What Warren Buffett Really Thinks About Energy

The legendary Warren Buffett made headlines recently when Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) subsidiary MidAmerican Energy entered the solar industry in a big way. Betting somewhere shy of $3 billion on solar power seems like a big endorsement of solar, but this requires a closer look at what Buffett is really investing in.

A very Buffett-like investment
The first thing to note is that Buffett didn't buy any solar manufacturers or suppliers that may be high-risk investments. He bought the Topaz power-plant development from First Solar (Nasdaq: FSLR  ) and partnered with NRG Energy (NYSE: NRG  ) on Agua Caliente. These two projects have fixed costs upfront and will pay back through power purchase agreements with the utility to create consistent cash flows.

These developments act more like bonds than equity investments. But there is some equity upside if the project generates more electricity than modeled or initial costs are lower than expected.

Buffett is also taking advantage of a federal loan guarantee on the Agua Caliente project and cash grants from the federal government to pay for a portion of the development. He cashes in on rates established with the utility long before solar-module prices began plummeting in 2011.

Buffett may like solar, but he likes it because it pays consistent cash flows and he can predict a return on investment, not because he's hugging trees in his spare time.

Buffet and wind
MidAmerican Energy is also one of the country's biggest wind-turbine owners. The same concept as solar applies here. Buffett doesn't like wind because it's clean or environmentally friendly. He likes it because it's a low-risk energy source paying consistent cash flows that provide a predictable return.

Betting on oil
If you really want to know what energy source Buffett is betting on, you can look at his holdings. Buffett owns major positions in ConocoPhillips (NYSE: COP  ) , ExxonMobil (NYSE: XOM  ) , and General Electric (NYSE: GE  ) . The first two are major oil producers, and the last builds power plants and provides a number of energy services, particularly to the utility market.

What Buffett really thinks about energy
Our addiction to oil isn't going anywhere anytime soon, and that's what Buffett is really betting on. Wind and solar are just low-risk investments that act like bonds, an attractive way to invest in energy right now.

So next time you think Warren Buffett is a big fan of renewable energy, consider that he really just owns renewable energy because it's a relatively low-risk investment. What he's really betting on in the energy sector is oil.

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Fool contributor Travis Hoium owns shares of First Solar. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Berkshire Hathaway and First Solar. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway and First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 29, 2011, at 11:52 AM, Brettze wrote:

    Oil is dope! The dope pushers has to be forced to help pay for solar subsides not the goverment!!

  • Report this Comment On December 29, 2011, at 11:58 AM, Brettze wrote:

    The world economy got a heart attack when oil hit $150 a barrel in 2008. We still havent recovered at all because oil prices are still high ! Any nation with cheap slave labor can withstand high oil prices not us.. The real issue with solar and wind energy is that oil investors has to dump oil stocks and buy solar energy and wind.. First, who do we sell oil stocks to ??? to us ? Nobody want oil stocks in fact!! Wall Street is busy covering up the real dilemma!! Nobody want to bid up oil prices at all . So we invent Iran ... We need every excuse to prop up oil prices that we dont like to pay at all. We start talking about how solar companies is dropping like flies because of discontinued subisides... When the smoke clears, we will lose our shirts on oil stocks and those already in solar stocks will win. We already burn 5 billon gallons of oil a day or 100 millon barrels.. I prefer the first number .. 5 BILLON GALLONS@!@! This is insane or what , Warren ??

  • Report this Comment On December 29, 2011, at 12:01 PM, Brettze wrote:

    Have you checked your PCV hose connections lately? Blow by gases are sooty and should not escape through loose PCV hoses...Smog check technicians never tighten them but they just do visual inspection to make sure that you are honest ... They ought to reach deep in the engine to feel for hose tightness to ensure that no blowby gases can escape... All you uppity minds..... you dont know Jack about PCVs...

  • Report this Comment On December 29, 2011, at 2:48 PM, paymefirst wrote:

    I am having trouble figuring out what your point is Brettze.

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