind and solar farms for its data center footprint, which could eventually help bring the overall costs of renewables in the U.S. down. If there’s one thing Google has, it’s a massive balance sheet.
