Why Google invests in clean energy

Last year, Google invested more than $915 million in clean energy projects–solar, wind and transmission.

That’s a lot of money, even for Google, which had $38 billion in revenues in 2011. The investments don’t appear to be core to the company’s mission of organizing information, and they have attracted criticism, as well as some careless reporting, implying that the Internet giant is exiting the alternative energy business.

Does Google have an energy policy? Does it need one?

To find out,  I recently went to see Rick Needham, Google’s director of green business operations, at the company’s fabled headquarters (well, fabled for a 13-year-old company, anyway) in Mountain View, CA.

I came away not merely persuaded that Google’s energy investments make sense, but thinking that other companies that consume lots of electricity and have a pile of cash on their balance sheets  — Apple, Microsoft and GE come to mind — should consider deploying some of their cash in the clean energy sector.

Clean-energy investing isn’t philanthropy for Google. It’s business. In fact, it’s a classic double-bottom line investment, one that is intended to deliver environmental as well as financial benefits.

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So you want to work in solar?

To my surprise, I’ve become visible enough in the world of “green business” that students and young professionals  frequently approach me because they want to learn more about sustainability, corporate responsibility or clean energy. Unfortunately, I can’t take the time to speak with all of them, so we typically exchange a couple of emails, and that’s it.

Leo Xiao

Occasionally, though, the student is unusually persistent, which is how I found myself having breakfast this morning at 6:45 a.m. in Laguna Niguel, Ca., with Leo Xiao, a 30-year-old immigrant from China who is studying for an MBA at UCLA. I’m here for FORTUNE’s Brainstorm Green conference, which begins later today, (Monday, April 4) and is available online here.

In any event, Leo Xiao learned that I would be in California for the event. He invited me to speak at UCLA. No thanks, I said. He offered to drive me from LAX to Laguna Niguel so we could talk. That won’t work either, I said. He offered to pay me $200 for a meeting, Absolutely not, I told him. But he was so relentless that I agreed to meet with him if he wanted to drive the 65 miles or so from LA to Laguna very early in the morning, which, not surprisingly, he did.

“Once I decide I want to learn something, I’m pretty committed,” he told me, unnecessarily. “I’m single minded.”

We had a good talk. Leo’s interested in the business of delivering and financing solar energy for homes, and he wanted to dig into issues surrounding the business model, management and risks associated with several start-ups that deliver solar to the home–Sun Run, Solar City and Sungevity. He asked a lot of good questions. It turns out that he’s working on his own iPhone app about solar for the home, but he couldn’t say much about it because he’s in “stealth mode.” Leo has a degree in computer science from UC Riverside, and he spent about a year and a half working at Zynga, the social gaming company the developed Farmville, before business school. He told me, proudly, that Zynga had used its platform to raise money for earthquake victims in Haiti. “Social games can be about more than killing time,” he said. “They can have a social benefit.”

I tell this story for a couple of reasons. First, I want to recognize Leo’s persistence, preparation and desire to learn. Second, I want to say that any immigration policy that makes it hard for people like Leo to work in the U.S. is nuts. He’s been educated here and would like to stay–“I love Silicon Valley,” he told me–and surely his brains and energy will add value to our economy. Free labor markets, like free trade, generate wealth and growth.

Solar City: making solar easy

“Install solar. Save money from day one. No upfront investment. And you have a predictable forecast of what your power costs will be for the next 20 years.”

That’s the selling proposition that Solar City, a Foster City, CA-based startup, offers homeowners, businesses and government interested in installing solar photovoltaic panels. It’s working. Big companies like eBay and Walmart, as well as nearly 10,000 homeowners have opted to buy or lease from Solar City, which will provide design, financing, installation and monitoring of solar systems. It’s one-stop shopping for what otherwise could be a complicated business.

Lyndon Rive

Solar City is led by Lyndon Rive, 33, who is the CEO, and his brother Peter Rive, 36, who is chief operating officer. They started the company in 2006 and it’s their second startup; the first, Everdream, a software company, was acquired by Dell. Most likely, neither company would have gotten going were it not for Lyndon’s passion for underwater hockey. More about that in a moment.

I met with Lyndon Rive last week at the Solar Power International conference in L.A.  Solar City is one of several companies offering leases of solar equipment; the others include SunRun (See Will rooftop solar go mainstream?) and Sungevity ((See Solar power to the people). All are based in northern California, and for good reason. Lyndon told me that more than half of the estimated 80,000 homes with rooftop solar in the country are located in the area served by PG&E Corp., a solar-friendly utility company. How friendly to solar is the big utility? PG&E has invested in both SunRun and Solar City.

Lyndon says that Solar City does not view SunRun or Sungevity as big competitors. If anything, more solar on roofs, no matter who installs it, should drive the category. “Our primary competitor is the homeowner doing nothing,” he said. “The market is not saturated.” That’s an understatement, given that so few homes have installed solar rooftops.

Why not? Lots of reasons. The upfront costs of installing solar panels are high–about $30,000, on average. Most people have no idea how to shop for panels. Who would they hire to install them? What happens if they break? Or on cloudy days?

Those barriers to adoption were the focus when Lyndon and Peter Rive started Solar City. They’d left the software firm and investigated renewable energy. “Solar is a market that can really scale,” Lyndon says. Other companies were doing manufacturing or researching new technologies, but no one, at that time, was focusing on how the product would be delivered on a big scale. Their goal was to build the first national consumer-focused solar brand.

I asked Lyndon whether there were any models for brand that provides services for the home. Not really, he admitted. (The closest we could come up with were DirectTV, and Terminix and TruGreen, which are units of ServiceMaster.) Undeterred, they set out to make rooftop solar as easy as possible.

So far, Solar City currently operates in five states: California, Colorado, Arizona, Oregon and Texas. The states are chosen because they have generous state subsidies, or plenty of sun, or high utility bills–ideally all of the above. Under the right circumstances,  Solar City customers who lease their panels pay little or nothing upfront and immediately begin saving 10 to 15% on their utility bills. About 20% of customers choose to buy their panels.

Two recent announcements put a spotlight on Solar City. The company said last month that it had won a contract to supply thin-film solar panels to 20 to 30 Walmart stores in California and Arizona. Last week, Solar City said it will lease energy efficiency products and services to homeowners along with solar; that’s an excellent idea because it will further lower the costs of using solar power. One of the company’s key advantages is its software, which enables customers to estimate the costs of solar, and now energy efficiency improvements, on Solar City’s website.

Solar City has raised about $101 million in venture capital from such investors as Draper Fisher Jurvetson, Mayfield, DBL Investors (which stands for double bottom line) and Generation Investment Management, the firm started by Al Gore and ex-Goldman exec David Blood. The company has said it may go public by 2013.

As for underwater hockey…well, I’d never heard of it either. It’s played in a pool two meters deep, with six players on a team, slapping around a heavy puck (1.5 kilograms) as they can hold their breath and stay underwater. Why do it? “I love water,” Lyndon said. In any event, he did it well enough to be named to the South African national team, which brought him to the world championships in San Jose in 1998. There he joined with his brother in the software business–and never left.

Will rooftop solar go mainstream?

It’s been a remarkable summer for SunRun, the San Francisco-based startup that’s trying to get solar power onto millions of residential rooftops. SunRun raised $100 million in project financing from utility PG&E. Venture capitalists invested another $55 million in the company. Home Depot agreed to distribute its rooftop solar panels, and Toll Brothers, the big home builder, is using SunRun’s solar leasing program to install PV panels on new homes in a luxury golf-course community in Yorba Linda, CA.

Today, SunRun enters Pennsylvania, its sixth state. You wouldn’t think of Pennsylvania as a solar-friendly state but, as it happens, the Keystone State has all the right ingredients–high and rising electricity prices, generous state subsidies for renewable energy, and a regulatory framework that permits homeowners to sell surplus power back to the electricity grid.

Says Lynn Jurich, the president and co-founder of SunRun: “We want to go to markets where we can save customers money, and where we can make money.”

I’ve written about SunRun before (See SunRun: A New Deal for Solar and Solar’s Strange Bedfellows) but the company is growing so fast, albeit off a small base, that it makes a lot of news. The PG&E, Home Depot and Toll Brothers agreements, along with its geographic expansion, all seem to  further validate the company’s business model. [click to continue…]

Awaiting clean tech’s “Netscape moment”

John Doerr
John Doerr

John Doerr, the brilliant and hard-charging venture capitalist, has told me several times that clean tech is still awaiting its “Netscape moment.”

What he means, I think, is that  investors will get excited about start-up companies across a range of so-called clean technologies — solar, wind, biofuels, energy efficiency, green chemistry, lighting — when one of them has an attention-grabbing initial public offering like Netscape’s in 1995 which, by some accounts, set off the Internet investing craze.

I don’t see a “Netscape moment” on the immediate horizon for clean tech but, of course, no one knew that the Internet browser company would take off before its IPO. But if we are to get the clean-energy transformation we need, enormous amounts of capital will be required. So any evidence that investors are warming to clean tech companies is welcome. I’ve seen several encouraging signs lately. [click to continue…]

Solar’s strange bedfellows

solar-home-1.540.330.sNot long ago, it would have been unthinkable for a big utility company to encourage homeowners to put solar panels on their roofs.

If people generate more of their own electricity, after all, utility companies will sell less, they’ll need to build fewer power plants and, at least under traditional regulatory regimes, they’ll make less money.

That’s changing, as evidenced by a deal announced today by PG&E Corp., the $13.4 billion a year utility company based in San Francisco, and SunRun, its much smaller San Francisco neighbor, whose business is providing financing for home solar systems. Pacific Energy Capital II, a unit of PG&E, will provide $100 million in tax equity project financing to fund SunRun’s installation of more than 3,500 new home solar installations across the nation, the companies said.

In plain language, that means that the utility company will, in partnership with SunRun, pay the upfront costs of solar panels in exchange for tax credits and a share of future payments from the homeowners who install them. SunRun is one of several companies trying to take some of the risk and complexity out of home solar by paying the upfront costs (which can mount to $20,000 to $50,000) and managing the installation hassles for its customers. (See my 2009 blogpost SunRun: A new deal for solar for more.)

This is the second investment this year by PG&E in a home solar firm. Back in January, the utility invested $61 million with Solar City, which competes with SunRun. Generally, PG&E is bullish on solar, although most of its investments have been in centralized solar thermal or solar photovoltaic plants, as opposed to distributed, rooftop panels. It’s ranked No. 1 in the Solar Electric Power Association’s utility solar rankings. (PDF, download.)

Nor is PG&E alone in promoting distributed solar. As  I reported yesterday, New Jersey-based PSEG has a solar loan program for homeowners although it doesn’t cover the full costs of installation.

So why would a utility like PG&E Corp. finance a competitor? Partly because it expects to make money on the deal, partly to better understand the solar business and partly because if the utility companies doesn’t get into the home solar business, someone else will.

As Brian Steel, director of corporate strategy and development at PG&E told Forbes:

We’re happy with the financial returns. And by investing in these assets it gives us an opportunity to learn in a way we wouldn’t have otherwise. When you get down in the weeds, the difference in what one learns is stunning.

Ed Fenster, the CEO of SunRun, told me much the same thing when we spoke about the deal: “This is going to happen with them or without them. If it happens with them, they are earning a return on it.”

None of this would be likely, it’s safe to say, if California hadn’t taken a smart approach to utility regulation by decoupling a utility’s financial returns from the amount of electricity it sells. That enables utilities to make money by serving their customers’ energy needs, even if what they are selling is energy efficiency or distributed power.

sunrun-logoStill, it’s important to keep all this in perspective. SunRun and rooftop solar are still small businesses. SunRun signed up about 1,000 customers in the first quarter of this year, and it has about 4,500 customers in all, Fenster told me. Still, he said, even though California’s subsidies for solar are declining, the company’s growth rate is accelerating–no small feat in this sluggish economy. The PG&E deal will enable the company to fund solar systems in at least five states, he said, including California, Arizona, Colorado, Massachusetts and New Jersey. All offer solar-friendly subsidies.

Because the Gulf oil disaster is on everyone’s mind these days, I asked Ed if he thinks it will have any impact on his business. Americans don’t burn much oil to make electricity, but we do use natural gas, which may have been a factor in the explosion. What’s more, if electric cars roll out later this year as planned, electricity may become an alternative transportation fuel, albeit on a small scale.

“The BP tragedy may very well lead people to think harder about renewable energy,” he said.

Let’s hope so.