Warren Buffett's MidAmerican Energy Holdings utility agreed to buy First Solar's
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 (via Bloomberg).
When completed, it will be one of the world's largest photovoltaic power plants and have about half the capacity of a new nuclear reactor. The installation's 550-megawatt capacity will be sufficient to power 160,000 homes in California.
The purchase of First Solar's plant will be MidAmerican Energy Holdings' first expansion into the field of solar energy. The financial details of the transaction were not publicly disclosed.
Branching into solar
Bloomberg reports that Buffett's utility company "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."
Buffett's company Berkshire Hathaway already earned $888 million from earnings in utilities and energy business in the nine months ended Sept. 30. But Buffett's decision to branch out into the struggling solar sector may have been more a result of tax incentives than increased earnings.
According to Gerard Reid, an analyst at Jefferies International, "The reason for the move from wind to solar is very simple," he said in an interview with Bloomberg. "Tax credits for wind in the U.S. expire at the end of next year, while solar ones run till 2015."
"Let's be clear, this is not Warren Buffett taking a bet on solar technology," said Michael Horwitz, solar analyst at Robert W Baird. "This is Warren Buffett investing in a power plant that is guaranteed to yield large cash flows for at least 20 to 25 years," he added. "The power plant just happens to be solar powered."
Be that as it may, could Buffett's investment cause others to reevaluate the clean energy market?
To help you explore the market, we list below the clean energy companies that have seen net positive investment from institutional buyers in the current quarter -- a sign that these "smart money" investors think there is more upside than downside to these names.
Do you think these names will rise in value? List sorted by institutional buying as a percentage of share float. (Click here to access free, interactive tools to analyze these ideas.)
3. Federal Signal
5. W.R. Grace & Co
6. Heritage-Crystal Clean
7. Newpark Resources
8. Companhia de Saneamento Basico do Estado de Sao Paulo
9. Watts Water Technologies
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Author owns shares of FSLR. Institutional data sourced from Fidelity.