Bloomberg News

Berkshire Buys $2 Billion Power Project in Buffett Solar Bet

December 07, 2011

(Updates with comment from analyst in fourth paragraph.)

Dec. 7 (Bloomberg) -- Warren Buffett’s MidAmerican Energy Holdings utility agreed to buy the $2 billion Topaz project in southern California, branching into solar power after the industry was battered by stock markets around the world.

The Topaz Solar Farm will be one of the world’s largest photovoltaic power plants and is being developed by the seller, First Solar Inc. of Tempe, Arizona, according to a joint statement today. Terms weren’t disclosed. The project’s 550- megawatt capacity is equal to about half a new nuclear reactor.

Buffett’s Iowa-based utility, which entered clean energy by buying U.S. wind farms and a stake in Chinese electric-car producer BYD Co., struck today’s deal after First Solar failed to get a U.S. government loan guarantee for the project that will use its thin-film panels. The purchase may make it easier for the solar company to sell additional projects.

“Selling Topaz to the smart financial guys at MidAmerican relieves uncertainty about some of their other projects,” Paul Clegg, an analyst at Mizuho Securities USA Inc. in New York who has a “buy” rating on First Solar, said today in an interview. “I don’t doubt they will find buyers for more of their projects.”

Tax benefits may have helped attract the billionaire, said Gerard Reid, an analyst at Jefferies International Ltd., a London-based unit of the New York investment bank Jefferies Group Inc. “The reason for the move from wind to solar is very simple,” he said in an interview. “Tax credits for wind in the U.S. expire at the end of next year, while solar ones run till 2015.”

Stock Performance

Berkshire slipped 1.1 percent to $116,149 at 12:06 p.m. in New York, while First Solar advanced 7.7 percent to $49.65. The renewable energy company’s shares had fallen 65 percent this year through yesterday, matching the drop in the 17-company Bloomberg Industry Global Leaders Large Solar Energy index.

The declines, triggered by plunging prices for solar panels and their components, have pushed companies around the world to conserve cash, look for partners or consider bankruptcy. Cylindrical thin-film panel maker Solyndra LLC received a $535 million government loan guarantee and then went bust this year.

MidAmerican, which had $46 billion in assets on Dec. 31, called the Topaz purchase a “strategic move” that builds on its experience with wind energy. The natural gas and power provider has built up stakes in more than a dozen wind parks that can generate at least 1.5 gigawatts of power, according to Bloomberg New Energy Finance data.

Largest Supplier

The power company sells electricity to 2.4 million customers in the U.S., and is the largest supplier in Iowa, Wyoming and Utah, according to Buffett’s most recent annual letter to Berkshire shareholders. Buffett is chairman and chief executive officer of Omaha, Nebraska-based Berkshire.

The unit transports 8 percent of the country’s gas through its pipelines and is among the largest producers of wind energy.

First Solar has agreed to build and operate the plant in San Luis Obispo County for MidAmerican. Construction began in November and is set to finish by early 2015, the companies said.

“Selling such a project before you build it makes your life so much easier,” Reid said about First Solar. Photovoltaic energy is also a “much safer” bet than wind because there’s less maintenance and weather risk, he said.

Buffett, 81, has said that businesses like utilities have earnings power even under adverse economic conditions and can provide fair returns on capital as long as they make investments in infrastructure to meet customer needs. Owning utilities is “not a way to get rich,” he said at a meeting of U.S. state regulators in 2006. “It’s a way to stay rich.”

Berkshire’s earnings from the utilities and energy business were $888 million in the nine months ended Sept. 30, an increase of 13 percent from the same period last year.

--With assistance from Christopher Martin and Noah Buhayar in New York and Stefan Nicola in Berlin. Editors: Will Wade, Tina Davis

To contact the reporters on this story: Todd White in Madrid at twhite2@bloomberg.net; Marc Roca in London at mroca6@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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