Google Explains Why It Became an Energy Trader

angry tapir writes "Google has explained how it might use its status as an energy-trading company to increase the use of renewable energy sources in its data centers. In February, the company's Google Energy subsidiary received approval from the US Federal Energy Regulatory Commission to buy and sell power on the wholesale market."

Comments

More crazy US laws.

[0100010001010011]

It is currently illegal to resell electricity that you generate using 'waste'.

So say you run a heat-treat process. You don't have much incentive to install a way to reprocess that heat. I wish I could remember the TLC/Discovery/History channel special that they had about it...

By becoming an 'energy trader' I'm wondering if Google can skirt these laws and make their data centers more efficient or even energy negative.

Re:More crazy US laws.

[SQLGuru]

I simply read it as: they burn more natural gas for lime-ash, using the heat from the lime-ash process to turn turbines. This generates more electricity than is required by their day to day operations. Thus, more electricity than they use. The excess electricity is then sold. Nothing there violates your sacred law. I think you just skipped over the part about burning natural gas.

Re:More crazy US laws.

[FluffyWithTeeth]

GP said electricity, not energy, they could well be producing more electricity than they use.

For an example of an industry producing more electricity than it uses, may I point you towards something called "power stations"?

Re:More crazy US laws.

[vlm]

It is currently illegal to resell electricity that you generate using 'waste'.

OP is technically correct but its a massive simplification, and not a serious problem for an organized well run company.

It has to do with depreciation and losses. If IBM writes off an ancient server and sends it to the scrapyard, they don't have to pay any property tax on it anymore and can deduct the value of the server off their profits and balance sheets. Its a simplification, but you don't have to pay tax on a loss of money from giving up and scrapping that server.

This applies to pretty much any industry. Let say you're a sawmill. And your accountant deducts the value of some screwed up scrap wood, so you don't have to pay tax on that wood anymore, or at least it offsets the gains/profits that you do have to pay taxes upon. Then, dude installs a cogeneration plant, burns the "worthless" scrap wood, and gets money for it. Unless they tell the accountant/IRS that wood is now a profit center instead of a loss center, big tax problems can develop. Its also complicates the situation if some "valuable" wood is freely given away in the trash can, and some is burned for profit, because its a money laundering/theft/fraud opportunity.

This is one line of thinking that leads to scrapped computer equipment being pushed thru a chipper shredder to make sure no one can ever use it again.

Re:More crazy US laws.

[Steve Hamlin]

I'm an accountant, have read your post a few times, and still can't figure out what you're trying to say. (caveat: this post assumes U.S. tax law)

"If IBM writes off an ancient server and sends it to the scrapyard, they don't have to pay any property tax on it anymore and can deduct the value of the server off their profits and balance sheets."

(1) IBM probably doesn't pay much, if any, property taxes on server equipment. (state and local taxes on the current market value of installed equipment)

(2) IBM has already deducted the cost of the server equipment from their U.S. income tax return as a depreciation expense - for such small costs, it is immediate-to-very-quickly. Scraping equipment results in a tax benefit only when you have not already 'written off' the cost of the equipment on a tax return, which tax accountants do as quickly as allowable.

(3) Similarly, IBM shows server equipment on their balance sheet as 'equipment, net of depreciation', that is, the un-depreciated (or not-yet-'written-off' portion of acquisition cost). Scrapping already-expensed or fully-depreciated equipment generally doesn't change the balance sheet that much. (there are tax vs. book differences in depreciation and expensing equipment, but minor in the great scheme of things)

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As to the Sawmill example:

The entire plant is Revenues minus Costs = Profit. You bought the input wood, and produce wood products for sale. You deduct, as Cost of Goods Sold, all of the input wood as raw materials. If you previously threw away waste sawdust, that is your inefficiency, but doesn't change the fact that you would still deduct the full cost of the wood raw materials.

If you start selling the waste sawdust, then you still deduct the same amount for the cost of raw materials - you bought the same amount of wood. Only now, you are selling another product for additional revenue, which used to be thrown in the trash. That the sawdust used to be thrown in the trash isn't what caused those taxes to be lower - it's that you didn't have as much revenue (and profit) which caused the lower taxes. Now that you are selling the sawdust: More Revenue, same Costs = more Profit due to a better sales model. More income taxes are owed as a result of the increase profit, not because you sold product out of a loss center (profit and loss center are not tax terms; they are used in management/operational accounting), or used to record some deduction for throwing the sawdust away (you didn't record any such deduction, you simply didn't record any revenue from the (non-existent) sale of the sawdust).

There would be regulatory and special tax depreciation considerations if you are burning sawdust to generate electrical power for sale, and there might be a difference in how you would characterize and value a charitable contribution of sawdust in the two scenarios (due to differing evidence of value of the contribution), but those are both sidepoints to the main topic of characterizing the sawmill's economic transactions for tax purposes.

Elementary

[Anonymous Coward]

Also, this way the extent and sizes of their data centers can be hidden behind a energy trading corp controlled by them.

Re:Explaination

[eln]

Plus, Google has always been about doing what other companies have done before, only bigger and better. Enron used shady energy trading practices to cause rolling blackouts in California. Google will improve on this process to cause rolling blackouts nationwide.

Re:Explaination

[SydShamino]

Except that's not at all what the article says. They aren't trying to expand into the energy trading market. All they're trying to do is increase the available supply of renewable electricity for their own data centers.

I guess it wasn't quite that obvious.

Re:What is Greenpeace smoking?

[Jeng]

I hate to say it, but Greenpeace does not care for any sort of facts.

They are the birthers of the environmentalists.

As an example, read a nice little article by them regarding the type of processing that is done for toilet paper. Any company that did not respond to their request was assumed to use the most environmentally damaging processing. Greenpeace then used this information to say that XX% of TP is made using these really harmful processes.

In short, Greenpeace is full of shit and they are afraid to wipe.

Re:What is Greenpeace smoking?

[pmc]

My favourite Greenpeace press release contained the following sentence:

"In the twenty years since the Chernobyl tragedy, the world's worst nuclear accident, there have been nearly [FILL IN ALARMIST AND ARMAGEDDONIST FACTOID HERE]"

Yes - the bit in caps is theirs.

Re:What is Greenpeace smoking?

[flonker]

Citation: http://www.washingtonpost.com/wp-dyn/content/article/2006/06/01/AR2006060101884.html