A Model for the Future: Google Applies to Sell Energy

(MoneyWatch)  Google does a good job of moving bytes online, so why shouldn't it be good at moving watts offline? The search engine giant has applied to the Federal Energy Regulatory Commission for a license to sell electricity on the wholesale market, probably in a first for the internet industry.

Most new endeavors Google launches are immediately over-examined for signs that the company might be angling to become dominant in another industry -- despite its failure so far to build a second business anywhere near as profitable as search advertising.

But it's a far stretch to imagine Google getting into power plants; right now the consensus, including from its spokespeople, seems to be that it is simply looking for ways to make its own energy use cheaper. Still, I'd argue that the FERC application may be more important than it looks on the surface.

First, about Google's energy requirements: its huge energy needs come from the giant server farms that the company has placed around the world to serve the millions of visitors its website receives each hour. A single server farm can require as much power as a small town, and will often need the most juice during peak hours of the day, when it's also most expensive.

Google has obviously worked out that a better option would be building its own power generators, and selling off any excess electricity. But other companies also have high energy requirements. Google stands out with its FERC application for another reason: it has thought long and hard about the future of electricity production and usage

Already, today's energy sector is a different world than it was just a decade ago. There are now energy generators, primarily individual solar panels and wind turbines, that don't necessarily benefit from huge economies of scale the way coal and gas plants do.

In a way, Google is taking a leap into the past. A hundred years ago, large companies like steel and fabric plants would build their own dams or coal plants to power their processes, and sell the excess. But efficiencies of scale meant bigger plants, of the sort only utilities could build, were cheaper. Most companies accepted the new order and just bought their power

Today, there's probably not much difference between the cost per watt of a utility building a 500 megawatt solar plant, and Google or another company building a five megawatt plant. So why not build the smaller plant and pocket the money that would have been the utility's profit?

Google is perhaps better positioned than almost any other company not directly involved in the energy industry to innovate and figure out a set of best practices, because of its previous interest and investments in renewables through its philanthropic Google.org arm, which is trying to drive the cost of renewables lower than coal.

It will take a few years to prove the concept, but if Google and others start saving significant amounts of money with their own small-scale power plants, the energy business could be in for a revolutionary shift.