Warren Buffett's Solar Investment
Warren Buffett Bets Big On Alternative Energy
Warren Buffett's MidAmerican Energy is the largest electricity provider in Iowa, Wyoming, and Utah.
The company sells its electrons to 2.4 million customers.
It transports 8 percent of the country's gas through its own pipelines, while producing and supplying power from a wide range of sources that also include geothermal, hydro, nuclear, and coal...
And last week — for about $2 billion — it added solar to that mix.
Outlook Changed for Solar?
MidAmerican is no stranger to the world of alternative energy.
In fact, the company has $5.4 billion invested or committed to wind power.
By the end of this year, it will have more than 2,900 megawatts of wind generation in operation. That's more than any other regulated electric utility in the country.
But don't be fooled. Buffett's bet on wind doesn't mean the guy's been hugging trees with Al Gore...
The truth is MidAmerican's energy mix is dominated by coal, natural gas, and oil. Only 20 percent of the company's generation comes from alternatives, which currently include wind, hydro, and biomass.
This is about making money — and nothing more.
And that's exactly why Buffett pulled $2 billion out of his winter coat pocket and bought First Solar's (NASDAQ: FSLR) 550 megawatt Topaz solar farm last week.
Although the sector has been absolutely crushed this year, the long-term potential of solar remains solid.
And now that shares of most public solar companies are trading so low — and the smell of consolidation is permeating through the industry — the smart money's sniffing around, looking for bargains.
This is what Buffett found in his latest purchase: a utility-scale solar power project with a long-term power purchase agreement boasting some very attractive rates.
Of course, I would caution that despite the bullish stories that have played out over the media since word of the deal broke, the solar industry still has some climbing to do to get out of the hole it's in today.
Despite good news for First Solar, the fact remains that oversupply issues will likely continue well into 2012.
Probably not until Q3 2012 will we see enough significant demand to really move that backed-up supply.
Point is, the deal is positive for the long-term prospects of solar (Buffett wouldn't be in if that weren't the case), but its effect on the entire space is minimal...
Which begs the question: Is the solar energy space even worth following anymore?
Ignoring Profits is Stupid!
A few months ago, I was talking to an investor who told me he bought shares of GE (NYSE: GE) for about $12 back in 2009.
He sold his shares earlier this year when the stock hit $20. His total gain was roughly 60 percent, which took about two years.
He was actually complaining because he said he didn't like waiting that long to make a profit.
I think many of us have gotten to this place where if we don't see double-digit gains inside of a few weeks' time, we throw our hands up in defeat.
Not only is this mentality irrational, but it also leads to missed opportunities.
Over the past few quarters, we've seen solar stocks fall hard. And I'm not convinced that we're completely bottomed out yet, either.
But I will tell you the last thing you want to do right now is ignore the solar space.
Bottom line is that in 2012, we're going to see a lot of consolidation, a lot of solar companies going belly-up, and a new level of competition that will weed out any remaining stragglers.
The result will be a leaner, more competitive solar marketplace that'll flush out some pretty significant opportunities.
To a new way of life and a new generation of wealth...
Editor, Energy and Capital
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