Warren Buffett's Bet on Siemens (NYSE: SI) Wind

Wind Power Makes a Comeback

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The man is at it again. This time it’s, Warren Buffett's utility company that just ordered more than $1 billion worth of wind turbines for the state of Iowa.

MidAmerican Energy Holdings Co., a subsidiary of Berkshire Hathaway Inc. (NYSE: BRK-A), announced on Monday that 1,050 megawatts of turbines for its five turbine projects will be provided by German supplier Siemens AG (NYSE: SI).

wind turbinesThe deal is the largest the industry has seen for land-based wind power, and it establishes wind as a competitive force against power from fossil fuels, especially as wind costs continue to drop.

The price of a turbine, like the ones in this deal, has fallen 26% around the globe since 2009, according to Bloomberg, bringing wind within 5.5% of the cost of electricity from coal. In the state of Iowa, wind is already the cheapest source of power.

As costs keep going down, wind is proving that it can be sustainable and profitable without subsidies. The overall cost of wind power, according to Bloomberg, is 90% less than it was two decades ago and 30% less than it was just three years ago.

Iowa Wind Farms

This deal comes at such a pivotal time because it qualifies for the federal production tax credit for wind power, set to expire at the end of this year.

Siemens made its own announcement Monday, saying it will provide 448 of its 2.3 megawatt turbines for a total capacity of 1,050 megawatts, or enough to power as many as 320,000 homes, according to BusinessGreen.

These turbines will go to five projects in Iowa, including a 500-megawatt Highland wind farm in O’Brien County, a 250-megawatt Lundgren project in Webster County, the 138.6-megawatt Wellsburg site in Grundy County, the 117-megawatt Macksburg plant in Madison County, and the 44-megawatt Vienna ll project in Marshall County.

Marshall County already has its wind farm up and running. The others should round out the lot and be fully operational by 2015.

The total investment for this agreement could be upwards of $1.9 billion, as each turbine typically costs about $1 million per megawatt of capacity, according to Bloomberg.

Broadwind Energy Inc. (NASDAQ: BWEN) will supply the towers. Siemens will take care of the supply hubs, all the electronics, and the blades for each turbine.

In general, suppliers who produce components for wind power will also see a boost in production as wind once again starts to catch fire. General Electric (NYSE: GE) and Vestas Wind Systems A/S (OTC: VWDRY), along with Siemens, are going to put pressure on coal miners like Peabody Energy (NYSE: BTU), the largest U.S. coal producer.

MidAmerican will most likely be closing some of its coal-powered plants in the near future as wind power surges on.

Presently, wind power is still more expensive than coal — $82.61 per megawatt-hour compared to $78.30 — but the gap is closing. The ever-popular natural gas, meanwhile, runs at about $69.71 per megawatt.

We’ll probably always have coal as part of our energy mix — it’s generally cheap and reliable — but it certainly is on its way down.

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Wind Power's Comeback

So does all this mean that wind power is here to stay, or is it just another phase?

I like to think it is really taking off this time, and it looks like Mr. Buffett feels the same way, too.

It’s already the cheapest source of power in Iowa, and this new deal shows that wind can stand on its own without the support of subsidies.

Suppliers like Siemens and the others I mentioned should all see the benefit of cheap wind, while the coal industry will try to get by on what has always kept it going — cost and reliability.

Demand has been down for wind power in the past couple of years, but 2013 has been a year of rejuvenation, and next year, it is expected to be even higher.

Companies that have been struggling should start to see a rebound.

Even when we compare wind to natural gas, wind is cheaper than a newly built natural gas plant. And the price of natural gas can’t possibly stay as low as it is now forever. The two should be highly competitive in windy areas of the U.S. by 2020.

Wind is growing, and the price is falling. And it’s here to stay.

 

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