Google Changes Green Energy Formula

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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 [3]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 [4] 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.

Much of that growth is because of the 1603 program, which has expired. 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 [5] that builds residential solar panels. It has also ventured into utility-scale solar by placing $168 million into BrightSource [6] 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. [7] “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.

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