Is Google An Information Or Energy Company?

on March 10, 2014 at 2:00 PM

Google Reports Quarterly Earnings

The answer is that the two are rapidly converging

Google, along with its peers such as Apple, Facebook, eBay, Yahoo, Tesla and hordes of other start-up in and around Silicon Valley, have been the darlings of the Wall Street with their stratospheric market valuations, rising stocks, and growing dominance in the phenomenally fast growing information technology space. While each company is focused on a niche, Google appears to be expanding into multiple niches in ways that appears baffling, almost random.

This is especially true in the energy space where Google has been toying around, semi-seriously at times, and not always successfully. Its entry into energy metering display business, PowerMeter, while a good idea, did not flourish – perhaps because the venture was designed to work in cooperation with the utility industry stakeholders, who are not as agile and innovative as Google and who probably perceived Google as an eventual rival as opposed to a business partner.

Over the years, and to the puzzlement and annoyance of many in the utility business, Google has invested in mostly renewable technology ventures. The scale of investments to date, however, has been smallish – certainly by Google’s standards. As reported in multiple sources, over the past few years, these have included a sprinkling of investments such as

  • § $75 million in Clean Power Finance to help residential customers invest in solar PVs in October 2011;
  • § $94 million in solar plants in December 2011;
  • § $12 million in South African solar PV plant in May 2012;
  • § $75 million in Iowa wind farm in November 2012;
  • § $200 million in Texas wind farm in January 2013;
  • § $103 million in California solar farm in October 2013; and
  • § $75 million in Texas wind farm January 2014

In Jan 2014, Google stunned many by investing $3.2 billion in Nest, by far its biggest investment in the energy space – and an odd one at that (see box below). Before the acquisition, Nest, was a little-known maker of intelligent thermostats, carbon monoxide sensors and similar gadgets that the company acknowledges are not sexy or appealing to average consumers, certainly compared to iPhones or tablets.

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This, plus the high price tag paid for Nest puzzled many analysts. Does it make sense, and is it worth the investment?

The verdict is yet to come, but pundits are suggesting that, finally, energy and information technology may be converging, certainly when it comes to more sophisticated means of pricing electricity with the intent to manage not only total volumetric usage but the consumption pattern. A few years ago, when Eric Schmidt was Google’s CEO, he acknowledged that the energy space was “a problem for the Internet and personal computers,” famously adding, “It’s the largest opportunity I could possibly imagine.” Mr. Schmidt was brought in to provide adult supervision to the young-cofounders, who are now running the 40,000 strong company.

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The speculation is that perhaps it is that vision and that opportunity that is now being explored. Google, as everyone knows, thrives on crunching big data (see box below). The company has already been experimenting with smart thermostats and other gadgets monitoring home electricity usage in real time. With the Nest’s acquisition, Google can go beyond collecting and analyzing data by building easy to use applications that can not only monitor energy usage, but make the entire grid more efficient by making demand more price responsive. That nut, if anyone can successfully crack it, would be the holy grail, and who is better suited and has deeper pockets to try than Google?

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While Wall Street analysts were mostly skeptical about the large fortune paid for Nest, a few seasoned observers saw the move as smart and timely. Not to be outdone, Facebook recently bought WhatsApp for an even more stunning $19 billion. Go figure.

NRG Energy’s CEO David Crane, who has referred to US utility executives as Neanderthals, recently told the Atlantic Magazine that the energy companies of the future will essentially become information technology companies – and Google is already ahead in this transformation.

Perry Sioshansi is the President of Menlo Energy Economics and Editor & Publisher of EEnergy Informer. He can be reached at [email protected].
 

His latest two books are Energy Efficiency: Towards the End of Demand Growth and Evolution of Global Electricity Markets, both published in 2013 by Elsevier. Further details & 30% discount available here.