Apple, Google and the evolving economics of energy

Apple, Google and the evolving economics of energy

Apple Inc. Google Inc. corporate renewable energy buying solar wind
Shutterstock Radu Bercan/l i g h t p o e t /
Apple and Google both made waves this week with big solar and wind energy purchases.

Within 24 hours, two of Silicon Valley's most recognizable household names once again have whipped an entire industry into a frenzy.

This time, instead of introducing a new gadget that stands to upend the market for personal computers, smartphones or an emerging field such as robotics, Apple and Google have thrown down the renewable energy gauntlet.

Google on Wednesday told Silicon Valley newspaper the San Jose Mercury News that it has purchased enough energy from a Northern California wind producer to power its sprawling "Googleplex" headquarters with 100 percent renewable energy. A day earlier, Apple CEO Tim Cook declared that the tech giant is spending $848 million on a California solar farm to power all of its operations in the state. 

Sure, both companies actively have been investing in renewables such as solar, wind, fuel cells and hydropower for years. But the deals this week have much more heft in both the symbolic and financial senses, adding to mounting evidence that sustainability is increasingly being incorporated into core business decisions, rather than altruistic philanthropic initiatives or experimental research projects.

First, the new wind and solar plans for Google and Apple deal directly with corporate headquarters (complexes which, by the way, also have been criticized for their insular, suburban locations disconnected from public transit). The new energy facilities won't be part of some distant greenfield R&D projects, but rather will provide power for the main offices of two of the biggest companies in the entire world.

But perhaps more important for those considering how the moves may be received by competitors or emulators in other industries are the economics in play. Take the crystal clear statement from Cook that Apple's investment in the 280-megawatt farm in Monterey County was partially about the bottom line.

“Quite frankly, we’re doing this because it’s right to do, but you may also be interested to know that it’s good financially to do it,” Cook told the crowd at a Goldman Sachs conference Tuesday in San Francisco. “We expect to have a very significant savings because we have a fixed price for the renewable energy, and there’s quite a difference between that price and the price of brown energy."

And then there was the comment from Sam Arons, a Google energy strategist, to the Mercury News.

"Not only do we think renewable energy is important from a climate change perspective, it also makes business sense," he said. The article added, "The buy helps protect Google from higher energy prices in the future, Arons said."

Changing cost calculations

Embedded in the comments about long-term corporate energy cost predictability are several once-esoteric financial concepts becoming increasingly applicable to mainstream energy consumption.

For decades, corporate sustainability has been framed as an add-on to business operations that can bolster a company's public reputation and maybe do some good for the environment in the process. But progressively more jarring forecasts for global environmental distress — and the likelihood of ensuing economic fallout for businesses confronted with extreme storms, water scarcity, material supply shortages and the like — are turning the corporate social responsibility conversation on its head.

Front and center now are risk mitigation and financial predictability, or two variables apt to make C-suites and boards of directors much more eager to pay attention. At the macro level, the conversation is shifting to resilience, or a more holistic view of the way companies might benefit from being able to withstand shocks linked to climate issues, social unrest or political instability.

More specifically, the fiscal consideration most evident in Cook's reference to the declining appeal of "brown energy" is the economic uncertainty increasingly surrounding fossil fuels.

While oil prices have plummeted in recent months, there's no guarantee how long that might last — an uneasy reality that increasingly has global regulators and shareholders of companies such as Exxon Mobil scrutinizing the prospect of "stranded assets," or scenarios where once hugely lucrative fossil fuel reserves might become financially untenable to extract and sell due to either regulation (such as a carbon tax) or accelerating climate change.

But the next logical step in the conversation about stranded assets is how major corporate energy users stand to be impacted.

A relatively small number of firms appear willing to invest in proactively trying to stave off the risk of being stuck without energy, or facing steep price increases, by transitioning earlier to renewable energy sources. But that path, too, still has its challenges.

Seeking new models

If any companies were likely to buck existing renewable energy business models to go at the market on their own, Apple and Google likely would be the top two candidates.

Interestingly, both have opted to purchase power directly from existing providers — First Solar for Apple and NextEra Energy Resources for Google.

Indeed, other businesses ranging from BMW to Wal-Mart to IKEA are also employing varying approaches to on-site renewable energy in a bid to lower costs and cut carbon emissions.

The catch: power procurement is no walk in the park.

Facebook, General Motors and Hewlett-Packard were a few of the big name companies to sign on in July to the new Renewable Energy Buyers' Principles initiative, which seeks to better align corporate energy buyers, utilities and legislators when it comes to actually getting new power systems up and running.

Complex contracts, lengthy negotiations and antiquated regulations are a few obstacles spurring discussion about digital or otherwise streamlined Power Purchase Agreements.

While companies work through their individual frustrations, there are also collective efforts, such as the Corporate Renewables Partnership established by the Rocky Mountain Institute, World Wildlife Fund, World Resources Institute and BSR. The goal there is to add 60 gigawatts of wind and solar capacity to the amount purchased by businesses (about double current levels) by 2025.

When it comes to the huge hill still left to climb on corporate carbon emissions, the long-game recently was summed up by another Apple employee, sustainability chief Lisa Jackson.

"I wonder if we sometimes miss the swing-for-the-fences moment, where you throw all the incremental goals away and say, 'Why can't we go for something different and important?'" Jackson said during GreenBiz's 2014 VERGE event. "Those are the moments we are striving for."