Google Changes Green Energy Formula
Google is changing its formula for how it invest in renewable energy. The big question among those in the green sector is whether the new strategy will last in the current political environment.
Google, which has invested $915 million in green energy projects, has said that it will focus on funding the ventures of others -- not on trying to invent clean energy forms that can replace coal power. That tack is a better way to make money for its shareholders than trying to solve the world’s energy problems.
The globe’s largest internet search engine must feed the voracious appetite of its data centers. It is vocal about doing so with the use of green energy. But it has found that sustainable fuels cannot be produced in large enough quantities to do the job. So, it has tried to use its brain power to make such inventions real. But it has recently scrapped that tactic: It, for example, dropped its effort to build cost-efficient solar panels, as well as its home energy management system.
What is practical, however, is investing in projects created by true experts. For now, it is loaning that money to developers with track records. Not only has Google been getting the cash grants from the U.S. Treasury for those investments but it is also earning a reasonable interest rate from its borrowers.
In fact, it is that cash grant -- in lieu of the production tax credit -- that has drawn the deep pockets into the solar and wind fields. Last year, that tax credit was extended for one additional year. Now it is set to expire. And in this hostile political climate, it may not get another extension.
To be fair, the 30-percent tax credit in the form of up-front cash was only meant to be temporary. That’s because developers could only get the production tax credit of 2.2 cents per kilowatt hour of electricity generated if projects actually got built. But because equity investors were sitting on the sidelines, the production credit was useless. Hence, the need to get money into game and the employment of the tax credit -- known as the 1603 Treasury Program -- was developed.
The Solar Energy Industries Association says that as of the end of the third quarter of 2011, 1,000 megawatts of solar have been installed. That surpasses that of 2010 at 887 megawatts.
Private Capital
Much of that growth is because of the 1603 program. If that is allowed to expire, the association says that 37,000 jobs will not form next year -- a big deal, it adds, considering that 100,000 people currently work in the solar sector, which is double that of 2009.
“The U.S. solar industry is on a roll, with unprecedented growth in 2011,” says Rhone Resch, chief executive of the solar association. “Solar is now an economic force in dozens of states, creating jobs across America. But our industry needs stable policy on which to make business decisions, and unfortunately an underlying mechanism for financing solar projects is scheduled to expire on December 31.”
Google has been a critical part of the solar sector’s growth. It has invested $280 million in SolarCity that builds residential solar panels. It has also ventured into utility-scale solar by placing $168 million into BrightSource Energy’s 370- megawatt Ivanpah plant in the California desert.
The search engine giant’s most recent foray came this week when it announced that it would team with Kohlberg Kravis Roberts to develop four solar farms to provide power to the Sacramento Municipal Utility District in California. Google will spend $94 million while the private equity firm that specializes in leveraged buy-outs will invest $95 million.
When completed next year, the “Recurrent” solar farms will supply 88 megawatts at peak, or enough to power 13,000 homes within the utility’s domain. The electricity will be purchased in a 20-year contract. Such a move is on top of Google’s earlier effort this year to provide a financing mechanism to homeowners who would like to install rooftop solar panels.
“The investment is a clear demonstration of solar’s ability to attract private capital from well-established investors like Google and KKR,” says Arno Harris, CEO of Recurrent Energy. “This transaction provides an example of the direction solar is headed as a viable, mainstream part of our energy economy.”
That’s at least what the solar sector is hoping for. And while companies may want to facilitate the use of cleaner energy, they also like the idea of getting tax credits. If those stop, so too might the influx of money to many green projects.
EnergyBiz Insider is the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.
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energybizinsider@energycentral.com
Comments
Renewable Cash Grant
Let's not forget that incentives should be given for an industry during its infantcy. Venture Capitalists are not providing enough capital for projects that may be just marginal. Investment capital for utility industry is not abundantly available. I is usually hard to provide it , and it usually lags several years later after the required need has past. Google or other intermediate companies are filling that void in providing the capital. Eventually, the kilo watt-hr cost of the solar will go done as mass production and better technology are made available.
In the case of SMUD, renewable power is needed for a public utility company and purchase contracts have to be secured by a reasonably promising project. Why would that be the fault of Google, SMUD , or the Federal government? I do not believe we all complained when the federal governments rolled out billlions each year for almost 75 years in implementation and support of the highway transportation system all paid by tax payers?
Climate
"And in this hostile political climate, it may not get another extension."
Perhaps the hostile economic climate has some influence on this decision as well.
Did I read correctly what was said?
Reading the article, it appears that the 1603 grant system is being used by Google to loan to investors. "Not only has Google been getting the cash grants from the US Treasury for those investments but it is also earning a reasonable interest rate from its borrowers." It surely does sound as though money taking by coercion from taxpayers is being GIVEN to Google by Uncle Sam to loan to other firms to get a profit for its shareholders.
Of course that is in effect the entire function of the 1603 cash grant. No one plans to build a facility that does not make a profit--only thing is the taxpayer is getting nothing back for the forced investment he is making. What happens with respect to the 1603 cash grant if the project folds without ever going on line or maybe goes on line for a shorter time than required to pay for itself?
The 1603 cash grants and the production tax credit program stink of rotten fish. The taxpayer is getting rolled by the federal government and big "green energy" players.