“There is another $15 billion
ready to go as far as I’m concerned,” says finance mogul Warren Buffett in
response to his latest multi-billion dollar investment. Buffett, who
is renowned for making big “elephant” sized purchases, is as confident as ever
when it comes to solar energy. At the recent Edison Electric Institute Annual
Utilities conference in Las Vegas, Buffett was quoted as saying “We’ve poured billions into the utility business
and will continue to do so. Renewables may not make you rich, but it can help
you stay rich and we’ve stayed rich.” But what exactly does wizard Warren see
in the solar energy market?
The easy answer would be that Mr. Buffett is pursuing solar
energy to foster President Obama’s Green agenda. But Mr. Buffett is smarter than that.
He doesn’t mix politics with business. His appetite is for the green on your dollars
not on your projects. “We see solar and wind assets as very solid long-term
investments. Not risk free but good plays for MidAmerican in terms of managing
risk and capital.” Risk is a key factor when investing. So what makes investing
in solar energy so secure?
Firstly, investments usually made in solar
energy are supported by long-term utility contracts. This is especially revered
amongst long-term investors. “We are long-term investors, so we like to have
counterparts that have the same goals as we do,” said Paul Caudill, President
of MidAmerican Renewables Solar Division, for which Berkshire Hathaway is the
parent company. Secondly, solar energy prices are at a point where they are
deemed as being attractive just on their own. The intuition behind MidAmerican
Renewables is focusing on States where energy prices are high. Currently,
predictions are being made reflecting a rise in electricity prices to
consumers. With electricity prices rising, one can almost guarantee that solar
will become an appealing alternative.
The equation doesn’t end there. Timing and
reputation is everything, especially for a man of Mr. Buffett’s stature. Industry
observers have said that Buffett acquired
his first three projects with MidAmerican Renewables at a very good time, as it
was the ideal balance between risk and cost (not too early and not too late).
An earlier purchase would come at a low cost but could account for failure as
the project may not have been fully operational. Conversely, a later State
accounts for a higher price. Mr. Caudill has often been quoted as saying that
MidAmerican Renewables looks at projects from a multitude of perspectives,
often ensuring it has full access to transmission, generation, interconnection
agreements and the necessary permits.
Needless to say, When Mr. Buffett makes a move, the world
takes notice. We are already seeing hordes of investors emulating Mr. Buffett’s style and
scrutinizing solar energy both in the U.S. and at the international level.
Investors will probably focus primarily on the U.S. as it is considered a low
risk capital market. Low cost capital gives large investors very low leverage
pricing, making their equity investment more profitable over a shorter period
of time.
Sources: http://www.renewableenergyworld.com/rea/news/article/2013/04/what-does-warren-buffett-see-in-solar
http://www.bloomberg.com/news/2014-06-10/buffett-ready-to-double-15-billion-solar-wind-bet.html
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