Google once brashly believed its engineers could invent a solution to the world’s energy problems. These days, the company has a new strategy: finance less risky clean-energy projects where it can actually make an impact.
Last year, Google invested more than ever in renewable power, spending $880 million to underwrite conventional clean energy projects such as solar panels on California rooftops. But that isn’t the role Google envisioned for itself in 2007 when co-founder and current CEO Larry Page declared the search company would get into energy research directly to “rapidly” invent cheap ways to generate “renewable electricity at globally significant scale.”
Google believed its creativity and innovation would make the difference. It created an in-house plan for how to wean the United States off fossil fuel in 22 years. It posted jobs for engineers who could speed-up design of renewable energy projects, and put a team to work improving the heliostat, a mirrored device that focuses the sun’s rays to make thermal energy. Its philanthropy arm, Google.org, began investing in start-ups with far out ideas.
Google’s founders were directly involved. One startup, Makani Power, originally planned to move boats using kites, but Page and co-founder Sergey Brin convinced it to pursued high-altitude flying wind turbines, instead. “They were pretty fearless. They said ‘This is a risky thing, we don’t know yet if it’s going to work out, but we think this has promise,’” says Makani CEO Corwin Hardham.
The company’s speedy ways wowed energy experts, as did its goal of producing a gigawatt of renewable electricity at prices competitive with fossil fuels. “Being at Google, it was fascinating to see how rapidly things could scale. I was enthralled by it,” says Dan Reicher, Google’s former director of climate change and energy initiatives, who left the company in 2010 to head Stanford University’s Steyer-Taylor Center for Energy Policy and Finance. “That struck me as a very fundamental difference—the software world measures time frames in months.” In comparison, he notes, solar panels have been available for 30 years but account for less than one percent of total U.S. electricity production.
Last November, however, Google killed the program, known as RE
The truth was Google’s eclectic bets on potentially disruptive energy innovations never got very far. Take PowerMeter, another canceled project. The software was meant to help homeowners monitor their energy use. Energy entrepreneur Kurt Brown said it had a major flaw: “Their interface was for nerds. It was something mostly a smart Googler would be intrigued by.”
The cancelled plans show the hazard of believing that success in computing—where products can take days to prototype—can carry over to energy. “The IT attitude is great when combined with humility with what is possible,” says Jonathan Koomey, an expert on the environmental effects of computing at Stanford University. “But if you think you are going to overhaul the whole energy industry overnight, just cause you did it in software, that is false, that is hubris.”
Some people involved directly with the projects said it proved challenging for Google to guide energy research either directly or through startups. “We were aiming for some home runs. I think we got some doubles,” said one senior manager who has since left Google. “It’s difficult for a company whose sole focus is not innovating in energy to drive really substantial innovation in energy systems.”
Google hasn’t given up on green energy. The company actually spends far more now than it ever did on the engineering projects. In 2011, Google disclosed $880 million in investments in renewables. That was about ten times the level it spent in 2010, and puts the search giant among the companies that spend most in the area (BP, by contrast, invested around $1.6 billion).
Unlike its earlier engineer-led work that aimed to push forward new technology, Google’s strategy now is largely focused on financing the deployment of commercial solar panels and wind turbines through so-called “tax equity” investments. Such investments, typically used by banks or large energy companies, provide a financial return as well as federal tax breaks that can be as much as 30 percent of what’s invested.
The funding also isn’t coming any longer from Google’s philanthropic arm, but from its treasury, which is sitting on $44 billion in cash. Google’s energy and sustainability director Rick Needham, is careful to balance how he explains the company’s motivations. As an investor, he says Google is looking to make money. But it also still wants to have a transformational impact on “the great American challenge” of securing carbon-free energy, as Google chairman Eric Schmidt once put it.
Google’s largest single investment to date is the $280 million it agreed provide to SolarCity, a company based in San Mateo, California that installs residential solar arrays. Lyndon Rive, SolarCity’s CEO, says the money is important because his customers only pay small monthly fees. Google’s financing – in effect a loan to the project – is what pays for the initial cost of installing the solar panels on homes.
Google still works with new energy technology. A number of outside companies pilot or test their technologies at its facilities, and Google continues to invest in some early-stage companies through Google Ventures. It also buys renewable power for its own use. At its Mountain View headquarters, Google has installed one of the world’s largest corporate solar installations and even obtained an energy-trading license from federal regulators so it could directly buy 20-year power contracts with wind farms to power its data centers.
“They tried a bunch of things. Some things worked and some things didn’t,” says Stanford’s Koomey. While being a silent partner in a residential solar panel business isn’t quite as exciting as solving the world’s problems, it’s progress. Says Koomey: “What works is the most cost effective way to deliver the end result, which is reduced emissions.”