Google recently announced a new clean energy partnership with utility NV Energy, in which Google will purchase novel geothermal power, produced by Fervo Energy, through NV Energy under a new rate scheme called the clean-transition tariff (CTT). It’s an interesting project for a couple of reasons, so I wanted to highlight a few elements of it here.
First, a little background: Companies like Google that are looking for cleaner electricity can purchase it either from a utility or directly from an energy producer through a power purchase agreement (PPA). When purchasing from a utility, Google might pay a green tariff — an extra charge on top of the price of power that the utility pays out to green electricity producers to incentivize them to build capacity in the grid. The more green electricity they produce, the more credits they can be paid for by companies like Google. This approach has a lot of advantages: notably, it’s quite flexible, and even small amounts of green electricity can be bought by relatively small consumers. The problem is that it typically does not track production on an hourly basis, so intermittent wind and solar can generate a lot of green tariff credits while the sun is shining and the wind is blowing — but the grid still needs fossil sources to meet power demands while they’re not. PPAs are much more direct: They are long-term contracts between a large energy consumer and a special-purpose entity that will build green power production that can feed green electricity into the same grid as the customer’s (physical PPA) or into a different grid (virtual PPA). This is good for Google, which can enter into 10- to 25-year contracts, boosting its certainty about where its power will come from as utilities struggle to manage load growth. However, PPAs are not legal in every state and not suitable for many small purchasers — and Google still needs power when the renewables aren’t humming.
Google’s CTT seeks to fix some of the problems with green tariffs by, among other things, tracking energy production hourly. Basically, this means that Google and utilities can design a rate structure in which clean electricity produced when fossil is typically required is bought at a premium. The goal is to incentivize certain types of low-carbon energy that are consistent — so-called “clean firm power” — but are not as cost effective as wind and solar. Big winners here include geothermal and nuclear, which have generally higher costs per kWh than wind or solar but are highly consistent. Energy storage projects could also benefit significantly, depending on the design of this CTT. Of course, it remains to be seen what the long-term impact of the CTT will be. The tech industry has a good track record of driving innovation in the electricity supply business, but tech is, for all the noise about data center demand growth, in the low-single-digit percentages of total use, so this approach will need to get wider traction to really make a difference. There are few industries with the ability and willingness to pay for clean firm power that tech has, though if CTTs can help drive initial economies of scale for tech like advanced geothermal, they can help kick off broader adoption.
I think it’s worth asking why this type of financial engineering is seemingly missing in a lot of other areas — like one of my favorite hobbyhorses, plastic recycling, where there’s really a similar set of mismatches and incentives. Approaches like mass balancing have truly struggled to get off the ground, but you don’t see long, detailed arguments in ProPublica about how PPAs or green tariffs are scams the way you do with mass balance. Partly because this isn’t a very consumer-facing issue: It’s mostly between large purchasers, regulators, utilities, and power providers. More substantively, fungibility of electrons is kind of indisputable: It legitimately doesn’t matter who consumes what electron when, as long as the grid is increasingly decarbonized.
The lesson for other industries, I think, then is to focus on building regulatory frameworks with systemic rather than individual goals — for example, recycling rate targets rather than recycled-content targets. There’s less pressure in the systemic goal example to prove anything to consumers. In addition, focus on changes that increase fungibility: in the plastics case, that means getting rid of nonrecyclable plastics like polyvinyl chloride and streamlining and standardizing the design of products. Of course, the systemic goals are much less directly in your control than individual goals — but I think it increasingly clear that companies aren’t going to be able to pull off the kind of transformation that industries like power and plastics need if they can’t coordinate and tackle challenges systemically.