Google Goes Green? — Achieving 100% Renewable Energy
“In 2012, Google made a commitment to purchase enough renewable energy to match 100% of our operations, and we are excited to announce that we will reach that goal in 2017"
In 2019, Google’s worldwide portfolio of wind- and solar-generated electricity agreements total 5,500 megawatts, which was described as the capacity of a million solar rooftops.
In 2017, Google became the first company of its size to offset its entire annual electricity consumption with renewable energy, and repeated the feat the following year, according to Pichai.
“As a result, we became the largest corporate buyer of renewable energy in the world,” he said.
The goal to reach this milestone isn’t all that simple.
How does a tech firm slurp on all that green juice at once?
Are they really investing in and building such large green energy farms?
If that’s what you’re wondering, then I have some bad news. Hear me out.
The process revolves around signing energy contracts in five countries across three continents, which have to kick start the construction of renewable energy projects while generating a total of $3.5 billion in capital through capital investment by energy project developers. Let me break it down further.
Having a reliable and constant supply of electricity is of utmost importance to ensure that the company continues delivering our products like Search, Gmail, YouTube, Maps, and Google Cloud.
In 2015, Google consumed close to 5.7 terawatt-hours (TWh) of electricity across all of its operations, which is nearly as much electricity as San Francisco used in the same year. Their data centres — the engines of the Internet that power all of their products and services — run on electricity. Having a reliable and constant supply of electricity is of utmost importance to ensure that the company continues delivering our products like Search, Gmail, YouTube, Maps, and Google Cloud. Therefore, it was important for the firm to ensure that all this was being done while having a cost-competitive, predictably priced electricity supply.
Given all the purchasing power, why doesn’t Google then build renewable energy projects at their data centre sites?
Let us have a closer look at a variety of purchasing tactics that the company has adopted over the previous years.
1. “Direct” renewable purchasing
In Europe, deregulated wholesale and retail power markets make it possible for Google to directly purchase renewable energy and have it delivered to their data centre retail bill using the local grid. Next, a PPA is signed with a project developer on a grid where our data centres operate. Moreover, there’s a separate “balancing agreement” with a competitive power market entity that helps deliver the PPA across the grid and that can also “firm and shape” the energy so that there is constant, 24–7 electricity.
2. “Offsetting” renewable PPAs (“fixed-floating swaps”)
In geographies with regulated retail markets but deregulated wholesale markets, there is the purchase of renewable energy at the wholesale level.
HOW FIXED-FLOATING SWAPS WORK
On grids in which we Google has a data centre, fixed-price renewables are directly purchased from a wind or solar farm and then resold into the wholesale market at a floating (variable) market rate. Smooth, 24/7 energy is then purchased at the data centre from our regulated utility while applying the RECs the PPAs to that consumption. Let’s take a closer look
- Fixed Price PPA:
Google purchases bundled physical renewable energy and RECs directly from a wind or solar farm using a negotiated, long-term, fixed- price structure. These contracts are called Power Purchase Agreements (PPAs). - Floating Wholesale Market Sale
It then sells the physical renewable electricity into the competitive wholesale energy market (utility grid) at the floating market price, where it’s pooled with other energy sources (such as wind, solar, hydropower, coal and nuclear) - Regulated Retail Purchase
Each of the data centres then purchases electricity at regulated rates from utility companies, which are supplying from the same grid that the PPA’s were sold to. The utilities then use the grid to balance out the intermittency with the attempt to deliver 24/7 electricity - Apply REC’s to consumption
The newly created RECs are then stripped off from the previous PPAs (in step 1) and matched to the retail electricity that is purchased at the data centre. Over a year, the total number of RECs applied equals the total consumption at our data centre.
Because of restrictive market structures, especially varying from between different locations, it can be noted that power is bought twice and sold once
However, despite all the benefits of fixed-floating swaps, however, the model proves to be having unnecessary layers of complexity and eventually dilutes the financial benefits that one may receive as an end-user. Because of restrictive market structures, especially varying from between different locations, it can be noted that power is bought twice and sold once— buying once at the competitive wholesale level and again at the regulated retail level, while we also sell at the competitive wholesale level.
Since these two prices aren’t always correlated, exposure to market price volatility isn't reduced quite as much. Moreover, these structures also require significant resources and expertise to execute, as well as a long-term commitment from the buyer, and hence aren’t scalable options for many smaller companies that want to purchase renewable power.
An Alternative Model?
3. Utility renewable energy tariffs
In areas where retail markets are not open to competitive suppliers and particularly where there is no auction-based wholesale market, Google has worked with their utility provider to create a new class of rates called a “renewable energy tariff,” in which the utility procures renewable energy on their behalf for sale and deliveries it to them. This opens up to the possibility of helping create a simpler, more scalable approach to purchasing renewables that are accessible to a greater number of buyers.
Models like these are stepping stones towards ensuring the electricity service model is robust and responsive to customer demands. Customers simply need to apply to their local utility provider to participate, making renewable energy accessible to a wide variety of customers — both large and small — without the need for them to have their own energy procurement teams.
Moreover, because customers of these programs pay for renewable energy from their retail bill, tariffs can be structured to more directly deliver the financial benefits that renewables provide.
The challenge?
The uptake of these programs is slow, and they remain largely unsubscribed. Many of these programs lack the responsiveness and agility that customers require; it can take many years from application to receipt of renewable energy supply. The tariff for renewable energy sources usually consists of components such as Return on equity, Interest on loan, Depreciation, Interest on working capital, and Operation and Maintenance expenses.
Although these programs are a helpful first step toward a purchasing structure that drives economic viability, there is more work to do to make these programs as customer-centric as modern consumers demand.
This is a two-part story. I will be analysing the dynamics behind energy procurement and consumer demand in the next part.
