Google and Renewable Energy

Here is a fact from the CNBC news: Google, the giant search engine, is planning to invest in 2008 in initiatives to promote cheap Renewable Energy (RE). If before this event the experts did not have enough arguments to convince you that RE is the business of the future, now they do. Google is planning to invest its human capital in projects related to solar thermal, wind, geothermal energy and other new technologies, according to CNBC. This will imply “hundreds of millions of dollars in breakthrough RE projects with positive returns”. Now, this is an episode to cite against people biased with anti-market rhetoric: Google is a private company investing in risky projects which are outside her core activities, both for “Vision” (the objective to provide clean energy for the masses) and for profits. But by pursuing a profit, the whole society is expected to benefit. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”, said Adam Smith.

Google has already invested in RE initiatives. The difference now is that they move from the consumption side to the producer side, which is not a minor difference. If today RE are not yet popular it is because of the higher cost involved: the cost per kw/h of energy derived from coal is 2/3 of that derived from wind for example. Coal, natural gas and Nuclear are still way cheaper sources for energy production than RE. But reducing the marginal cost of production is only one side of the business. The real challenge to me lies in the many potential applications of RE that have not been explored yet, which can be extremely remunerative. To turn a new technology in a success story, you need both financial capital and innovation. Banks have started to pour money in the business. Google surely has both financial and human capital, and seems to have some sort of comparative advantage in the field of innovation.

The story so far is that in 1998, when Internet was becoming a popular technology, Google, a follower, eventually became the market leader. Almost ten years later, when RE is bound to play a dominant role, Google is willing to play the leader role. For those who like predictions, I ask a question: who’s gonna be the market leader in RE in ten years? Do you think Google will confirm itself as leader or shall we expect a new market leader to emerge? I don’t like predictions (especially about the future), but the second option seems plausible to me…