Google: Positioned To Energize Power Sector Evolution

BMI View: Technology companies like Google will increasingly utilise their financial resources and technological expertise to capitalise on structural changes in the power sector. Traditional utilities have been slow to respond to demand for products that support the granular control and movement of electricity, but Google is well placed to utilise its smart technology and capitalise on this trend.

Technology companies such as Google will increasingly play a bigger role in the global power market - a view that is gaining momentum. In Europe and the US, the centralised power generation model that has traditionally been adopted by utilities is under threat - in large part due to an influx of intermittent renewables technologies and distributed energy solutions (such as rooftop solar) that require better management of electricity supply and demand ( see 'Smart Operators To Challenge Power Generation Model' June 3 2014).

We believe traditional utilities that utilise coal and gas-fired power plants to generate electricity for delivery via the grid have been slow to respond to this evolution of the power market. Many of these utilities have not only seen the influx of renewables damage the profitability of their coal and gas-fired generation assets, but have also been behind the curve as electricity has started to flow in new ways across the grid. Consumers are demanding new services that allow them to manage the distribution of electricity more efficiently.

Renewables Growth Driving Structural Changes
Global Renewables Growth

BMI View: Technology companies like Google will increasingly utilise their financial resources and technological expertise to capitalise on structural changes in the power sector. Traditional utilities have been slow to respond to demand for products that support the granular control and movement of electricity, but Google is well placed to utilise its smart technology and capitalise on this trend.

Technology companies such as Google will increasingly play a bigger role in the global power market - a view that is gaining momentum. In Europe and the US, the centralised power generation model that has traditionally been adopted by utilities is under threat - in large part due to an influx of intermittent renewables technologies and distributed energy solutions (such as rooftop solar) that require better management of electricity supply and demand ( see 'Smart Operators To Challenge Power Generation Model' June 3 2014).

We believe traditional utilities that utilise coal and gas-fired power plants to generate electricity for delivery via the grid have been slow to respond to this evolution of the power market. Many of these utilities have not only seen the influx of renewables damage the profitability of their coal and gas-fired generation assets, but have also been behind the curve as electricity has started to flow in new ways across the grid. Consumers are demanding new services that allow them to manage the distribution of electricity more efficiently.

Renewables Growth Driving Structural Changes
Global Renewables Growth

Taking into account the ambitious renewables targets that have been outlined by countries across the globe, we believe that this problem is structural and is here to stay. This dynamic undoubtedly creates huge opportunities for companies that have the expertise and scalability to implement 'smart' technology that allows for more granular control and movement of electricity; similar to the way that data is processed and transported via broadband networks.

In this context, we emphasise that internet giant Google has been - and is growing - increasingly active in the power market. Its recent activities indicate that its role in the power sector is expanding and highlight the type of opportunities on offer for non-traditional players in the power sector. We believe that Google itself could challenge traditional utilities - particularly in the areas of power demand management and distributed energy solutions, but potentially by selling electricity directly to consumers.

The evolution of Google's role in the US power sector underscores our views. We believe Google has adopted three different approaches to ramping up its exposure to the power sector.

Approach One: We highlight that the company's foray into wind and solar power appears to have been driven initially by a desire to boost its green credentials. Under the first stage of Google's involvement in the power sector it announced plans to get 100% of the electricity needed at its energy-intensive data centres from renewables ( see 'Google Going Green', January 17 2013).

Approach Two: We then went on to highlight that Google was increasingly investing in renewables projects in the US power sector more broadly - looking to achieve long-term stable returns from its investment in wind and solar assets (via power purchase agreements and lucrative renewable energy subsidies). In early 2013, it was announced that Google's total investment in wind and solar projects, transmission line and clean technology funds totalled more than USD1bn - indicating to us that the company was focusing on active investment rather than solely on corporate responsibility ( see 'Investors Warming To Renewables', December 5 2013).

Hitting USD1bn In Green Investment
Country Project Name Capacity (MW) Investment Value (US$mn) Other Companies
United States Spinning Spur wind farm, Texas 161 200 Siemens, EDF
United States Rippey wind farm, Iowa 50 75 RPM Access, Nordex, Central Iowa Power Cooperative
United States Recurrent Energy solar PV portfolio, California 88 94 KKR
United States Clean Power Finance rooftop solar fund n/a 75 Clean Power Finance
United States SolarCity residential solar fund n/a 280 n/a
United States Ivanpah solar thermal plant, California 377 178 Brightsource, Pacific Gas and Electric, Southern California Edison
United States Atlantic Wind Connection transmission project n/a n/a n/a
United States Alta Wind Energy Centre, California 270 157 Southern California Edison
United States Shepherd's Flat wind power project, Oregon 845 100 Southern California Edison
United States Peace Garden wind power projects 169.5 38.8 NextEra Energy Resources
Germany Brandenburg Solar PV power plant 18.65 3.5 n/a
Source: BMI, Google

Approach Three: Now, we believe that Google's role in the renewables market has evolved to the point where it is set to become an active participant in the power sector. Recent developments support this view and are indicative of the opportunities on offer for technology companies.

  • Google's investment in renewable energy projects has given it experience of the power industry and we highlight that the company's 'Energy Access' team is reported to be preparing to make a bigger push into the US power sales market (according to Bloomberg). We believe Google is well positioned to develop the software and hardware needed to manage power lines and infrastructure and also household energy management and could provide services to - or compete directly with - traditional utilities in this segment.

  • Notably Google bought technology start-up company Nest for USD3.2bn in February 2014. Nest's Learning Thermostat technology memorises and adjusts to household energy consumption patterns based on user preferences. We emphasise that Google already has access to household computer systems and that such acquisitions could boost efforts to create an 'energy internet' - essentially an internet-like grid that can support the granular movement and control of renewable electricity.

  • We also note that Google has recently entered a partnership with utility SunPower Corporation in order to create a USD250mn fund to finance the purchase of residential rooftop solar systems. This is interesting on two levels. Firstly there is the direct investment into the solar industry; secondly, greater installation of solar panels at a residential level lays the foundations for Google to promote its energy management technology more widely.

We emphasise that these aforementioned developments take on added significance for the power sector because subsidiary Google Energy was awarded a licence to buy and sell energy - like a US utility - in 2010. This is important because it is not currently clear how Google would monetise the aforementioned types of power supply-demand management technology. The company has historically relied on advertising revenue across its internet operations and customers might not be prepared to pay directly for its energy management services. If, however, Google sold electricity as well demand-management services, then it could charge for both and customers may be more likely to pay. While this is unlikely to happen in the near term, it could present opportunities for Google in the future.

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This article is tagged to:
Sector: Power, Renewables
Geography: United States
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