Earlier this fall, Google announced a landmark renewables commitment: 1.6 gigawatts procured across three continents, encompassing 18 unique transactions.
Google said it was able to close so many contracts at one time because, for the first time, it streamlined its procurement process using a “reverse auction.”
The huge package of deals underscores Google’s rise as an energy buyer with the status and expertise matching some of the world's largest utilities. And unlike many of those utilities, the company is choosing to aggressively pursue renewables alone to meet its demand.
In addition to meeting its own 100 percent renewables goals, Google cites pulling more companies into the market as an explicit goal of its efforts. To expand the impact of its reverse auction, Google last month published a paper detailing the process. The tech company told GTM it hopes its efforts will help other interested buyers accelerate what can be a lengthy procurement timeline.
“We were trying to figure out how...[to] make this as seamless as possible,” said Neha Palmer, the company’s director of operations and its lead on energy purchasing. “What can we make more standard in the industry and streamline so it’s not this drawn-out, bespoke process?”
Reverse auction 101
Google got to 1.6 gigawatts in five steps — give or take.
First, the company picked its markets; Google focuses on siting new renewables plants near its operations, in service of its goal to meet all demand with 24/7 renewables. Palmer said finding locations near data centers represented a “main criterion.” For this round, Google included ERCOT and PJM in the U.S. and Sweden and Finland in Europe.
Then the company refined the technologies and regions that would participate in each auction, picking one “settlement location” and resource per action.
Google also set barriers to entry for developers. That means proof of “strong financial backing,” according to Palmer, as well as evidence of successfully executed projects on the ground or a local partner to ensure project builders are “well versed in the market they’re operating in.”
Before the final step of actually running the auctions, Google laid out standard terms for power-purchase agreements. Palmer said that negotiating a contract and term sheet for the average PPA can take nine months to more than a year, but Google minimized work by creating a standard offering.
“Having this basic contract allows for an apples-to-apples comparison...so you can actually run an auction and know that the product that you’re getting will be the same from any developer,” Palmer told GTM.
The company also required bidders to submit a deposit and agree to its term sheet in order to participate.
The work ended in four auctions lasting between 45 minutes and an hour, which yielded 1.2 gigawatts — capacity that would have required months or even years to negotiate using a traditional request for proposals process. Prequalifying projects and participants allowed hundreds of viable bids to be made, and offers came in at low prices due to heightened competition. In one auction, the company said prices fell by 17 percent while in another they dropped by nearly a quarter compared to the opening price.
Google topped off the winning bids with other projects negotiated using conventional requests for proposals, adding to its total 1.6-gigawatt announcement.
Making it standard
Over the years, Google has amassed significant expertise on executing renewables purchases, largely because it had to. “Ten years ago, nobody was offering us renewable energy,” explained Rob Parker, the company’s senior lead of data center strategy and location strategy, at a recent event. “So we signed PPAs.”
But the corporate renewables market has evolved and flourished even as Google has become a more sophisticated customer. The 18 projects Google has signed in 2019 dwarf its past annual purchases, and the company credits overall market growth — including better economics, more developers and stronger financial resources — for much of that success.
“The fact that we were able to run auctions in four global markets on two continents reflects the fact that there is now a liquid market for [renewable energy] with qualified, experienced project developers working around the world,” wrote Google in its paper on the auctions.
Despite healthier market conditions, building the auction was still a heavy lift, one that smaller firms with less experience are unlikely to replicate.
For that reason, Palmer said membership organizations and tools such as standardized universal contracts can go far in bringing more companies into the market.
“Having a standard contract for the industry could go a long way to helping increase the speed of doing these types of transactions,” she said. “You’ve seen this in [more traditional] parts of the energy industry — there are standard contracts like this. And it really helps everyone have a base level of agreement and understanding on what [it means] to sign up for a long-term renewable energy contract.”
While smaller companies may have to tailor contracts differently than large corporates with significant demand like Google, Palmer suggested a variety of templates might also help.
“Standardizing [contracts] across the board would help the entire industry...move faster."
Corporate influence and public pressure
As Google’s Parker noted, the trend of corporates making big renewables purchases began largely because utilities weren’t offering the resources companies wanted. These days, beyond simply increasing their own renewables purchases, corporations are pressuring utilities to do the same. See, for instance, letters signed by eBay, Apple and Microsoft that criticize Dominion Energy’s reliance on natural gas in Virginia when its large corporate customers want more renewables.
So far, the results of that pressure have been mixed. Dominion is slowly beginning to pick up more renewables, but that hasn’t stopped it from investing in more gas. It also hasn’t kept corporate customers like Costco and Target from attempting to flee the utility’s service territory altogether.
Google has had more luck in convincing utility partners to incorporate renewables, or at least adding options that allow Google to buy them. The company worked with Duke Energy, another utility that’s been criticized for moving too slow in its energy transition, on a green source rider that lets large customers buy more renewables. Palmer said the company may bring similar ideas to the Virginia market, where these concepts are still relatively new.
Elsewhere, the tech company is also escalating its efforts to influence the direction of entire markets. This year Google become a member of two regional transmission organizations, which will give it some leverage in discussions around wholesale market rules and policies.
Google's intensifying efforts on renewables comes at an interesting time for the corporate giant. Though Google is doing more than ever to advance ambitious clean energy efforts, the severity of the climate crisis has become top-of-mind for more people, with many voters, activists and tech employees advocating for stronger action. That means that as Google announces historic power purchases, it's being met with climate protest from within its own ranks.
More than 1,000 Google employees have so far signed a November letter criticizing their employer's continued ties to organizations and entities that engage in various forms of climate denial. The letter asks that Google develop a plan to reach zero emissions by 2030 and cut any funding for climate-denying organizations and individuals. The employees also demand that the company engage in no contracts that “enable or accelerate” fossil fuel extraction and ask that Google declines work with any “entities enabling the incarceration, surveillance, displacement or oppression of refugees or frontline communities.”
Google, however, maintains that it believes in fighting climate change and that its sponsorship of some controversial groups or organizations "doesn’t mean that we endorse [an] organization’s entire agenda."
Meanwhile, it's moving forward on its renewables goals. Just last week Google announced a new clean energy partnership: this time with AES Corporation and its cloud service, which the partnering companies said will use data tools to enable uptake of clean energy.