Google Strikes Deal With Buffett-Backed Wind Generator

Apr. 28, 2014 7:37 AM ETAlphabet Inc. (GOOG), GOOGL3 Comments

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Summary

Google signed a large renewable energy contract with Buffett-backed MidAmerican Energy, a wind generator, in Des Moines, Iowa.
The deal provides as much as 407 megawatts of electricity to supply Google’s data center located in Council Bluffs.
While Google has struggled in 2014, investors should stay positive on the company long-term, and consider taking modest profits now.

Google Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) reported this week that the company had signed a large renewable energy contract with MidAmerican Energy in Des Moines, Iowa.

This marks the seventh such contract, and it involves wind-powered generators. The announcement coincided with Earth Day, and the deal provides as much as 407 megawatts of electricity to supply Google's data center located in Council Bluffs. MidAmerican Energy is largely owned by Berkshire Hathaway (BRK.B) Warren Buffett's (BRK.A) holding company.

Why Wind Energy?

407 megawatts of wind energy equals the capacity of a large natural gas plant or a mid-sized coal plant. This quantity of electricity could power more than 100,000 standard American homes. The agreement includes renewable energy permits from other wind projects and the direct purchase of wind energy from MidAmerican's own wind farms.

The agreement provides renewable energy supplies for the first phase of the data center, and it allocates additional power as Google expands. With this contract, Google pays a premium for the renewable energy permits that are connected to electricity generated by the Wind VIII program at MidAmerican. The program is slated to generate over 1,000 megawatts of power by the end of 2015.

The energy certificates are retired after use, essentially swapping the equivalent energy created by nonrenewable sources and decreasing carbon dioxide emissions. Google did not disclose the financial details of the contract.

Google began construction on the data center in 2007, anticipating the supply of renewable energy available in Iowa. The company has been purchasing electricity from MidAmerican for the last several years.

Google Encourages Clean Power On Earth Day

Google's director of global infrastructure, Gary Demasi, stated the organization expects the agreement "will inspire all of our utilities to work with us in finding ways to increase the supply of clean power." Google reported that its renewable energy contracts now supply over 1,000 megawatts.

Based in Mountain View, California, Google launched its first data center on a 200-acre parcel of land in Lake Manawa, Iowa in 2009. Later, Google opened an additional data center in Council Bluffs on a 975-acre lot slightly east of the energy plant at MidAmerican. Last year, the company reported plans for another investment of $400 million in the new center, increasing its total investments in its Iowa plants to over $1.5 billion.

President and CEO of MidAmerican Energy, Bill Fehman, stated the latest contract reduces energy expenses for MidAmerican customers, and the growth of Google in Iowa has been a critical element to the firm's renewable energy expansion.

In 2007, Google implemented a "commitment to carbon neutrality." Since then, the company has invested over $1 billion in renewable energy agreements worldwide.

Will The Acquisition Give Google A Boost?

Google recently announced disappointing first quarter results from declining prices on smartphones and tablets and expensive acquisitions.

The company earned $6.27 per share prior to costs on gross revenue of $15.4 billion. Net revenue reached $12.19 billion after subtracting expenses paid to partners in generating Web traffic. However, the expectations on Wall Street were for earnings of at least $6.33 per share.

(Nasdaq.com)

In addition, Google lags behind Amazon (AMZN) in the crucial cloud computing business. However, the company has focused on strengthening its market position in this sector.

Devising ways to consume energy in a less expensive manner could certainly support Google's growth long-term. In addition, relying on wind energy eliminates certain risks, including possible regulatory, business, capital, and environmental risks down the road.

As shareholders increasingly call for transparency with regards to environmental practices (see our previous article on ExxonMobil's announcement of its disclosure of carbon risk), Google will not likely face criticism in this regard.

Recommendation for Investors

Although the financial details of this contract are not yet known, investors should see this as a bright spot amid cloudy news for the company recently - a measure of hope for long-term success.

We recommend investors consider taking modest profits in Google during the stock's current dip but remaining positive on the company long term.

We invite readers wishing to read and join the discussion about Google to click the +FOLLOW button above the title of this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article was written by

Don Dion

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Don Dion is the CEO of Inland Management, a company focused on acquiring, subdividing, developing and marketing large tracts of land on the fringes of major metropolitan markets. Inland Management has sold land in all 48 contiguous states totaling billions of dollars. As CEO, Don is responsible for helping to maintain and enhance the firm’s strong financial position and identifying opportunities for growth. In addition to his role at Inland Management, Don Dion is the Chief Investment Officer of DRD Investments, LLC. Based in Naples, FL. and Williamstown, MA., DRD Investments is a family office focused on managing a long/short hedge fund, real estate, venture capital and various other financial assets for the Dion family. Don also serves as the trustee of the Dion Family Foundation, which focuses on helping individuals with tuition assistance at Catholic Institutions for grammar school, high school, and college education. The foundation also helps individuals by supporting Massachusetts General Hospital. Don is on two leadership boards and advisory committees at Massachusetts General Hospital and the Home Base Program (a partnership between Mass General and the Red Sox Foundation). He consults with Saint Dominic's Academy and serves as a trustee of Saint Michael’s College. Previously, Don was the founder and CEO of Dion Money Management, a fee-based investment advisory firm for affluent individuals, families and non-profit organizations. Founded in 1996 and based in Williamstown, MA. and Naples, FL., Dion Money Management managed approximately one billion in assets for clients in 49 states and 11 countries. While at Dion Money Management, Don was responsible for setting investment policy, creating custom portfolios, and overseeing the performance of client accounts. Don sold the firm to NYC-based Focus Financial Partners (FOCS) on September 1, 2007 and no longer manages money for other families or institutions. Don remains a shareholder of Focus Financial Partners (FOCS). Don is also the retired publisher of the Fidelity Independent Adviser family of newsletters, which provided a broad range of investor commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With nearly 100 thousand subscribers in the United States and 29 other countries, Fidelity Independent Adviser published two monthly newsletters and one weekly newsletter. The flagship publication, Fidelity Independent Adviser, was published monthly for 16 years and reached over 60,000 subscribers. In 2011 Don and his daughter Carolyn co-authored the Ultimate Guide to ETFs, available on Amazon.com. Prior to founding Dion Money Management, Don co-founded Litchfield Financial Corp. (LTCH) with Summit Partners. Don served as Chairman and CEO of Litchfield, which was listed on the Nasdaq in 1992 and acquired by Textron Corp. (TXT) in 1999. Don was also the Executive Vice President, CFO and General Counsel for Patten Corporation (BGX) from 1986 to 1988, where he played a critical role in the company’s successful initial public offering on the New York Stock Exchange. From 1983 to 1985, Don was a corporate lawyer with the Boston Law Firm of Warner and Stackpole. Before joining Warner and Stackpole, Don worked as a C.P.A. for Ernst and Young from 1979 to 1983. Don graduated with honors from Saint Michael’s College in 1976 with a B.S. degree in Economics and Business Administration. He received his J.D. from the University of Maine Law School in 1979 and his LL.M. from Boston University Law School in 1982. Don can be reached at donalddion@gmail.com

Google Strikes Deal With Buffett-Backed Wind Generator

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