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Need to finance a big solar project? The Bank of Google can help

October 10, 2013
Obsession
Energy Shocks
October 10, 2013

As we’ve written, Google is becoming a de facto utility as it signs contracts to buy massive amounts of electricity from wind farms built near its big data centers. But the search giant is also morphing into an investment bank as it takes ownership stakes in renewable energy projects. Today it announced one of its biggest investments, a $103 million share in the 266-megawatt (MW) Mount Signal photovoltaic power plant under construction in the California desert east of San Diego.

That’s good news for renewable energy developers. A 30% US tax break for solar and wind projects is set to fall to 10% at the end of 2016, and power plant builders expect Wall Street’s appetite for renewable energy to diminish. Over the past three years Google has put more than $1 billion into wind and solar farms that generate more than 2,000 MW of electricity. That’s enough to power about half a million American homes. Even so, Google is not by any means going to replace Goldman Sachs or Morgan Stanley. But corporate financing for big green energy projects will become increasingly crucial to get them online.

“We think that companies like ours can help make it happen,” Kojo Ako-Asare, Google’s chief of corporate finance, wrote in a blog post. “We invest in these projects because they make business sense, because they help put more renewable energy on the grid, and because they have a positive impact on the local economies where they operate.”

The Mount Signal Solar project is part of an 800 MW photovoltaic complex being built by several companies in the Imperial Valley, one of California’s poorest regions but one of its richest in sunshine. The electricity generated by Mount Signal will be sold to utility San Diego Gas & Electric under a long-term contract.

Google previously invested $178 million into BrightSource Energy’s 377 MW solar thermal power plant that’s coming online in Southern California, but Mount Signal represents its largest investment in a photovoltaic farm. As the prices of solar panels have plummeted in recent years—Mount Signal is deploying First Solar’s thin-film modules—such projects have become increasingly attractive for the greenbacks they generate as well as for the green electricity they produce.

Google spokeswoman Kate Hurowitz told Quartz that the company would not disclose the financial terms of the deal and would not comment on whether the investment offered a better rate of return than its other renewable energy deals.

Financing a renewable energy project is complex due to the machinations surrounding US federal tax breaks, but here’s how they typically work. Mount Signal is being developed by Silver Ridge Power, a joint venture between private equity firm Riverstone Holdings and AES Solar, a subsidiary of power giant AES. Silver Ridge obtained $636 million in debt financing from Morgan Stanley and other investors to build the project, which is set to being generating electricity in 2014. Developers usually seek to replace that debt with equity investment once a project is built and that’s where Google comes in.

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