Billionaire Buffett Bets on Solar Energy

Steve Leone, Associate Editor, RenewableEnergyWorld.com
December 07, 2011 | 15 Comments

The "Oracle of Omaha," who made his fortune by betting on technologies that appear underpriced, is now putting his money into solar.

The solar industry got a turbo-boost of both name recognition and mainstream credibility on Wednesday as a subsidiary of billionaire Warren Buffett’s investment company MidAmerican Energy Holdings announced plans to purchase the Topaz Solar power development from thin-film PV module maker First Solar. Terms of the deal were not disclosed.

The 550-megawatt Topaz project in San Luis Obispo County, Calif., is among the world’s biggest solar farms under development, and many times larger than any project currently in operation. The First Solar project was not able to close its conditional loan guarantee with the Department of Energy prior to the Sept. 30 deadline, but it has gone ahead anyway. Construction on the project began in November and is expected to run through 2015. According to First Solar, it will create about 400 construction jobs.

The $2 billion project will include First Solar’s thin-film panels, and the company will build, operate and maintain the project for MidAmerican. Pacific Gas and Electric will buy the electricity under a 25-year power purchase agreement.

Based in Iowa, MidAmerican, a subsidiary of Buffett’s Berkshire Hathaway, is already a big player in wind energy. Some analysts are saying that the company's move into solar power could be linked to the expiring Production Tax Credit for wind power, which is set to go away at the end of 2012. The solar industry, which is hoping for an extension of the Treasury Department grant that expires at the end of this year, still has an Investment Tax Credit that runs through 2016. That could make solar a safer bet.

Regardless of the reason, MidAmerican clearly sees the Topaz project as a financial opportunity even without federal backing. SolarCity recently took a similar route when it announced that Bank of America Merrill Lynch was helping it move ahead with its $1 billion Solar Strong project, which also failed to close on a loan guarantee from the DOE.

The project “demonstrates that solar energy is a commercially viable technology without the support of governmental loan guarantees and reflects the type of solar and other renewable generation that MidAmerican will continue to seek to add to its unregulated portfolio," said Greg Abel, chairman, president and CEO of MidAmerican Energy Holdings Company in a press release.

15 Comments

William Fitch
December 11, 2011

Hi:

Buffett bets on solar, that strikes me kind of funny.
Buffett is the PERSON behind Moody's, holding the largest percentage of the agency. In short, it was Moody's and like agencies that gave the AAA ratings to the credit default swaps that caused the total collapse of capitalism in 2008. If Moody's and other agencies had not rated garbage as steak, we would not be (and Europe) where we are today. Buffett belongs in jail with hundreds of others, and that is being very kind.

.....Bill

Marijan Pollak
December 11, 2011

Using cheap electricity Global Warming could be stopped and returned to normal, specially by scrubbing exhaust gases from standard thermal PSs, most notably those burning the coal. If investment could be recovered from saving on electricity price in at most 3 years that means that factories could have practically free electricity to use. That would make products surely more concurent on Global market and made more affordable to buy. With more selling there would be need for more salesmen and more production workers, and people earning salary are buyers for all other comodities and services, so there would be more business everywhere. Hydrocarbons used for gasoline and other fuels production could be used better for production of plastic or other valuable things, and plastic made strong with addition of Carbon threads or Nanotubes could replace wood in construction of houses that would be safe from thermites, rats and other pests, isolated from water, saving energy for lightening of rooms during daylight and so on. Plastic could be also made fire insulated or fire proof or layer of recycled glass
could be used from outside to protect house from fire. PV panels could be set on the facade and roofs (or instead of roof tiles), so house could produce its own electricity, even sell it to the Grid. My WindSolars (together with Greenhouses) could be put on the roofs of the skyscrapers or at least 11+ stories buildings, so when Solar earn money in three years everything is free, house included. One such building could produce app. 3MWx24hr or 72 MWh total per day which times 365 give 26,280 MWh per year, not counting electricity produced by wind. If built on great scale, such buildings would could provide cheap living and working space, and could be used as hotels, hospitals, faculties, office space, etc. only interior would be differently decorated to reflect its putpose.
THAT would make investments in renewable energy VERY lucrative indeed.

Marijan Pollak
December 11, 2011

In regard to mr. Buffet investing into renewable energy resources, I am unfortunately unable to contact any of persons of that caliber, like Mr. T.Boone Pickens, Mr. Obama and so on.
I am inventor from small country in Europe which is homeland of Nikola Tesla, who helped US grow its industry introducing AC motors and generators.
I invented WindSolars, amalgamated new Wind Power Stations and new Solars of molten salt type. WindSolars bridge intermitency of Wind and Sun resources and would be able to work 24/365 without need for any backup, on or off Grid, producing cheap electricity (under 10 Euro per MWh) from start that would because of mass production become cheaper and cheaper still.
There would be no "Land Footprint" because they would have Greenhouses built in, so food could be grown in protected environment and watered regularily while even the pests could not enter the fields. My PSs would use land sparingly too as I could achieve much greater power production density than other Solar and certainly much more then other WPSs, which in addition to working in groups would use wind of half speed necesary for contemporary models (usually 10m/sec. or more is necesary and my WPSs could work with 5m/sec. wind that is present nearly everywhere) and are able to produce same or greater quantity of electricity on at least 20 times more economically exploatable locations. In addition to using whole range od wind speeds without loses, my WpSs do not need to stop even on strongest wind, so they could work on any and all locations that would have at least 5m/sec. wind available, and used could be even such locations that have regularily wind speeds over 25m/sec. which is limit of use for standard models.
I am poor man from poor country so I need someone to invest the money into prototype development and testind, CFD simulations and so on.
If Mr. Buffet, Mr. Pickens or Mr. Obama want to contact me, my email address is oberon(at)globalnet.hr

Marijan Pollak
December 11, 2011

@americandoo
Your idea is right about installing Solar PV on foreclosured homes.
But would it not be right to return those homes to their owners?
Surely if they were not been able to pay mortgage because they los job, now by selling the electricity to Grid can provide them with money so they could continue paying the mortgage loans where cost of Solars would be added and same credits could be extended so pepole could live and return to Bank all of money!
At same time they would save on electricity bills as they can spend some for their own use...

Bman Bman
December 10, 2011

This investment is necessarily say anything about Buffett's commitment to renewable energy. This just seems like a sensible real estate investment.

The panels will produce a predicable amount of electricity for 25 years, and the utilities are obligated to buy that electricity at a certain price. There would probably be a pricing mechanism to deal with inflation (which can't be accurately predicted).

Solar panels are proven producers of electricity. The challenge is getting LCOE under 10 cents per kWh. The installed cost has got to be $3 per watt or less.

Breakdown of $3: Panels. 99 cents; Inverters, 33 cents; Wire 33 cents; Racks, 33 cents; Fences, 10 cents, Labor 50 cents, Lawyers and Executives and Regulators, 44 cents.

Jack Kluempke
December 9, 2011

I am glad to see that the Solar Industry is getting some positive press and the name recognition of someone like Warren Buffett to help get investors to take a serious look at Solar. The line that caught my attention is the beginning of the last paragraph; "demonstrates that solar energy is a commercially viable technology without the support of governmental loan guarantees and reflects…" I believe that solar and other renewable energies are the only viable technologies in energy production. The major hurdle for renewable energies is public perception and understanding of what we are truly paying for the fossil fuels we use. For example roughly 35% of the U.S. land area is managed by the federal government, 40% of that is managed by the BLM (Bureau of land Management0 and is used primarily for mining, logging, and oil & gas extraction. This land is owned by all the citizens of the United States. The divisions under which the BLM that manage the different resource extraction leases to private corporations all lose money. The U.S. Forest Service for example must sell timber for no less than the cost of reforesting the land, but have cut more than 400,000 miles of roads at tax payer's expense to facilitate the removal of the timber. Now put on top of that the overhead costs to the tax payer's for the administration of the programs and we (the citizens and owners of the timber) pay a hefty price to keep the logging, mining, and oil companies in the red. By either adding what we truly pay for fossil fuel to its' cost or subsidizing solar at the same level, solar and other renewables are a much better financial investment. I would venture a guess that given a choice, most Americans would prefer to have their tax dollars spent on a clean renewable energy source and keep our public lands for recreation and oxygen production.

DoggyDog World
December 9, 2011

Federal loan guarantee can reduce interest rates a little, but with tax subsidies and a politically-driven 25 year PG&E purchase contract the economics work just fine already. Especially for someone like Buffet who can borrow at close to the same rate as the US Government anyway. Federal loan guarantee would improve his ROI marginally but probably not enough to offset the political entanglements and collateral damage of 'Multi-Billionaire Gets Cushy Federal Loan Guarantee' headlines.

(EDIT) I'd be remiss to leave out that FSLR's low build cost and CA's high electricity rates also play big roles in making the economics work. It's not all about tax credits, RPSs and low interest rates. The non-subsidized economics have improved considerably.

Steve Yang, P.E.
December 9, 2011

Jigar is right. Buffett made a good investment without the risk, obligating First Solar to operate and maintain the PV farm for 25 years, perhaps even with a performance guarantee.

Angus Campbell
December 9, 2011

Here is a way for government to finance risky ventures. Every year when tapayers file their reurns, individuals could choose an area of government spending in which a portion of their taxes would be directed. The government officials would then be obligated by law to direct that money to within the department in question. This would be a more democratic and cooperative way to finace risky ventures such as the solar industry or to administer social programs.

Sam Salamay
December 9, 2011

A very smart move. Hopefully, solar stock prices will get out of the doldrums and therefore companies will lower their margins to compete with China. The oversupply of modules must become projects to keep the progress of big oil and gas at bay. Keystone and gulf drilling must be thwarted. Now we need biofuels, mostly from current sugar platforms, to be grown on local farms to create a low cost alternative for transportation fuels. Long live PV and Biofuels and thank you Warren for keeping First Solar alive.

Louis Shaffer
December 9, 2011

The only way to bring back balance for the USA is to ensure that there is a reason to build products in the USA. We need to be realistic about what unchecked free trade really means in a technology age.

With the technology that exists today, companies can easily outsource the engineering and manufacturing. They have 'international' offices where they pay tax on all revenue outside the US – thereby avoiding paying tax in the USA.

A better solution is to simplify our tax code for businesses as follows. All products made and sold in the US have NO tax on them. All other revenue has a minimum level (say 10%) that can be reached by taking advantage of deductions (like R&D) that must be approved for 5 years only and then re-approved. If no deductions, tax rage is more like 20-25%.

Jobs would FLOOD back into the USA under this tax code.

We also should tax all stock / bond sales at 1%. Do the math – this would help pay down our debt.

Michael V. Caldwell
December 8, 2011

"THINKING OUT OF THE BOX TO STIMULATE AMERICA'S HOUSING MARKET & ECONOMY"

"A VERY VIABLE IDEA & DOOABLE IDEA "

Why Not Kill 4 Birds With One Stone..

BANKS THAT OWN FORECLOSURES COULD INSTALL SOLAR SYSTEMS ON FORECLOSED HOMES.

THESE SOLAR SYSTEMS HAVE TO BE MADE IN THE USA and BE INSTALLED BY AMERICAN'S
WHO ARE UNEMPLOYED AND HAVE BEEN RETRAINED TO INSTALL SOLAR SYSTEMS

This Program would be offered to HOME OWNERS WHO LOST THEIR HOMES AND HAD
GOOD CREDIT BEFORE THEY LOST THEIR HOMES and ALSO FOR FIRST TIME BUYERS ONLY ! !

Independent Appraisers who have no interest in these foreclosed homes could
place a value on these homes before the installation of these systems, this
would insure that the banks could not pad the Price of the homes and other
guidelines would have to be put in place, but this could work to help Stimulate
the

economy, be great for the environment, home buyer and banks. A WIN WIN FOR ALL

THE SOLOR SYSTEMS WOULD ONLY BE INSTALLED ON PENDING FORECLOSURE SALES OF THESE
HOMES AT THE TIME OF ESCROW, THIS PROGRAM COULD BE OFFERED FOR A LENGTH OF
TIME.

1. This would give Investors and private individuals an extra incentive to buy
these homes thus stimulating the housing economy instantly.

2. This would put more Americans Back to work manufacturing more solar systems.

3. This would cut down on Pollution.

4. This would save money for the owners buying these homes on utilities.

Due to the initial expense of solar systems part of the cost would be added to
the home loan, part would be paid by the bank and the government would give the

bank and the homeowner a tax break or whatever details that would be needed to
work this out for everyone ! ! THINK POSITIVE THINK AMERICANDOO ! !

ANONYMOUS
December 8, 2011

The statement "The "Oracle of Omaha," who made his fortune by betting on technologies that appear underpriced, is now putting his money into solar." I don't think this is accurate. Buffet has never been a Technology investor, rather has invested in mundane investments such as Insurance, Rail, Financial etc... The investment underscores the need for high yielding long term assets vs. what the market offers.

Jigar Shah
December 8, 2011

looks like the loan guarantee was not necessary afterall. On top of that, Buffett got a much high return than he could get in gas and coal without all the risk.

Rich Hessler
December 7, 2011

Funny, the publicity on Solyndra probably caused a few investors to crunch the numbers again. We just picked up a great residential loan solution for FICO 560+.

http://www.pvsolarsalestraining.com/solarservices/solarfinancingresidential.php

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Steve Leone

Steve Leone has been a journalist for more than 15 years and has worked for news organizations in Rhode Island, Maine, New Hampshire, Virginia and California.

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Billionaire Buffett Bets on Solar Energy

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