Google is diversifying into offshore wind energy, but to whose benefit?

Google recently announced that it invested in the development of a “backbone” transmission project off the mid-Atlantic coast which will hopefully accelerate the development of offshore wind energy. Despite the stated good intentions of Google, are they really doing this to boost their image? If not, then the question instead becomes “Why is shareholder money being used for diversification and altruism?” After all, Google is a rational, public company.

Diversifying into new areas only makes sense for corporations if they can bring expertise and have a synergistic effect with their existing operations. The goal there is to improve shareholder returns over what they could normally get in the market. In this case, that would be a company that specializes in energy transmission.

While Google has invested in another wind project, this investment is not like the majority of its operations. Nor is it like its foray into phones, price indexes or content providing where their existing market share, technology and talent can uniquely provide value to shareholders. Remember: Google is an information company, not a venture capital fund or utility.

Now, before anyone accuses me of being reactionary to a positive development in the renewable energy world, let me say that I am pleased that this money is being invested. I see a bright future for offshore wind as a reliable, cost-competitive, and clean source of electricity. Nevertheless, I am trying to understand the motives of Google to see if we can expect more developments of this kind in the future.

My belief is that Google is in fact trying to boost its ‘Green’ and ‘Socially Conscious’ credibility after its spat with China earlier this year and the revelations its relationship with the government concerning its vast supply of user data. In an audio interview you can find here, Rick Needham, Google’s director of green business operations, dismisses that idea simply saying that this will provide a “solid return.”

Neither the interviewer nor Needham talk about how investors could ultimately choose where to invest their money if Google’s profits were distributed to them. Instead, we are led to believe they are looking to ‘do good’ and be profitable at the same time, even if this sort of direct investment isn’t the best value for the company’s owners.

Google and many other public companies participate in many socially conscious initiatives. These have a tendency to make them look altruistic and compassionate and put them in a positive light in the public view. Still, they are looking to benefit in the long-run by being able to sell more, attract better talent, and avoid scrutiny. If managers weren’t truly acting in the best interest of their shareholders, they would be replaced. This is what people should understand about the actions of a public corporation: they should and will only act when it makes financial sense.

With that in mind, the increased tendency to ‘greenwash’ products or entire companies has been well-noticed. We’ll see more of these types of investments and projects, as long as the public is still attuned to these issues.

Still, there is one more explanation for Google’s expansion aside from establishing ‘green’ credibility or corporate altruism: empire building. Empire building is a huge agency problem in that the interests of the managers and shareholders are at odds. The heads of Google may prefer to have a far-reaching company that is ‘changing the world’ and are looking for a new way to have a huge impact while destroying some value.

People have often accused Google of trying to take over the world. However, this project is most likely an example of greenwashing. For anyone thinking Google may be different in some way, remember: they have much to gain from those exact thoughts.


Green-tech investment falls 50%, but it’s no time to worry

The first quarter of 2009 saw a sharp decline in all forms of investment in clean-tech and energy both compared with a year ago, as well as the fourth quarter of 2008. Overall, the $13.3 billion invested was down 53% from the previous year and 44% from the last quarter. Investments in new renewable-energy projects led the decline, with venture capital investments also dropping 22% and a near evaporation of all investment in pure-play clean energy companies. However, this raw figure does not tell the entire story for the industry, nor is it necessarily indicative of a trend.


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Sustainability During the Credit Crisis

With a sudden rash of failures and dirt-cheap buyouts of investment banks and consumer lending institutions, the credit crisis is dominating the mainstream media, and rightly so. Let us consider for a moment, the effect it might have on sustainability.

The old stereotype is that environmentalism is a luxury good, and that if people get poorer in real terms, they will have to sacrifice it. Of course, this simply is not true. Environmental responsibility can save money, in the form of lower energy bills, lower water bills, or offsetting material costs through recycling, to name a few. So one might expect even more sustainable behavior in order to cut costs. Unfortunately, this is probably not true either.

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IEA says $45 trillion needed for “energy revolution”

The Paris based agency says the massive investment is necessary to cut dependence on fossil fuels and halve greenhouse gas emissions while maintaining economic growth. Included in this investment would be 1,400 nuclear power plants and a vast expansion of wind power.


Carbon storage and capture systems as well as an eight-fold reduction in carbon intensity in the transport sector would be required. The leader of the IEA’s study put it quite bluntly.

This development is clearly not sustainable.

$45 trillion is a large sum of money, roughly three times current US GDP. However, assuming 3.3% economic growth over the 2010-2050 timeline, $45 trillion would only amount to 1.1% of world GDP. I don’t believe it is safe to assume 3.3% economic growth with energy and food crises headed our way, but forgoing this investment would be catastrophic for both the environment and the world’s standard of living.

A failure to reduce dependence on fossil fuels is setting the world up for a crash when we see large shortages. In addition, climate change is likely to amplify existing problems such as water scarcity and need for more food production. This report should not be ignored, and at least gives a bit of a blueprint for a solution. It is now time for government, and people, to act on a large scale to fight climate change and mitigate peak oil.

In addition, how long will it be before endless growth is realized as an impossible goal?