Google Energy: Customer Aggregation on Steroids

On February 18, 2010, FERC issued an order granting Google the authority to sell electric power services subject to FERC jurisdiction at approved market based rates. [1] The order covers energy capacity Google might acquire or contract, power sales, and services.

Google has made no secret of its desire to be green and do green deeds.  It has invested in renewable energy projects for its own energy requirements and directly and through its foundation has become an active voice in the policy discussions surrounding environmental and energy issues.

But like most big business enterprises, Google seeks to do well by doing good.  And in the case of energy it has the potential, the money and now the power to be a big pain in the back side for many in the energy space.

Monetize Google Data Center Assets. First, the obvious question people are asking is why would Google want to do this?  For one thing it sits on the ‘muther-of-all-data center assets’ needed to run its business, and in a smart-grid enabled electric power world ahead that tsunami of smart meter data must go somewhere.  Google can make money selling meter data management services to virtually anybody who wants to play in the smart grid space turning its data center capacity into a money printing machine in parallel with its advertising business revenues.

Monetize the Tsunami of Smart Meter Data for Services. Second, all that meter data tells Google more than we ever wanted it to know about how we use energy in our homes and businesses.  Insight from those consumption patterns combined with Google earth snapshots of each of us smiling in our driveways is pretty valuable stuff.  Imagine the advertising leverage it creates when you can target ads to people based upon their energy use patterns as well as their internet surfing proclivities. The biggest customers for this service might actually be utilities who know they are in over their IT heads in managing such huge data flows successfully.

Mapping the World’s Energy Information Patterns. Third, imagine the possibilities as scores of vendors of sensors, boxes, networks and gadgets of every kind seek Google’s help to assemble the moving parts of the smart grid into solutions that fit just right for each of hundreds of customer segments all that data above and everything else Google knows about our good and bad habits.  The entire cleantech space today including Smart grid is in the midst of a big consolidation phase where smaller players are eaten by larger ones in a search for more complete solutions to offer to potential customers.  Google Energy can help speed that up and be the for the energy space.  Google can thus map the energy use patterns of a large part of the world over time and use that patterning to create value from its service capabilities all across the value chain.

Branding Wholesale Electric Power Sales? Fourth, I almost forgot the foundation for the order itself which gives Google Energy the authority to go into the markets and offer power supply services at market based rates is the logical extension of what it is already doing for its own facilities.  Aggregating more customers is a fast, easy, way to bring down the costs of energy for all who participate.  Likely, this will begin with commercial and industrial customers who are much easier to aggregate and are accustomed to shopping in competitive wholesale markets.  It also avoids a fight with utilities over seeking to aggregate retail customers.  The wholesale power business offers opportunities to scale Google Energy in measured doses and bring into the family people who really understand the business for the big play ahead.

At a minimum, Google Energy might be a power marketing brand that enables many small power producers to sell their capacity, energy and services to a wholesale power marketer able to create a large footprint quickly with brand recognition, use Google services and pay Google in a piece of the action while facilitating its scaling up process.

But all of this is the tease isn’t it.  Yes, Google can probably make plenty of money just monetizing its existing assets and offering those same services used for its own portfolio to others.  Yes, it can enhance the advertising revenue potential of its book by expanding its data footprint to include energy use patterns.  Yes, it can build its brand and gain customer acceptance of Google Energy as a reliable service provider.

Then what?

Going for Customer Aggregation Gold. Lastly, taken together all of the smart grid enabled technology coming to market means little if energy continue to be rate regulated and individual customers pay average costs instead of being subjected to dynamic prices that reflect the true real time cost of meeting our energy demands.

Google Energy is a bet that real time dynamic energy pricing will make Google’s capacity to bring the world’s energy information to market in useful ways extremely valuable in the future in segmenting and aggregating customers.

Politicians and regulators have adopted policies that will materially raise our energy costs for renewable energy that is more costly, for emissions reduction efforts that are more costly, for smart grid technology that is more costly.  And they are discouraging power generation construction from our traditional sources of baseload power such as coal, hydropower and nuclear that have moderated marginal costs and thus rates over the last fifty years.  Instead, our newer renewable sources are cleaner but more expensive and they must be backed up by natural gas because of their intermittency.  Natural gas prices are volatile.

Combine real-time dynamic pricing and volatility in natural gas prices and you have a recipe for chaos. The solution for that in a smart grid enabled market environment is to stop selling commodity energy alone and bundle it with other products and services where risk can be mitigated and managed.  Customer aggregation enables this fundamental change in the utility business model and Google Energy is positioning itself to be a major player in that future.

The advantage of a Google Energy is that Google sees the world in macro scale.  It does not fear change and seeks to use the power of information to enable it.  Yes, it knows too much about us.  Yes, it is capable of exercising market power in subtle but ruthlessly effective ways we must guard against. Yes, it has done deals that facilitated censorship abroad and risked our trust at home as a result.

Conversely, it has the scale to make change possible in some of our intractable public policy domains.  If is uses that power to enable choice that is a wonderful outcome.  If it uses it to just get bigger, richer and raise its own stock price to Warren Buffet levels while depriving competitors of Oxygen that would be unwise.

What makes all of this possible is changing technology.  The question is the same one we have always faced.   How do we use technology to do well ourselves while advancing the common good?