Warren Buffett Buys Solar Plant

Joel Anderson  |

Warren Buffett's MidAmerican Energy purchased a $2 billion project called Topaz from First Solar (FSLR). The acquisition by Berkshire Hathaway (BRK.A) could mean brighter days ahead for a solar industry struggling through a difficult year.

Buffett Pulls Trigger on Deal

The Topaz plant is a thin-film photovoltaic solar energy development in California that, because of a mandate that California get a third of their energy needs from renewable sources by 2020, has a 25 year contract with Pacific Gas and Electric (PCG) to provide power at higher rates than average because it was negotiated before the bottom fell out on PV panel prices. The 550-megawatt Topaz project, which is set to be completed by early 2015, also manages to squeeze in under the wire for federal incentives because it started construction last month.

Get While the Gettin' is Good

There are few investors in the world whose moves are scrutinized with the intensity that Warren Buffett's every decision gets, so speculation about whether MidAmerican's purchase of Topaz represents a general shift into solar or a one-time value buy is running rampant. The US solar industry has been devastated this year by a glut of cheap solar panels from Chinese companies. While controversy swirls around Chinese trade practices, the American market has been rocked by an over-saturated marketplace and some high-profile bankruptcies.

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"Adding solar energy to our generation portfolio is a strategic move to invest in yet another renewable energy source," said Greg Abel, Chief Executive of MidAmerican in a statement. "This project also demonstrates that solar energy is a commercially viable technology without the support of governmental loan guarantees and reflects the type of solar and other renewable generation that MidAmerican will continue to seek to add to its unregulated portfolio." For many, the idea that a legendary investor like Buffett might be joining the solar party means big things for the segment. "In a lot of ways, this is classic Warren Buffett," said Bruce Bullock, executive director of the Maguire Energy Institute at Southern Methodist University. "He comes into an industry that is starving for capital investment. At the same time, this is something that also tells people it's time to take solar power seriously."

Could Be A One Plant Stand

However, other analysts would seem to indicate reason for dampened enthusiasm about Buffett's long term in investing in solar, calling attention to the elements of the deal that made it so attractive and suggesting that Buffett simply saw good value. “The reason this project made sense is because the power purchase agreement was signed three years ago at very favorable terms,” said Sanjay Shrestha, an analyst at Lazard Capital Markets in New York. The combination of a lucrative contract and the availability of tax incentives, which will expire for wind power in 2015, made Topaz a very attractive deal. “The smart guys are getting into these early projects because they have very attractive power-purchase agreements,”  Paul Clegg, an analyst at Mizuho Securities USA in New York. said in an interview. “Financing won’t be as easy at the rates being signed for the latest ones.”

The markets may have reflected this reality over the last two days. While the industry as a whole appeared to receive a bump from Buffett's Midas touch, with First Solar gaining 4.08 percent and Suntech (STP) up 5.77 percent, gains fell back today. First Solar, down almost 6 percent, and Trina Solar (TSL), down almost 5 percent, were among the leading losers as the industry as a whole took a tumble with the Ardour Solar Energy Index dropping almost 3.5 percent.

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