Understanding Google's Big Wind Energy Deal Understanding Google's Big Wind Energy Deal
The Planet

Understanding Google's Big Wind Energy Deal

by Andrew Price

July 23, 2010

Google has been serious about renewable energy for a while, buying solar panels and carbon offsets, and even forming an energy-focused subsidiary, Google Energy. Recently, the search company has been putting a special focus on wind power. In May, Google announced it was investing nearly $40 million in NextEra wind farms in the North Dakota plains. And this week, Google announced it had struck a deal with NextEra to buy wind-generated electricity for the coming 20 years.

We just completed a substantial 20-year green Power Purchase Agreement that allows us to take responsibility for our footprint and foster true growth in the renewable energy sector. On July 30 we will begin purchasing the clean energy from 114 megawatts of wind generation at the NextEra Energy Resources Story County II facility in Iowa at a predetermined rate for 20 years.

So will Google be pumping this clean energy directly into its data centers? Not quite. The deal is, as Ariel Schwartz says, "a bit complicated."

Here's how Google explains it:

In this case, we’re buying renewable energy directly from its source – the wind farm. We cannot use this energy directly, so we’re reselling it back to the grid in the regional spot market – but retiring the Renewable Energy Credits associated with the power. By obtaining RECs through the purchase of green power, our deal has a greater impact on the renewable industry than simply buying "naked" RECs from third parties; our long-term commitment directly frees up capital for the developer to build more wind projects.

So a bit of background. When a wind farm generates X units of clean electricity, it gets two valuable things. First, it gets the electricity itself, which can be sold out on the market alongside electricity generated in other ways. But it also gets "Renewable Energy Credits," which are certificates that those X units of energy are clean. An energy consumer can buy those renewable energy credits from the renewable energy producers (or on an open market) to satisfy requirements they're under to use a certain amount of renewable energy. When that happens, the buyer has, essentially, bought the right to call X amount of energy use "renewable" (and the seller loses that right). This system achieves a few goals. First, it puts a special premium on clean energy. Second, it allows energy consumers who are far away from the sources of renewable energy to still "use" renewable energy by buying RECs. There's more information on RECs here.

What Google is doing is buying the energy itself and the RECs from NextEra. It is using the RECs to satisfy its own goals for renewable energy use ("retiring" them, in other words) and selling the energy back into the local market. By buying the energy and the RECs together, Google is giving NextEra a reliable, long-term customer for both its main products.

Google, for its part, gets credit for using clean energy and, presumably, a guaranteed source of energy at a good, predetermined price (though they won't disclose what it is).

Image: NextEra Energy Resources Story County II facility in Iowa, from Google

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Understanding Google's Big Wind Energy Deal