Buffett Buys Into Another Solar Project – Expect More To Follow

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by Clean Energy Intel

Warren Buffett-controlled MidAmerican Energy Holdings on Friday acquired an interest in a second solar project. In the latest deal, the company has acquired 49% of NRG Energy´s $1.8bn Agua Caliente project.This follows the company´s acquisition of 100% of First Solar´s $2bn Topaz Solar Farm less than two weeks ago.

As was the case with the first Topaz deal, we know little of the arithmetic faced by MidAmerican holdings in this latest agreement. However, what we do know is the following –

  • Agua Caliente is a $1.8bn project owned by NRG Energy (NRG) in Yuma County, Arizona.
  • The project is supported by a $967m DoE Loan Guarantee.
  • First Solar (FSLR) is responsible for the construction of the project, which is scheduled to be finished in 2014.
  • The project also has a 25 year power purchase agreement (PPA) in place with Pacific Gas and Electric for all of the power generated
  • As was the case with the Topaz deal, Mr Buffett is effectively buying into the future income stream which will accrue from the PPA with PG&E.
  • The project should displace 5.5 million metric tons of CO2 over the 25 years of the power purchase agreement.
Clearly, Buffett´s group is not buying into exposure to solar manufacturing. However, these two deals do show a belief that such utility scale solar projects represent good value, low risk investments. And there lies the bullish factor for the industry. There is currently a 24 GW project pipeline in the US utility-scale sector and it needs to be financed. This latest deal is not quite as bullish as the Topaz deal, since there is a DoE Loan Guarantee associated with the Agua Caliente project. That was not the case with the Topaz project. However, we are nevertheless seeing commitment to this part of the industry and this is positive from the perspective that it increases the level of confidence the market can have on the private sector´s ability to respond to the very large utility scale project pipeline which is currently in place.
This is particularly the case given that MidAmerican appears to be suggesting that further deals should be expected. From this perspective, the following quote from the press statement announcing the deal is particularly interesting. Greg Abel, Chairman, President and CEO of MidAmerican Energy Holdings Company is quoting as saying:

‘We are aggressively pursuing opportunities to expand our presence in the renewable energy sector, and the Agua Caliente project is another important step toward that goal…. We look forward to partnering with NRG Energy on this exciting project’.

MidAmerican is already the number one owner of wind-powered projects among rate regulated utilities and the company has said that 28% of its total generation capacity will come from renewable and non-carbon sources at the end of 2011.

It sounds like we should expect more deals from MidAmerican in the solar sector.

Disclosure: I have no positions in the stocks discussed.
About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

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