Google Energy Strikes First Deal—A 20-Year Wind Power Contract in Iowa

7/20/10Follow @wroush

If you’ve crossed the U.S. Midwest by car recently, as I have, you may have noticed a new kind of crop sprouting up amidst the corn and soybeans: wind turbines, thousands of them. Now, some of the electricity those turbines produce will be going to Google Energy, a new entity set up by the Mountain View, CA, search giant last year to participate in wholesale energy markets.

Urs Hoelzle, Google’s senior vice president of operations, announced on the company’s blog today that Google Energy has signed a 20-year agreement to buy 114 megawatts of power from NextEra Energy Resources, which operates 9,000 wind turbines across 17 states. Google is buying power from a specific group of 100 GE-manufactured NextEra turbines in Story County and Hardin County in central Iowa. (Story County’s largest city is Ames, home of Iowa State University.)

Google (NASDAQ: GOOG) has been striving since 2007 to become carbon-neutral by making its facilities more energy-efficient (it said last year that it had already cut its energy use in half). The company is also turning to renewable energy sources such as the solar panels at its Mountain View headquarters and hydropower from the Columbia River in Oregon, and has been buying carbon offsets. Hoelzle said that the electricity Google Energy is purchasing from NextEra is “enough to supply several data centers.”

However, the wind turbines in Iowa won’t directly power Google facilities, which are too far away to efficiently transmit all the energy. Instead, Google has structured the deal in a way that it hopes will benefit the broader renewable-energy movement. Google will resell the electricity produced by the turbines on the spot market, while at the same time retiring the renewable energy credits, or RECs, associated with the project.

RECs are independently traded entities often bought by organizations seeking carbon offsets. They guarantee that the energy from a given project is produced in a way that does not add carbon dioxide to the atmosphere. They were, at one time, envisioned as a key source of financing for renewable energy projects, but the recession has dampened demand for the certificates.

Buying the actual power from the Iowa wind farms, rather than just the “naked” RECs, has a bigger benefit, Google said, in that it will provide NextEra with a guaranteed customer, allowing it to build more wind farms. “The inability of renewable energy developers to obtain financing has been a significant inhibitor to the expansion of renewable energy,” Hoelzle said on the Google blog. “We’ve been excited about this deal because taking 114 megawatts of wind power off the market for so long means producers have the incentive and means to build more renewable energy capacity for other customers.”

NextEra, which has its headquarters in Juno Beach, FL, says its growth has been built on such contracts. “We are thrilled to welcome Google Energy to our growing list of customers and appreciate their support of emission-free, renewable energy,” said Mike O’Sullivan, NextEra’s senior vice president of development, in a press release today. “With the support of customers like Google Energy, we’ve built our wind fleet from fewer than 500 megawatts a decade ago to more than 7,600 megawatts—the largest fleet in North America today.”

But the deal isn’t entirely an act of charity. It also gives Google a way to hedge against future hikes in energy prices. If Google can sell the Iowa wind power on the spot market for more than it’s paying NextEra, it will make a profit on the contract, offsetting higher energy costs elsewhere.

“While we are happy to be purchasing renewable energy as part of our environmental commitment, this is also a structure that makes long term financial sense for Google,” the company said in a statement. “Through the long term purchase of renewable energy at a predetermined price, we’re partially protecting ourselves against future increases in power prices. This is a case where buying green makes business sense.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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