Guest Blog: Powering Data Centers with Clean Energy: Google’s Clean Transition Tariff – Climate Law Blog

The rising interest in artificial intelligence and data centers has sparked discussions on how to meet the immense power demand from data centers in a carbon-responsible manner. Many data center operators have 100% clean energy pledges, but regulatory barriers can make meeting these goals challenging. This is particularly true in states restricting the ability of electricity customers to purchase electricity from entities other than the local utility. If that local utility produces electricity with gas- or coal-fired generators, or declines to provide a clean energy option, data centers and other customers will find it difficult, if not impossible, to reach their sustainability targets.  

Despite increasing customer demand for clean energy, a number of utilities in states that bar customers from shopping for electricity are reluctant to make green power options available. They cite concerns that purchasing clean electricity would raise prices for residential consumers or leave the utility with stranded assets in the event that demand for clean energy dissipates. Indeed, utilities and regulators often cite the possibility that the customer requesting the clean energy product could instead use less electricity than planned or cease operations altogether, leaving the utility with a long-term obligation to purchase premium clean energy products, the costs of which would be spread across all customers. Clean energy generators are likewise reluctant to make the financial commitment to build new facilities, knowing that state retail competition laws also constrain their ability to sell power to anyone other than the local utility. 

In such cases, the customer’s green energy options may be limited to purchasing clean energy attributes,e.g., Renewable Energy Credits or RECs, to support their corporate sustainability goals.  While RECs are a legitimate means of demonstrating that a megawatt-hour of electricity was produced somewhere, corporate sustainability programs are increasingly tying energy consumption directly to production from a specific clean energy resource that is physically close by or matched with consumption on an hourly basis.  

However, innovative new “clean transition tariffs,” such as those under consideration in Nevada, may provide a solution.

Clean Transition Tariffs: A New Solution

In June 2024, Google launched a new partnership with NV energy and introduced a new transition rate, also known as the Clean Transition Tariff (CTT).  The proposal is currently pending before the Public Utilities Commission of Nevada.  If approved, the CTT would allow Nevada Energy (NV Energy) to contract with a new clean energy resource and then pass the costs of the contract through to a specific customer with a minimum monthly load of 5 megawatts (MW). Under the CTT, the energy customer would agree to pay a premium over grid-sourced energy equal to the difference between the cost of a new clean energy resource and the “but-for” system mix that NV Energy would have deployed under regulatory least-cost constraints. The customer gets fixed-price power and ownership of the environmental attributes of the power procured, which enables Google to meet its voluntary corporate clean energy commitments.  For Google, this means matching the electricity consumption of its data centers with clean energy on a twenty-four hour-a-day basis (known as “24/7 matching”). But the customer must agree to contractual provisions designed to ensure that NV Energy’s other customers do not end up paying any portion of the new contract, even if the resource does not produce the expected amount of energy or the customer consumes less energy than expected.

Key to the new tariff is the requirement that the customer is required to make a long-term commitment to purchase power from NV Energy that is equal to the expected life of the new generation facility. The CTT also requires customers to agree to liquidated damages for early termination and to post the security necessary to guarantee performance. In exchange, the new generation resource gets the benefit of a long-term power purchase agreement (PPA) with NV Energy.  A long-term PPA with a credit-worthy counterparty (which includes most utilities) is often considered the “gold standard” for new generation technologies looking to find debt financing at reasonable rates and conditions, since the bank has the assurance that the generator has locked in revenues via the PPA.  

A practical example of the CTT in action is a partnership between Google, NV Energy, and Fervo Energy. Nevada law limits the ability of existing customers to purchase retail electricity from a particular supplier. This regulatory limitation makes it difficult for Google to meet its stated commitment to running its data centers on clean energy. The third party to this innovative transaction, Fervo Energy, is a start-up exploring advanced geothermal generation. Under this arrangement, NV Energy will purchase electricity from Fervo’s 115-megawatt Corsac Station Enhanced Geothermal Project and sell it to Google at a predetermined rate. This agreement allows Google to offset its energy demand with clean power while ensuring Google provides sufficient financial guarantees that protect NV Energy customers from the financial risks associated with a long-term power purchase agreement with an innovative technology provider. 

PPA vs. CTT: Expanding the Toolkit

The CTT offers an alternative to traditional power purchase agreements (PPAs) that have long been used to underwrite clean energy projects. Under these contracts, companies (or other entities) make long-term commitments to purchase both electricity and environmental attributes at an agreed price from a generator.  This allows the purchaser to lock-in stable pricing for at least a portion of their energy needs and utilize the environmental attributes to meet their corporate sustainability goals, while the seller locks-in revenues that enable construction and finance of the power plant.  Thus, a PPA provides certainty to both producers and sellers about energy investments. PPAs certainly promote renewable energy growth and, according to BNEF, since 2008, corporations have announced PPAs for 198 GW of solar and wind around the globe. The PPA market has grown 33% on average since 2015 and catalyzed hundreds of billions of dollars of investment into the energy transition.

However, the PPA contract structure does not necessarily work in states that bar retail customers from purchasing power from entities other than the utility, which is often reluctant to take on the financial risk of contracting with those clean assets. 

The CTT structure resolves this problem by allowing large end-use electricity customers, like Google, to purchase energy and capacity from an innovative new technology provider without having to go through an often time-consuming and bruising battle to change state law, potentially cutting years off the procurement of clean energy supplies. 

The CTT structure also resolves regulatory concerns over stranded costs by ensuring that the NV Energy agreement to purchase the output of Fervo’s geothermal facility is backed by NV Energy’s sale of energy and capacity to Google. With steep termination fees, liquidated damages, and a requirement to post security, NV Energy can be reasonably sure that 100% of the costs of the Fervo project will be paid exclusively by Google. Likewise, the term of NV Energy’s agreement with Fervo is matched with the term of Google’s commitment to purchase energy under the tariff from NV Energy, further protecting ratepayers from any potential ill-effects of the deal. 

Fervo’s geothermal technology, which produces a steady stream of energy 24 hours a day, provides “clean firm capacity”—reliable, low-carbon power that can be dispatched on demand.This product is particularly attractive for firms like Google, which has committed to matching electricity consumption with clean energy production on an hourly basis, which is generally considered to be an effective means of mitigating Scope 2 GHG emissions. Google would find it difficult (if not impossible) to meet this type of corporate clean energy goal under traditional unbundled REC PPAs, in part because it is difficult to demonstrate that the energy purchased from the clean energy matches energy consumption in both time and space. Further, traditional REC contracts often provide little assurance that the energy is physically deliverable from the generating resource to the customer, creating both financial basis risk and calling into question the effectiveness of Scope 2 emissions abatement. This makes options like advanced geothermal systems, next-generation nuclear power, and long-duration energy storage particularly attractive. By partnering with NV Energy, Google can ensure that the capacity and energy produced by the Fervo facility are physically deliverable on NV Energy’s system – something that is very difficult to control in the context of traditional unbundled PPAs. 

Significance and Future Impact

The CTT is a novel approach to facilitate investments in clean energy projects, particularly those that involve novel generation technologies that are not currently supported by the financial markets. These tariffs involve a new rate structure that allows large customers to pay a higher rate for power from emerging technologies like advanced geothermal or long-duration energy storage. Because the utility is passing 100% of the costs of these new contracts to the purchasing customer, the CTT protects other ratepayers from the financial risks of these high-cost premium projects.

CTTs have the potential to establish a new, scalable pathway for integrated utilities and large energy users to invest in clean firm capacity and accelerate the commercial deployment of advanced clean technologies, particularly in the [one-third] of the United States that operates in states without effective retail choice. This build-out would help meet corporate clean energy goals and enhance grid stability and reliability across the country.

The partnership between Google and NV Energy illustrates the potential for CTTs in other markets with other parties. Google can use the tariff to hedge against rising fuel costs and demand charges. At the same time, NV Energy can avoid creating stranded assets from overbuilding and gain access to dispatchable renewable energy without conflicting with least-cost regulatory requirements. Already, major players in the energy sector are taking notice and taking action. Duke Energy, for instance, has announced agreements with Google and other key stakeholders to develop a CTT initiative in the Southeast United States. 

CTTs represent a new and promising approach to meeting the growing energy needs of data centers and other large consumers sustainably. By bringing together utilities, energy developers, and customers, CTTs can unlock investments in advanced clean technologies, helping to transition the grid toward a low-carbon future. As more companies and regions adopt this model, CTTs could become a key driver of the energy transition, paving the way for a cleaner, more reliable energy future for all.

Lewis (Zhaoyu) Wu

Lewis (Zhaoyu) Wu is a Research Associate at the Columbia SIPA Center on Global Energy Policy. He works on energy system transitions, energy transition value chain, and energy policies.

Abraham Silverman

Abe Silverman is research faculty at John Hopkins University’s Ralph O’Connor Sustainable Energy Institute (ROSEI) and focused on bringing academics, business leaders, and state and federal regulators together to solve the most pressing barriers to the clean energy transition.

Zach Wendling

Dr. Zachary A. Wendling is the Research Director for the 2026 Environmental Performance Index at the Yale Center for Environmental Law & Policy. He holds a Ph.D. in Public Affairs from the Paul H. O’Neill School of Public & Environmental Affairs at Indiana University Bloomington, with major fields in policy analysis and environmental policy.