Google Searching for Profitable Green Energy Investments
Location: New York
Date: 2013-01-11
Google is continuing to search for profitable green energy
investments. Its latest find is near Amarillo, Texas where it
invested $200 million in a wind plant that generates 161 megawatts.
The internet conglomerate says that so-called Spinning
Spur facility that was built by the French utility EDF will not
only boost the local economy but that it will also pay off for it.
The investment, which closed in December, is part of a renewable
energy portfolio that Google now holds -- consisting of 10 other
major projects. Google has said that it will invest in these deals
and then let the experts run them.
“This investment reflects Google’s
ongoing commitment to clean energy and our belief that
corporations can be an important new source of capital for this
sector,” says Kojo Ako-Asare, senior manger at Google Corporate
Finance. Altogether, the company has 2,000 megawatts of renewable
energy power.
Among the other major projects that entered Google’s portfolio in
the last 12 months are the Atlantic Wind Connection and Shepherds
Flat as well as the solar projects built by the Ivanpah project and
Recurrent Energy. The Atlantic deal made a splash because it would
be the largest off-shore wind project in the United States while
Shepard’s Flat is a 845 megawatt Oregon-based wind facility that
became operational in October 2012.
Google is a ravenous consumer of electricity and it must find a way
to become more efficient and cleaner. By placing its bets on green
energy, it is attempting to understand how it works and to help
create economies of scale so that it can be cost-effectively
generated. It operates hundreds of thousands of servers that use
tons of electricity, which are often derived from coal. As the
global leader in internet technologies, the web-based giant says
that it can do better.
The basic building blocks are already in place. It has gained the
experience constructing and designing large-scale data centers. The
same lessons apply when it comes to expanding the use of renewable
energy, it says, noting that the primary technologies are now
available. They just need investment so that they can size up.
Tax Incentives
The most practical method, it says, is to invest in deals created by
professionals. For now, it is making loans 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.
EDF Renewable Energy, which built Spinning Spur, has 50 other clean
energy projects, the company says. The wind farm’s output has
already been contracted out to SPS, which is a utility that
primarily serves Texas and New Mexico.
“EDF Renewable Energy is pleased to engage with an innovative
company like Google on this equity financing," says Jim Peters, vice
president of project finance. "The partnership between our companies
reflects a departure from sourcing investment capital from
traditional financial institutions for our renewable energy
projects. This transaction provides an opportunity for a leading
renewable energy developer to join forces with a leading technology
company to create value for both our companies and our respective
customers.”
Google’s green energy forays are generally applauded. However,
skeptics are asking whether the company would risk its capital in
those projects if not for the lucrative tax breaks. Google, for
instance, is accessing the 30-percent tax credit offered by the
government in the form of up-front cash. That’s because the
alternative, the production tax credit of 2.2 cents per kilowatt
hour of electricity generated, is only relevant if the projects
actually get built.
Green energy advocates have responded to the skepticism by saying
that equity investors had been sitting on the sidelines, making the
production credit useless. Hence, the 2009 stimulus plan
incorporated the so-called 1603 Treasury Program that worked to
immediately get money into the game.
That 1603 provision has been extended along with the production tax
credit as part of the “fiscal cliff” negotiations. Both would apply
to projects started in 2013 and last for only one year. Developers
would have two years to complete their deals. In all likelihood, the
tax incentives provided to wind and other green projects will get
revamped. If Congress takes up comprehensive tax-reform, it would
get incorporated into a bigger package that may take a few years to
write.
As for Google, it says that the tax incentives help spur investment.
But it is emphasizing that it is a long-term participant in the
green energy field -- and that those projects are breath of fresh
air to all involved.
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