Google puts principles before profit when buying renewable power

Google management has committed to using renewable energy, which is a tall order considering the number of data centers owned by the company. However, Google has a unique plan that will allow the company to reach its goal and stimulate the growth of renewable-energy production. The paper Google's Green PPAs: What, How, and Whyexplains:

• Our purchases should be additional. This means they should actually help to create more renewable power.
• Our investments should have the highest possible positive impact on the industry that they can.

Google considers a renewable-energy purchase "additional" if it affects the real world, be it directly or indirectly. "A direct effect would be causing a new renewable project to be built," the paper explains. "An indirect effect would be increasing demand for renewable energy such that market pressures are able to encourage new investment."

The positive impact mentioned in the second bullet refers to how Google commits to long-term contracts rather than purchasing power as the company goes, making it easier for renewable-power utilities to raise capital for additional growth.

Buy or produce renewable electricity?

Even with Google's tremendous capabilities, the company does not always want to produce its own renewable electricity. "Building a renewable project in the backyard of a data center might be intuitively appealing, but doing so would simply mean that, dollar for dollar, you'll be getting less renewable energy than if you had built in an optimal location," the paper mentions. "The converse -- building a data center in an optimal area for renewable development -- would result in increased latency for our users and the inefficient use of land better used for renewable energy."

In situations like the one just described, the only choice left for Google to meet its renewable-energy goals is through Renewable Energy Certificates/Credits (RECs). Normally, that entails one of two choices: buy power and RECs from a renewable-power supplier (if physically possible), or buy RECs from a renewable-power supplier and use the RECs (one REC per 1 megawatt-hour of power) to offset the non-renewable power being used.

It seems Google has found a third way.

Using power purchase agreements

Google, in what may be construed an unusual move, obtained licensing to buy and sell power on the open market. Greenpeace mentions in Clicking Clean: How Companies are Creating the Green Internet April 2014, "An increasing number of cloud companies, such as Google and Microsoft, have begun to take charge of their electricity supply chain by signing long-term contracts to buy renewable electricity from a specific source through a utility or renewable energy developer via a Power Purchase Agreement (PPA)."

Figure A and the following steps explain why Google buys power and then resells it:

1. Google buys electricity from a renewable-energy source using a PPA, a contract made with a particular provider to supply power over time at a negotiated price.
2. Google sells the power back to the grid at the local wholesale price. Google keeps the RECs, which means on paper the energy is no longer considered renewable.
3. Google applies the RECs to the electricity powering the company's data centers.

Why not just buy RECs?

Google could have just bought RECs and claimed to be 100% renewable, but that violates the company's principles. "By agreeing to buy renewable energy from a project developer like NextEra, we are guaranteeing them a long-term income stream that is bankable," writes the paper's authors. "That is, the developer can use it to get financing, which can be used for the next project. A promise to buy just the RECs but not the energy would be much less valuable, and hence less helpful from a finance perspective."