13
The Role of the Private Sector—The Case of Google

In the last few years that Dan Reicher worked at the Department of Energy, he oversaw a budget of about a billion dollars as assistant secretary for Energy Efficiency and Renewable Energy. About that time he read an article in the San Francisco Chronicle saying that the venture capital community had spent a billion dollars in 2000 on clean energy technology. “I said to myself, why didn’t I know anything about this? … I decided at that point I should go out and figure out this other point of the triangle.”

He took a job helping to run a renewable energy company called Northern Power that was backed by venture capital. When that company was sold, he helped raise money from the California Teachers Retirement System and a large Silicon Valley venture capital firm to invest in a number of ethanol projects, biodiesel projects, wood-fired power plants, and co-generation projects, all with the goal of transitioning away from fossil fuels. “Across those 6 years, I got a better sense about not only how critical capital is to this transition, but [about] the fundamental connection of capital to policy and policy to technology.”

In 2007 Reicher began working at Google on the company’s clean energy and climate change initiatives. “This truly is an amazing moment for looking at a sustainable energy future,” Reicher said. “Higher oil and gas prices. The climate challenge indeed turning into a climate crisis. Consumer imperatives reflected in the high cost of oil and gas. Many things are coming together that make this such an extraordinary moment. That’s what was reflected in the decision by the co-founders of Google, Larry Page and Sergey Brin, to give this [issue] emphasis inside the company.”



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13 The Role of the Private Sector— The Case of Google I n the last few years that Dan Reicher worked at the Department of Energy, he oversaw a budget of about a billion dollars as assistant secretary for Energy Efficiency and Renewable Energy. About that time he read an article in the San Francisco Chronicle saying that the venture capital community had spent a billion dollars in 2000 on clean energy technology. “I said to myself, why didn’t I know anything about this? . . . I decided at that point I should go out and figure out this other point of the triangle.” He took a job helping to run a renewable energy company called Northern Power that was backed by venture capital. When that company was sold, he helped raise money from the California Teachers Retirement System and a large Silicon Valley venture capital firm to invest in a number of ethanol projects, biodiesel projects, wood-fired power plants, and co-generation projects, all with the goal of transitioning away from fossil fuels. “Across those 6 years, I got a better sense about not only how critical capital is to this transition, but [about] the fundamental connection of capital to policy and policy to technology.” In 2007 Reicher began working at Google on the company’s clean energy and climate change initiatives. “This truly is an amazing moment for looking at a sustainable energy future,” Reicher said. “Higher oil and gas prices. The climate challenge indeed turning into a climate crisis. Consumer imperatives reflected in the high cost of oil and gas. Many things are coming together that make this such an extraordinary moment. That’s what was reflected in the deci- sion by the co-founders of Google, Larry Page and Sergey Brin, to give this [issue] emphasis inside the company.” 2

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2 THE ROLE OF THE PRIVATE SECTOR—THE CASE OF GOOGLE Several other considerations factored into the company’s decision to empha- size energy, according to Reicher. Google is a significant user of electricity at its data centers in the United States and throughout the world. Furthermore, when Google has tried to procure green electricity for its data centers, the company has found it to be either nonexistent or very expensive. Also, the company has been reluctant to buy carbon offsets, since it has not been convinced that “when all is said and done [offsets] are really driving the kind of change we need.” Google also employs thousands of engineers, many of whom have mechani- cal, electrical, or energy backgrounds and are eager to work on energy chal- lenges. With government and university research underfunded, and even with large amounts of venture money flowing into clean energy technologies, not enough funding is finding its way to high-risk and high-potential technologies. Plus, said Reicher, not enough of that money is finding its way to large-scale commercialization of high-risk technologies—the “so-called Valley of Death commercialization projects.” A sustainable energy future requires three elements, according to Reicher. Technologies need to be developed. Smart policies need to be put in place. And there must be adequate capital to make the multitrillion-dollar transition to sustainable energy systems. RENEWABLE ENERGY Google has launched two main initiatives. The first is called Renewable Electricity Cheaper Than Coal, or RE < C. The initiative reflects the prominent place of coal in electricity generation, both in the United States and around the world. Replacing or mitigating the effects of coal burning is “a big, big challenge in terms of the global climate crisis,” Reicher said. Coal-fired plants currently account for 500,000 megawatts of capacity in the United States, compared to a total installed wind capacity of 12,000 megawatts. Furthermore, the capacity of coal-fired plants is projected to grow dramatically, both in the United States and in other countries. For example, China installed almost 100,000 megawatts of conventional coal-fired power plants in 2006 alone. There is considerable optimism about the prospects for renewable energy from the public and the investment community. But renewable sources of energy are not now economical compared with coal, Reicher observed. On the contrary, the price of electricity from renewable sources can be as much as four to five times the cost of electricity from coal. “Our observation was that there needs to be a fundamental change in the cost structure of renewables if we really expect them to be able to compete.” RE < C has the goal of making renewable electricity competitive with coal, and in a period of years rather than decades. In particular, the project is seeking to generate from renewable resources a gigawatt of electricity—enough to power the city of San Francisco—that is cheaper than the electricity from coal.

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0 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE The initiative is focusing on solar thermal energy, photovoltaic energy, wind power, enhanced geothermal systems, and electricity transmission and storage. In addition, it is approaching the problem through the triangle of technology, policy, and finance, Reicher said. First, Google is hiring scientists and engi- neers who will work on key renewable energy challenges. It is funding external research and development in universities and other institutions. And it has a “reasonably significant amount of money” to invest in high-risk technology companies and in high-risk early-stage commercialization projects. Google also has considered how the information tools available at Google and elsewhere such as Google Earth, Google Maps, and You Tube could influence the use of energy. For example, Google Earth could be used to capture data about renewable energy resources. Then transmission resources, policy incentives, and other useful information could be layered on top of the resources information. Such a resource could provide information to everyone from consumers to technologists to policymakers. As another example, a pilot project using Google Maps available on a mobile unit can show a person where public transportation is available, how the travel time compares with a car’s, and the relative carbon emissions between the two. “There are lots of interest- ing things that you can do to give people options.” The “smartness” in a home, a vehicle, or an electric grid is in many respects a function of information, Reicher said. He encourages people “to think about where information and energy intersect. Ultimately, I think that’s our greatest potential.” So far Google has made just a few modest investments, with more in the works. For example, it has invested $10 million in an advanced solar thermal company called E-Solar, which is using large mirror-based systems to turn solar energy into steam and then electricity. It also has invested $10 million in a pioneering high-altitude wind energy technology company. The strongest wind speeds are not at 50 or 100 meters above the ground but at 5,000 to 10,000 meters and higher. If a way could be found to tap those winds, wind power could be much greater and more consistent. “So we put some money into a company . . . that is looking at some very interesting technologies, admittedly very high-risk technologies, that might allow us to capture this resource.” The company also is interested in cellulosic ethanol, where large-scale plants will be hard to finance because of their high risk. “We’re doing what other venture capital entities do, which is go out and canvas the landscape worldwide looking for the most compelling investment opportunities. The difference with us is that we don’t have some of the con- straints of the venture world.” Google does not need to see a return on invest- ment in 3 to 6 years or have exit strategies in place. “We can tolerate higher risks in our investments [and] lower returns.” In the policy arena, the company is looking at traditional tools, but it also is asking itself whether there are ways to be more creative. For example, the

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 THE ROLE OF THE PRIVATE SECTOR—THE CASE OF GOOGLE federal system of research and development tax credits is highly inconsistent. They exist for a year or two and then need to be reauthorized, which some- times happens and sometimes does not. While Google supports extending the renewable energy production tax credits, it also is asking the question, “Is a tax code the right way to be incentivizing renewable energy in this country?” Reicher said. Other countries take different approaches. For example, many European countries work through fees and tariffs. “We are asking ourselves whether there is another way to get at this.” Another policy innovation would be to merge efficiency standards and renewable energy goals into a national renewable electricity standard. An important need is to link federal support of research and development with private sector activities. Today the private sector investment in renewables is substantial, and results can be achieved more quickly and with less duplica- tion if public and private sector investments are integrated. “To be very honest with you, I don’t think Silicon Valley knows how to talk to Washington, D.C., and vice versa, very well.” Few venture capital firms have spent time learning about the federal research and development system to understand the potential for collaboration. Also, Wall Street needs to understand the federal research and development system “because that’s where the big long-term equity is . . . to get the big, big projects built once they come out of the pilot-scale test.” Finally, a cap on carbon emissions is important, said Reicher, but it is not enough. More direct and immediate policy options are essential. Once legisla- tion is adopted and regulations are written to implement the legislation, years can pass. “If the Clean Air Act Amendments are any indication, we could be looking at a decade, and we don’t have a decade to wait in terms of the climate crisis.” HYBRID ELECTRIC VEHICLES The other major initiative going on at Google is known as RechargeIt, which focuses on accelerating the commercialization of hybrid electric vehicles. A small fleet of after-market Priuses and Ford Escapes are being driven by Google employees, with data from their use of the vehicles being made available on a publicly accessible website. One of the largest solar photovoltaic systems in the United States, covering a large parking structure and many roofs of the company, supplies electricity for the vehicles. The vehicles are getting 70 miles per gallon of gasoline equivalent. That may not be as much as the 100 miles per gallon that people who have their own particular plug-in vehicle are able to get our of their vehicles, Reicher said. “But it’s still significantly more than the 40 or 50 miles per gallon that the average Prius is getting today.” Many companies are interested in plug-in vehicle technology, Reicher said. When Google expressed an interest in investing in such technologies, it received almost 400 proposals from companies for equity investments. Google also is

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2 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE trying to create lines of communication that would be available to the major automakers. “The automobile industry is not used to talking to the electric utility industry,” Reicher said. “They need to learn how to talk to each other because, ultimately, plug-in vehicles are going to be very much about a grid that can not only support but also enhance the value of these vehicles.” One major question is whether the electric grid is capable of supporting millions of vehicles. A study of the issue found that there is adequate capacity in California for approximately 4 million plug-in electric vehicles, if the vehicles are charged largely at night. A separate study by Jon Wellinghoff of the Federal Energy Regulatory Commission found that it would be economical not only for the grid to power plug-in hybrids but also for the vehicles to return power to the grid. For example, when Google launched its plug-in hybrids, it did an experiment with Pacific Gas and Electric. The company sent a signal to one of the cars over the Internet telling it to stop charging and start sending electricity back into the grid. “Fortunately, because all the press was there, it worked.” Admittedly, said Reicher, that is just an experiment, and lots of debate sur- rounds the idea. But if millions of vehicles were available that could provide energy to the grid, the cars could produce as much as $2,000 to $4,000 per vehicle, according to Wellinghoff’s analysis. “Thus the notion of a cash-back hybrid,” Reicher said. Such a system would be especially well suited for Cali- fornia, because the wind tends to blow later in the day and not during peak demand. “But imagine if you had millions of vehicles that could in fact be charged with this wind-generated electricity and then through a more intelligent grid sell that electricity back. It’s a very exciting deployment.” If renewable electricity cheaper than coal could be combined with plug-in vehicles, this country could have much more confidence about its ability to deal with the climate crisis and energy security, Reicher said. The nation would burn less coal and oil and dramatically cut greenhouse gas emissions. “It’s a world that Google is excited about. It’s a world that Google is very committed to help create working with others.”