Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Google's Future Growth is in Energy

By Travis Hoium - Jan 10, 2015 at 2:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Google Nest might finally make Google the revolutionary energy company it has tried to be in the past.

Google ( GOOG 1.52% ) has been trying to get into the energy business for years. In 2007, it set a goal of making renewable energy cheaper than coal, and as part of the campaign it invested venture funds in renewable energy start-ups and bought renewable energy projects.

But Google's efforts to revolutionize energy have been largely unsuccessful. It bet on solar concentrator technology, which used mirrors to angle the sun's rays toward a power tower that ran a turbine to produce electricity. But that technology has proven more expensive than conventional solar panels and is virtually dead in the marketplace. As a result, Google has essentially given up on trying to revolutionize renewables.

Ivanpah Solar Electric Generating System is part owned by Google and has been an operational disappointment since it opened in 2014. Image source: Ivanpah. 

That wasn't the end of Google's story in energy, though. The 2014 buyout of home automation specialist Nest Labs, which looked crazy at the time, might bring the company back into the energy business, and this time it's a business Google might do better than anyone else.

Google Nest could be the future of home automation. Image source: Nest.

Google's new energy play
The Nest thermostat might seem like just another smart device for the home, but that thermostat has the potential to be your home's automation hub. Locks, lights, garage doors, security cameras, and much more can connect to Nest, which will be able to control the household devices and even store data through Google's online products.  

Where this gets interesting is with something called demand response in Nest's Rush Hour Rewards program. Put simply, demand response is a network of homes or businesses that will "respond" when a utility's energy costs are high, turning down demand in a predetermined way. Maybe it's turning off the air conditioner, delaying a washer cycle, or deactivating the charger to your electric vehicle. Demand response adds value to the utility because it can avoid paying the high cost of using peaker plants at peak demand times. Meanwhile, customers are compensated for dialing down demand upon request.  

Rush Hour Rewards is Google's demand response program. While it doesn't work everywhere, if a utility in your area participates in the program you could save money by simply signing up and allowing Google to automatically turn down your load when your utility wants you to. This could turn into a big business for Google.

ChargePoint just announced a Nest capable EV charger that would turn charging off when Rush Hour Rewards are in effect. Image source: ChargePoint.

Why this will be a big business for Google
Rush Hour Rewards are fairly new, and it's not clear what the financial impact will be for Google, but it could open up multiple revenue streams. I think Google will be able to collect a fee from utilities, similar to the way in which demand response companies make money for providing their services, in addition to saving homeowners money. The bigger impact might be in device sales, which is a new business for Google.

Nest's line of devices is growing, now including a smoke and carbon monoxide alarm, and these device sales could become a significant portion of Google's revenue if they are widely adopted. The "Works With Nest" line of products that are made by third parties and augment Nest could open up a new revenue stream for software and firmware licenses.

On the back end, Google is using its own apps to access data from Nest-compatible products. This is another way to get people using more Google products, much in the same way Android draws consumers closer to Google.

Finally, energy Google does well
Google has proven it isn't an expert in making energy, but it is an expert in collecting and aggregating data. That's the Nest thermostat's likely role in home automation, and Google can leverage its capabilities to grow in home energy management and demand response, potentially saving consumers and utilities millions of dollars in the process.

Home automation is right up Google's alley, and this time it might have found a way to win in energy. Look for Nest to be the product that leads Google into the future of energy. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
$2,875.53 (1.52%) $43.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.