Google works to revive solar energy's sunny outlook

SAN FRANCISCO – On a Northern California farm where silage for animal feed once grew, Google is generating power from more than 100,000 solar panels to heat nearby homes — and focusing on an energy shunned by many investors.

The Galt solar farm, 20 miles south of Sacramento, is one of 15 alternative-energy projects that Google has funded since 2010 as part of a more than $1.4 billion investment in clean power production. That makes the Internet search giant the biggest backer of U.S. alternative-energy projects over that stretch, excluding financial institutions and utilities, according to Bloomberg New Energy Finance.

More than half of Google's energy projects are in solar, a market that's cratered. Panel prices have plunged 58 percent since 2010, after Chinese manufacturers glutted the industry, sending U.S. developers Solyndra and Evergreen Solar into bankruptcy. Yet Google is moving to succeed where others faltered by avoiding panel production and instead capitalizing on controversial tax incentives that can produce investment gains of more than 10 percent a year, according to analysts.

"We look at projects that will give us attractive returns," said Rick Needham, who joined Mountain View, Calif.-based Google in 2008 as director of energy and sustainability.

Clean energy is becoming a focus for many technology companies. Facebook, for example, is developing a wind farm in Iowa and aims to generate at least a quarter of its data center power from renewable sources by 2015.

But none are spending like Google. With $60 billion in cash, the company announced energy investments of almost $400 million in 2013.

Google, with the approval of CEO Larry Page, is seeking creative ways to put its cash to work and spread renewable energy worldwide. The company's data intensive operations also require electricity to run.

Google is plunging in as venture investors pull back on solar. The amount of dollars invested fell more than 70 percent last year from 2011 as deal volume dropped by almost 40 percent, according to the National Venture Capital Association.

Google also has its home state, the nation's biggest solar market, to thank for much of its expansion. In 2011, California Gov. Jerry Brown signed a law requiring that renewable sources make up 33 percent of the electricity supply by 2020.

Google's solar push has been aided by Recurrent Energy, a solar-project developer owned by Sharp Corp. In November, Google and private-equity firm KKR & Co. financed six Recurrent projects in California and Arizona. Two years earlier, Google invested $94 million, teaming up with KKR to finance four Recurrent developments around Sacramento, including Galt.

Google uses tax-equity financing, a government incentive that allows it to lower its tax obligations by investing in renewable energy. Solar projects can produce returns of 10 percent to 14 percent annually, with about half the profit tied to incentives, according to Paul Maxwell, director in the energy practice at Navigant Consulting in Folsom, California.

Google's tax-equity investments in energy are surpassed only by JPMorgan Chase & Co., U.S. Bancorp and MetLife Inc., Bloomberg New Energy Finance data shows.

Providing tax breaks to cash-rich companies distorts the market and passes costs to consumers, said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass.

Google has been openly supporting clean energy since 2007, when it created a research group within its philanthropic arm to develop cheaper renewable power. Early efforts were in part to help Google in its energy-consuming data centers.

Page ended the initiative in November 2011. "Other institutions are better positioned than Google to take this research to the next level," the company said.

Google's solar projects are diverse. In 2011, it started a $280 million fund for SolarCity Corp., helping the residential solar provider expand rooftop service. Late last year, Google invested $103 million in a Southern California solar plant that provides energy for 80,000 homes.

With the Galt plant, Google's cash is going toward the production of enough power for 7,000 homes. The energy from 134,000 photovoltaic panels attached to steel girders feeds into the Sacramento Municipal Utility District, which pays for the energy. Google shares in the revenue.

Google's clean-energy effort also includes wind, with investments of $275 million in two West Texas wind farms since late 2012 and $75 million in an Iowa plant.