Alphabet (GOOG 0.80%)(GOOGL 0.83%) subsidiary Google needs a massive amount of electricity to power its data centers supporting Google Cloud and Google Gemini. Traditional data centers consume 10 to 50 times more energy per floor space than a typical office building. Meanwhile, an average query using an AI chatbot like ChatGPT consumes nearly 10 times as much electricity as a Google search.
That's leading Google to lock up as much future power supply as it can. The company recently signed power purchase agreements (PPAs) with Clearway Energy Group for nearly 1.2 gigawatts (GW) of carbon-free energy, adding to its massive power grab.
Image source: Google.
Securing more power
Clearway Energy Group (CEG), the parent company of clean power producer Clearway Energy (CWEN +1.95%)(CWEN.A +2.11%), signed three new long-term PPAs with Google. The PPAs encompass 1.17 GW of carbon-free energy via projects in Missouri, Texas, and West Virginia. For perspective, 1 GW is enough to power over 700,000 homes. These PPAs add to the 71.5 megawatt (MW) of power Clearway currently supplies Google from a project in West Virginia.
CEG plans to start construction on projects totaling over 1 GW this year, with the first sites expected to begin commercial service in 2027 and 2028. They will help provide electricity to the grid, powering Google's data centers in regions experiencing significant demand growth. They're part of CEG's accelerated digital infrastructure development program of delivering power across the U.S. at the massive scale needed to support the growth of data centers.
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The renewable energy development company typically builds projects secured by long-term PPAs and then sells them to Clearway Energy. That enables CEG to recycle capital into new projects, while allowing Clearway to invest in additional income-producing clean power assets that support its high-yielding dividend. Clearway currently yields over 5% and expects to grow its cash flow per share by 7% to 8% annually through 2030, supported mainly by drop-down transactions with CEG.
Google's power plays
Google's power deal with Clearway is the latest in a string of energy-related agreements the tech titan has signed in recent months. Last July, Google signed the first-of-its-kind Hydro Framework Agreement with Brookfield Renewable for up to 3 GW of carbon-free hydropower. It's the world's largest hydro power deal. Google will pay Brookfield over $3 billion under the first two 20-year PPAs executed under this framework agreement, covering 670 MW of capacity from two hydropower facilities in Pennsylvania.
Google followed that up by signing a new collaboration with leading U.S. electric utility and energy infrastructure developer NextEra Energy (NEE +1.75%) to accelerate nuclear energy deployment in the U.S. As part of the deal, Google signed a 25-year PPA to support the restart of the dormant Duane Arnold Energy Center in Iowa. NextEra plans to restart the 615-MW plant by 2029. It previously shut it down in 2020 due to storm damage and economic reasons. With this deal, Google has now secured 3.5 GW of power from NextEra Energy. Additionally, the companies plan to explore developing new nuclear power plants in the U.S. to help meet the country's surging power needs.
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NextEra Energy and Google subsequently signed a landmark strategic energy and technology partnership in December. As part of this deal, the companies will partner on developing multiple new GW-scale data center campuses with accompanying generation and capacity. By collaborating, Google can more rapidly develop data centers by leveraging NextEra's expertise in developing power solutions.
Google's power grab is a smart move
AI can be a meaningful growth driver for Google in the coming years. It will need a lot of power to become a dominant player in AI, which is why its moves to secure supplies from leading producers like Clearway, Brookfield, and NextEra Energy are smart. They'll help lock in its power supplies and costs, enabling it to focus on building out powerful AI tools. Meanwhile, Google's PPAs will supply its power providers with steadily growing cash flow, allowing them to increase their dividends. That could give these companies the power to generate strong total returns for their shareholders in the coming years.
