Solar Too Good a Bargain to Pass Up?Warren Buffett's MidAmerican utility, which is part of his holding company Berkshire Hathaway, has just announced that it's buying SunPower's Antelope Valley Solar Projects, located in California. The tag price is between 2 and 2.5 billion dollars! At a total of 579 megawatts, the Antelope Valley projects are the world's largest photovoltaic solar development, and SunPower will retain the 3-year contract to build it.
That, in itself, is interesting. It's a huuuuge renewable energy deal - not Buffett's first, see the links on the left - and possibly a sign of things to come. But what I find even more interesting is to try to reverse-engineer Buffett's thinking based on his track record and investment philosophy.
Price is What You Pay, Value is What You GetThe first thing to know is that Buffett tries to never overpay for anything. He only buys when he's sure that an asset is undervalued and is likely to have bottomed in market price. So this could be a sign that after all the softening prices and bankruptcies, that the solar industry is on its way to better days (or at least, it won't get much worse). Or at least that at today's prices, you get more value than what you pay for when you invest in solar.
Another thing about Buffett is that he thinks long-term. He's not looking to flip assets, he wants to own them forever if possible. So that makes his very conservative about going into unpredictable industries (that's why he almost never invests in technology companies, he can't predict what the field will be like in 10-20 years). This tells us that Buffett feels that the long-term future of solar looks rosy, and that even though natural gas prices have been low recently, that in the long-term, solar is one of the the places to be. Of course, any TreeHugger ready could have told you that, but it's always nice to be on the same side as the greatest living investor (and one of the top philanthropists, along with Bill Gates, it must be noted).
P.S. For those who will say that this is MidAmerican's deal and not Buffett's, know that as CEO of Berkshire, Buffett is in charge of all large capital allocation decisions, even at subsidiaries. When MidAmerican makes a small investment it doesn't have to let Buffett know, but 2+ billion is definitely something that Buffett has personally approved, from what I know of the workings of Berkshire. If Buffett didn't think he could get a very good long-term return out of investing those billions in solar, he would have invested them somewhere else (capital is mostly fungible between Berkshire's subsidiaries).