Can Google’s clean transition tariff remake utility incentives?

Last week, Google quietly unveiled its proposed fix for a conundrum facing both data centers and the energy transition itself: how to commercialize emerging technologies that could provide clean, firm power, but are currently too expensive for utilities to purchase. 

Dubbed the “clean transition tariff,” Google’s solution is a new rate structure that would allow large customers to pay a higher rate for power from emerging technologies like advanced geothermal or long-duration energy storage — and avoid passing costs on to ratepayers.

The CTT would work like this: Any customer with a monthly power demand of at least five megawatts of power demand would work directly with a power developer and utility company on a long-term agreement to fund the novel technology. The rate option would allow the company to access credits against the value of the resulting power.

The model is proposed as the core of a partnership between geothermal developer Fervo Energy and NV Energy, a subsidiary of Berkshire Hathaway Energy. Funded by the CTT, Fervo will provide 115 MW of geothermal to the company’s Nevada data centers. This represents a doubling down on the pair’s previous commercial pilot, which Google said in a blog “proved Fervo’s technology can deliver enhanced geothermal power at a commercial scale.”

But the CTT’s invention has implications for technologies far beyond geothermal. According to Caroline Golin, Google’s head of energy markets development and innovation, it’s a matter of aligning corporate decarbonization goals with utility incentives, in a single business model.

In an ideal world, Golin told Latitude Media, utilities would have a collection of emerging technologies and bids from the companies prepared to deploy them, then companies like Google could put up money to fund those projects — and get accelerated decarbonization in the bargain. It’s a matter of the utility “being able to really harness that demand and organize it,” she said.

Utilities are often disincentivized from investing in new, costlier technologies, because the way that they’re regulated means that their primary consideration for new investments is saving ratepayers money. A lot of the frontier clean firm technologies are not yet the least-cost options, but — especially in light of an artificial intelligence boom that has yielded a scramble for clean firm power, and has complicated major tech companies’ 24/7 renewable energy goals — Golin said that the tech sector wants them anyway.

“What we realized…was that we needed a way to make sure that we were investing in the technologies that we were going to need quite quickly,” Golin said of the early days of Google’s work on the CTT. “We knew that there was a lot of money out there, but we knew that there weren't the business models, and we knew there weren't the regulatory structures for us to work together.”

The CTT is currently pending review by the Nevada Public Utilities Commission, a process that Golin expects will wrap up by the end of 2024. From there, the tariff is designed to be replicable across all utilities and for all emerging technologies.

A bid to upend the utility status quo

For the last several decades, the power purchase agreement has been the primary way that companies procure wind and especially solar power. And there are effectively two types of PPAs: those that a Google or another major tech company will sign directly with a solar or wind developer; and those that involve a utility broker.

The status quo for the latter — where a utility company has a major customer with lofty clean energy goals, signs a PPA with solar developers, creates a portfolio of solar capacity, then sells that energy back to the customer — results in “very, very little value that the customer gets back on its utility bill,” Golin said.

“Those programs are completely divorced from the way the utility does its overall resource planning for the rest of its grid,” she said. “They go build a playground for the corporate sustainability goals, and they don’t integrate it back into their overall resource planning.”

This disconnect is at the root of Google’s goal for the CTT, Golin said, so that the utility builds more clean, firm power while leveraging Google’s “willingness to pay to accelerate when you can bring that on.” It essentially enables utilities to sign PPAs for technologies that would otherwise be too risky and too expensive.

In return for this early investment, Google will get “the initial round of value” from a new, say, geothermal project, which keeps the company from having to pay extra for fossil-fueled baseload power: “So we’re not then double paying for a full solar program and then for all the natural gas to firm and support our load; we're just paying for the geothermal,” Golin said. 

It’s a question of being more efficient with the capital, she added. 

The kernel of the concept

The CTT took root nearly two years ago, when Golin’s team began noticing a few intersecting trends: the flow of IRA dollars, the proliferation of utility and state carbon-free energy commitments, and the “exponential” growth in investments from clean buyers like Google. 

Golin’s team also recognized a shift within utilities themselves, which have increasingly taken an interest in technologies beyond wind and solar in recent years. And the rapid growth of AI added urgency to the need for energy innovation. 

That potential to mitigate load growth became clear “six to nine months ago,” Golin added, “and that’s where the utilities also got really excited.” 

“I spend a lot of my time talking to utility CEOs, and we don't always agree on everything,” Golin said. “But we all seem to agree that we needed this.”

Google landed on its partnership with Fervo and with NV Energy in part because of its long history with both. In fact, Google’s first solar-plus-storage deal was in Nevada. While the company “tested the waters” with a number of other utilities, Golin said Nevada had a particularly receptive, “problem-solving” commission that was open to innovation in hitting the state’s net zero goals. 

The CTT, Golin clarified, is designed to be used for everything from grid-enhancing technologies to virtual power plants. And it allows utilities to stack technologies, from the flashy moonshots to the incremental. 

“It's just a vehicle by which customers and utilities can work together to innovate and accelerate clean capacity,” Golin said. “And that can be on the supply side; that can be on the demand side; that can be on the grid side. And that's what the country needs. The country needs a shock of innovation.”

That need is intensified by the surge of investment and energy demand that have come as a result of the Inflation Reduction Act and the CHIPS Act. 

“There are so many micro solutions out there to our capacity needs that have to be tapped,” Golin said, citing “unsexy stuff” like reconductoring and better demand-side management. “What I'm also hoping that the CTT does is force big customers — who are growing the economy and then simultaneously their load is growing — to be more creative and more innovative in the way that they meet that.”

From bespoke to standardized

The CTT is designed to work in tandem with Google’s other efforts to commercialize emerging energy technologies. 

For instance, the company is in the midst of reviewing submissions to its March request for information, issued alongside Microsoft and steel producer Nucor to bolster the development of first-of-a-kind and early commercial carbon-free energy projects. The idea is that the advanced market commitment demonstrates aggregated demand for those kinds of solutions, but that demand doesn’t necessarily have to work through a tariff. 

“But inasmuch that we're going to work with regulated utilities to scale some of these technologies, the tariff is the way in which we'll try to do it,” Golin said. “You’ve got to build the market signal, and then build the mechanism by which that market signal can result in an actual investment.”

Meanwhile, Google made headlines with the announcement of its memorandum of understanding with Duke Energy, signed alongside parallel MOUs from Amazon, Microsoft, and Nucor at a May White House summit. The companies proposed developing new tariffs, including the CTT. While it may appear that the NV Energy partnership builds off of that agreement, Golin said the reverse is the case.

After developing the CTT with NV Energy, Google started shopping the idea to other utilities. Once they reached Duke, Google’s peers became interested as well, which yielded the MOU. (“And now there is intrigue from other Nevada customers as well,” Golin added.)

The next hurdle, Golin added, “is transitioning this from a bespoke thing to a portfolio of investments” for utilities.

“I do think it’s some extra work from the utility’s perspective, but it keeps customers and utilities working together, and ultimately, that's what the utility wants,” she said. “I think what it's going to take is being a little more sophisticated in the way we do our resource planning from the get-go.”

Assuming the Nevada PUC gives the tariff the green-light, Google is already preparing to scale it “everywhere” — and soon. 

“We're talking to all of our utilities about scaling it,” Golin said. “The utilities that have been pretty vocal about wanting to make those types of investments are really the ones that we think we’ll probably work with next on this. But we'll work with anyone.”