Shell joins Alphabet in power-generating kites plan

Makani Power, an experimental wind power venture at Alphabet, has taken outside investment from oil group Royal Dutch Shell as part of a move to set it up as a freestanding subsidiary inside the technology sector holding company.

The investment comes 13 years after Makani began work on developing kites that generate electricity, and six years after it was acquired by Alphabet, Google’s parent company.

Separating Makani from X, Alphabet’s experimental projects lab, echoes the path taken by other “moon shot” projects, including driverless car unit Waymo and Loon, which uses high-altitude balloons to deliver wireless signals.

Alphabet turns new projects into freestanding business units when it believes they are ready to move beyond the prototyping stage and start developing a commercial product, though full commercialisation could still be years away.

However, the Makani transition marks a rare decision by Alphabet to stick with a renewable energy project beyond its initial science phase. Two other ventures — Malta, an energy storage system using molten salt, and Dandelion, a geothermal energy project — were spun out of Alphabet entirely, reflecting their distance from Alphabet’s core interests as well as the capital needed to turn them into large-scale businesses.

The size of Shell’s minority investment was not disclosed but Alphabet said the arrangement was made to establish a partnership between the businesses, rather than out of a need to attract outside capital. Shell said the deal would help it develop its offshore wind business, which already has stakes in projects in the Netherlands and the US. As the company tries to diversify its business away from fossil fuels and meet its climate targets it has stepped up investments in areas such as renewable energy, electric vehicle charging, and low-carbon energy start-ups.

Until now, Makani has been developing a prototype kite that is tethered to land, floating at about 1,000ft above the ground where the prevailing winds turn rotors to keep it aloft and generate power. Taking advantage of Shell’s long history of offshore development, Alphabet said it would now turn its attention to coastal waters at depths of more than 50 metres, where the winds are stronger.

The companies hope that the light weight of Makani’s kites will give them an advantage in offshore development, making it possible to attach the kites to floating buoys that are weighted down with anchors, rather than requiring full ocean platforms secured to the ocean bed.

The concept of airborne wind turbines that can generate power in the sky has for years been an elusive goal for the wind industry, and no company has succeeded in making the technology commercial.

Antonello Cherubini, a researcher specialising in airborne wind energy systems at the Sant’Anna School of Advanced Studies in Pisa, said one challenge is these kites require a lot more space in the air, compared with stationary turbines.

“The downside is that an airborne wind energy system require a lot of airspace,” he said, adding that the technical challenges of making such airborne turbines are immense, requiring a lot of time and capital to complete.

Mr Cherubini said it was still unclear whether Makani could escape the fate of the other airborne wind energy start-ups that had already failed.

“There have been quite a few multimillion-dollar investments. However, they didn’t make it,” he said. “I wish that this could make a difference, but there is no reason to think that this is the one.”

The Shell investment is not the first time Alphabet has brought in outside backers for its side projects. Verily, which began its existence as Google Life Sciences, has taken in $1.8bn in outside capital, including a $1bn cash injection from private equity group Silver Lake at the start of this year.

The scale of the investment — and the fact that private equity groups generally look for an exit in a relatively short timeframe — appeared to point towards an eventual spin-off or separate stock market listing. The venture’s chief executive said at the time that the investment was to “increase flexibility and optionality” at the healthcare business.

Makani’s new status as a standalone subsidiary means that it will now be able to reward its workers with equity tied to the future performance of the business — an important remuneration tool when it comes to competing for talent with standalone tech start-ups. Similar arrangements at other Alphabet subsidiaries have been a significant factor in a recent jump in the group’s costs.

Revaluing the equity at the “other bets” businesses was one of the main reasons that Alphabet’s research and development costs jumped 40 per cent in the latest quarter, according to the group’s most recent earnings call with Wall Street.