Google's Energy Initiative
This morning at 9 am Pacific, Larry Page is holding a press conference to explain why Google is making investments in alternative energy, with the goal of producing energy at an unsubsidized real cost below that of coal-fired power plants.
The newly created initiative, known as RE<C, will focus initially on advanced solar thermal power, wind power technologies, enhanced geothermal systems and other potential breakthrough technologies. RE<C is hiring engineers and energy experts to lead its research and development work, which will begin with a significant effort on solar thermal technology, and will also investigate enhanced geothermal systems and other areas. In 2008, Google expects to spend tens of millions on research and development and related investments in renewable energy. As part of its capital planning process, the company also anticipates investing hundreds of millions of dollars in breakthrough renewable energy projects which generate positive returns.
Renewable less than coal. That's a "big hairy audacious goal" in the spirit that Jim Collins and Jerry Porras described as characteristic of great companies in their book Built to Last.
I'm looking forward to hearing what Larry has to say at the press conference.
Google's renewable energy initiative call begins today at 9:00 AM (PT) / 12:00 PM (ET). A replay of the call will be available beginning at 11:30 PM (ET) today through midnight Tuesday, December 4th, 2007 by calling 888-203-1112 in the United States or 719-457-0820 for calls from outside the United States. The required confirmation code for the replay is 2205214.
Liveblogging Update: Larry Page opens the call talking about the name, "admittedly a bit geeky", and the target of producing energy less than coal. 40% of our electricity comes from coal, and coal burning is a major contributor to global warming. Google believes that there are alternative energy technologies that can produce electricity at scale at a cost less than coal, and can do this in years, not decades. The goal is to produce a full gigawatt of power -- "That's quite a lot -- enough to power the city of San Francisco."
Larry Brilliant then takes the stage, talking about how Google's philanthropic arm and Google's business go hand in hand. Google.org started with public health, but realized that global warming has the potential to have enormous negative impacts on health. So yes, energy has become an important part of google.org's mission.
Bill Weihl, Google's "energy czar", talks about Google's existing initiatives, including Google's solar power installation at the mountain view campus, energy efficiency at Google's data centers, and its participation in the The Climate Savers Computing Initiative.
Sergey takes the stage. Climate change is not the only issue here. There are lots of parts of the world that can't get sufficient electricity, clean or dirty. The development of clean, cheap energy will create "vast new oppportunities."
Bloomberg News asks about actual products. Larry answers that producing a Gigawatt of renewable energy cheaper than coal is a heck of a product. If they can do that, there will be a lot of demand.
Dow Jones asks about the scope of the effort. Will there be investments outside the US? Will Google be developing power plants themselves, or just developing the technology? Sergey answers that they are primarily looking in the US, but they are looking all over the world for technology and teams. They've already made some investments, but will be doing their own internal research. "We don't need to own this. We just need the problem to be solved." Also, significantly, "Given our investment in data centers, we'll be in a position to invest significantly in our own plants more than other energy
The AP asks whether this money is coming from google.org, or google itself, and how many people they expect to hire. Larry Brilliant says that the actual investments will come from Google.org. But the R&D may come from Google itself. Bill Weihl says "we want to hire as many smart and creative people as we can. It will probably be twenty or thirty people over the next couple of years. As the technology matures, and looks like it can go to scale, we'll obviously be hiring a lot more."
Mike from the AP asks about whether this will be a new division. Larry says that's a good way to think about it. But he points out that there are hundreds of people with deep energy expertise in Google's existing data centers.
Sergey adds that Google is being very forthcoming about this issue because they are trying to raise awareness, but also because they want to get the word out that they are looking to hire in the energy area.
...
Kevin Dulaney of the Wall Street Journal asks how much power Google itself uses. Bill Weihl replies that that is critical information that Google can't disclose. Kevin also asks whether this puts Google in the energy business, or would they get it deployed as widely as possible. Sergey replies that they would get it out as widely as possible. Bill also asks whether Google is straying from its core. Sergey points out that energy is critical to Google's operations, and this is hardly straying.
I missed the call from this point on, because I had to drop off for another scheduled meeting. Take a listen, though, at the replay number shown above. Google is doing a good thing here.
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google chasing energy makes sense. i think in the us alone it constitutes $350B, that's billion violet, annual. energy execs make ge and tv execs look like paupers...
A good thing, indeed. How, though, does this affect current Google shareholders?
Google.com makes R&D investments and the benefits/returns go to Google.Org? Or the RE
J --
To be clear, it sounds like the venture investments are coming from google.org, the actual internal group focused on energy from google.com. But google stands to benefit directly from those investments. It is a major energy consumer. And hiring a few dozen people to manage this effort could be repaid by very small improvements in google's energy cost. Savings on the scale they are talking about achieving would justify a LOT of investment.
@Tim
No disagreement on the benefits it could have for Google.
From press release paragraph:
In 2008, Google expects to spend tens of millions on research and development and related investments in renewable energy. As part of its capital planning process, the company also anticipates investing hundreds of millions of dollars in breakthrough renewable energy projects which generate positive returns.
So by "Google" they mean .Org and not .Com that's investing the 100s of Millions?
They should be clearer.
I'm all for this, .Com's energy expenses are probably something that would make my jaw go through the floor. I'm sure .Com has spent enormous brain-hours calculating the cost of energy as they scale their business globally over the next 5-10 years and are nervous about the cost and scarcity of clean reliable electricity and may be thinking they're going to have to hand in, if not entirely solve the issue for itself.
It's just that as an investor I need to make sure about what I'm investing and are they suddenly going to start investing 100s of mills in earnings that belong to shareholders and then let the benefits accrue to to other entities.
No one sees any issues with this other than me?
If this is about Google.com investing 100s of mills for Google to benefit from internally through long term cost advantages/savings, great.
If so, then why the press release/CC?
Because you want to announce these internal efforts so that new technologies in this area they may develop will be made available for others to use?
I suspect so.
If other entities (non-Google) will use them what are the terms? Now they can't announce "terms" obviously, they've no products, but the implication is they eventually hope to.
So, if that's part of the plan what's the return for the shareholders of Google.com other than internal operating costs savings? Nothing? Not even a mention that in the future some of these technologies could be licensed to third parties for a return on Google.com R&D?
That's why I love Silicon Valley, that "can do" spirit. I'm so sick of hearing "no, this can't be done", "it will cost job and money", "it will make our cars more dangerous", etc. Excuse, excuse, excuse. Here Google and others will just step in and say, screw you, we will do it ourselves. Can't wait to see disruptive products to come and dinosaurs to die off.
J --
They said that google.org would be making the venture investments and reaping the venture rewards. This isn't money out of google shareholders' pockets.
FWIW, google.org has plenty of money to do this. Larry Brilliant noted that they were originally endowed with 3 million shares of google stock. Now, they've sold some of that, but at close to $600/share, that means their endowment is well north of $1 billion.
Meanwhile, investments that google.com itself will be making can easily be recouped by direct benefits to google.
Call me a skeptic, but there are some issues here to consider here. First, Google doesn't consume as much energy as the investment we're talking about. Most data centers consume less than 2 MW of energy annually. At .04 per kWh (common industrial rate), that's about $700K per data center. They have 6 data centers (Council Bluff, Dalles, Goose Creek SC, Pryor OK, Lenior NC, Mons Belgium). So that's 4.2 million per year in energy expenditures. Let's say they save 25% of the cost, that's ~1 million dollars. Thus, it takes 10 years to recoup the cost. Second, generating a gigawatt of energy is no easy feat. MidAmerican energy company generates about 1/2 GW for ~970K customers in Iowa and Illinois...and they use coal because the energy generated from solar and wind doesn't yield enough energy to produce massive amounts of electricity. So how can Google expect to do this in 5 years at a cost of only 10USM? Finally, Google shareholders are paying...in the form of employee and infrastructure resources AND stock given to the foundation (which they in turn sell...putting more stock on the market...driving down the price...you know). It's also less options used to attract and keep employees, etc.
Look -- I'm not saying Google shouldn't be ecologically responsible. We all share that one. But, most likely, Google looked at their "Clean Energy Program" promise http://www.google.com/corporate/green/energy/ and realized that their data centers are consuming enough non-renewable energy that they could not achieve that goal. So, I'm from Missouri on this one. Honestly, Google should focus on their core business and returning value to shareholders. I've seen too many technology companies become distracted trying to achieve similar goals, only to have real financial trouble when the stock price falls...causing layoffs.
Oh -- and I suspect the Commerce Dept would have something to say about a non-profit reaping the benefits of such a venture...so, it what way would Google (either organization) benefit?
Another clever move from the google guys!
@Drue Reeves - I think Google is doing good enough in satisfing their shareholders. It is not all about money!
I think some commenters missed the press release, e.g. "As part of its capital planning process, the company also anticipates investing HUNDREDS of millions of dollars in breakthrough renewable energy projects which generate positive returns." (emphasis added)
My bet: the Google guys think they can make the world a better place, and make money in the process. Toss in a little timing luck, and they're probably right. Lots of money will be made (and lost) in cleantech. Even if Google comes out on the losing side, they probably still think it was a good bet. Lots of big bets lose.
@Drue Reeves: As for returning $ to stockholders: IMHO Google is almost certainly the wrong company to invest in if that's your priority.
Well, it's been almost a year and we haven't heard much from Google on this one have we?!? Know why? Because the economy is in the tank.
See? When things go south, companies abandon (or at least "de-emphasize") non-essential and non-revenuable activities. If MSFT gets decides to compete more vigorously, then Google will further batten down the hatches.
Jim -- Don't kid yourself. In the end, it's all about the money.
Scott -- No, Google is not an investment for me. They've had their run.
Sorry, Drue - you haven't been paying attention. They've made several additional investments, just announced a big joint research project with GE.
There's actually been a lot of ongoing activity here.
I have to disagree. First of all the announcement was made the very day I made the post...so, it took quite some time (almost a year) for Google to make any further progress.
If we look at the announcement, it's full of generalizations and -- once again -- overly optimistic statements. I'm sorry, this hardly qualifies as "progress".
For example, Marc Gunther had much deeper insight on this subject: http://www.marcgunther.com/?p=414 when he said "Upgrading the grid will likely be a slog. Two famously sluggish bodies–the federal government and the utility industry–basically run the grid." He's right.
The geothermal idea is intriguing, but that message is far from where Google originally started back in 2007. Google has come to realize that generating a GW of electricity is no easy feat and can't be done with solar or wind alone.
For me, it isn't the activity (because we can all applaud that), it's the lack of production to back up their assertions. Activity does not equal electricity being generated. Google may indeed eventually produce something, but their time lines and promises have to change. Also, keep in mind that GE doesn't produce electricity either. They simply make the things that help produce energy. So, I'm still skeptical that Google will enable 1 GW of renewable energy being produced...especially given their time frames, competition, and regulation on the production side.
I have to disagree. First of all the announcement was made the very day I made the post...so, it took quite some time (almost a year) for Google to make any further progress.
If we look at the announcement, it's full of generalizations and -- once again -- overly optimistic statements. I'm sorry, this hardly qualifies as "progress".
For example, Marc Gunther had much deeper insight on this subject: http://www.marcgunther.com/?p=414 when he said "Upgrading the grid will likely be a slog. Two famously sluggish bodies–the federal government and the utility industry–basically run the grid." He's right.
The geothermal idea is intriguing, but that message is far from where Google originally started back in 2007. Google has come to realize that generating a GW of electricity is no easy feat and can't be done with solar or wind alone.
For me, it isn't the activity (because we can all applaud that), it's the lack of production to back up their assertions. Activity does not equal electricity being generated. Google may indeed eventually produce something, but their time lines and promises have to change. Also, keep in mind that GE doesn't produce electricity either. They simply make the things that help produce energy. So, I'm still skeptical that Google will enable 1 GW of renewable energy being produced...especially given their time frames, competition, and regulation on the production side.
I have to disagree. First of all the announcement was made the very day I made the post...so, it took quite some time (almost a year) for Google to make any further progress.
If we look at the announcement, it's full of generalizations and -- once again -- overly optimistic statements. I'm sorry, this hardly qualifies as "progress".
For example, Marc Gunther had much deeper insight on this subject: http://www.marcgunther.com/?p=414 when he said "Upgrading the grid will likely be a slog. Two famously sluggish bodies–the federal government and the utility industry–basically run the grid." He's right.
The geothermal idea is intriguing, but that message is far from where Google originally started back in 2007. Google has come to realize that generating a GW of electricity is no easy feat and can't be done with solar or wind alone.
For me, it isn't the activity (because we can all applaud that), it's the lack of production to back up their assertions. Activity does not equal electricity being generated. Google may indeed eventually produce something, but their time lines and promises have to change. Also, keep in mind that GE doesn't produce electricity either. They simply make the things that help produce energy. So, I'm still skeptical that Google will enable 1 GW of renewable energy being produced...especially given their time frames, competition, and regulation on the production side.
Anyone see this: http://finance.yahoo.com/tech-ticker/article/159041/Google-Layoffs-New-Twist-on-a-Well-Worn-Story?tickers=GOOG,MSFT,MOT,YHOO,ORCL,XLK,QQQQ
Like I said in the original post, what will Google do when tough times come? Is it better for Google to focus on generating electricity, upgrading the grid, saving whales, and re-planting rain forests, or generating value for shareholders? (Other readers -- pointing out previous value is no indication of the future, so saying they've 'done a good job to date' is not a strong argument for why they should continue to do so in the future...because every business should continually strive to build their value).
What's better in the end? Helping causes that are way out of their league or laying off people?
What's better in the end for all of us is that real money is coming to the table. Google.com will continue to make money, as long as the current bosses are in charge they can do whatever they want with that money. Are they crazy? Maybe, if shareholders don't like it they can try to overturn the board (not likely) - these are extremely wealthy people playing with small amounts of dollars relative to what the company makes, better they do this than sponsor an F1 team or deperately try to commercialize space travel.
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Advice Network [11.27.07 10:35 AM]
If coal burners had to pay for the carbon that they pumped into the atmosphere, then renewables would already be cheaper. This is a major flaw in our system. Dumping waste into the commons is basically subsidized by the people instead of charged to the polluter.