Buffett Goes Green, and So Should You

Deny it all you want, but change is coming. Global warming doesn't really care if you believe in it or not. It's just going about its business wreaking havoc, and the choice to prepare is yours alone. Just this month, Greenpeace released a nightmare-inducing report about what we could be facing if we don't get our carbon emissions in hand.

I know, I know, you're thinking that the people in Greenpeace are just a bunch of radical psychos. But what about Warren Buffett? Or BP (NYSE: BP  ) ? Can you dismiss them so easily? Because they're starting to sound the same alarm. Buffett plans to profit from all this, and perhaps you could, too.

Buffett goes beyond coal
Buffett's Berkshire Hathaway (NYSE: BRK-A  ) owns MidAmerican Energy, a utility that until this week was fighting The Sierra Club in court. The Sierra Club's Beyond Coal campaign has succeeded in closing one-sixth of the United States' coal-fired power plants since 2010. It went after MidAmerican Energy for exceeding its Clean Air Act pollution permits at three of its plants. The two sides reached a settlement this week, under which MidAmerican will phase out seven coal-fired plants, install pollution controls at another two, and build a large solar installation in Iowa.

While the stick of legal action may have prompted this settlement, MidAmerican Energy also knows a good carrot when it sees one. Just one year ago, the company created its MidAmerican Renewables division. It currently has a 1,830 megawatt (MW) portfolio in wind, solar, geothermal, and hydro. MidAmerican will have 2,284 MW in the wind sector alone when current projects are completed, making it the largest owner of U.S. wind farms by an investor-owned utility.

MidAmerican is also investing heavily in solar. The company announced this month that it will pay SunPower (NASDAQ: SPWR  ) about $2.5 billion for its 579 MW Antelope Valley Solar Project (AVSP) in California. The deal represents a strong sales pipeline for its solar panels; AVSP will be the largest solar photovoltaic (PV) plant in the world, with construction scheduled to begin early this year for a 2015 completion. SunPower already has 1 gigawatt of operational solar plants, with another 250 MW under construction.

MidAmerican had previously bought two solar PV plants, one in California and one in Arizona, which together will generate 840 MW. First Solar (NASDAQ: FSLR  ) is building both projects, which are scheduled for completion in 2014. First Solar has a long-term strategy to supply sustainable markets, to move away from subsidized markets, and to grow its construction projects relative to module sales.

Carbon bomb
The long-term drivers behind clean-energy growth are undeniable. Consider the report Greenpeace released just this month called "Point of No Return: The Massive Climate Threats We Must Avoid." I had to sleep with the light on after I read it. The report details the horrific consequences the world will experience if we allow the planet to continue on its current warming trajectory. According to Greenpeace, "The world is clearly at a Point of No Return: Either replace coal, oil and gas with renewable energy, or face a future turned upside down by climate change."

But if you're not a Greenpeace fan, consider oil giant BP's "Energy Outlook" report. It predicts that the global switch to renewables means that the sector will grow at an average of 7.6% a year through 2030. But BP also predicts that renewables will still account for only about 17% of the growth in global energy output by 2030. As a result, BP warns that global carbon dioxide emissions will probably rise by 26% over the next two decades if there is no substantive government intervention. Most models agree that emissions need to begin decreasing by 2015 if we wish to prevent some of the more awful results of climate change.

The good news
Fortunately, good things are happening for renewable energy. The Department of the Interior just designated 192,000 acres of public land in Arizona for large-scale solar and wind projects. Innovative mechanisms like solar leasing are appearing on the horizon as well, facilitating growth in solar uptake.

Solar leasing attracts investors because they get a 30% federal Investment Tax Credit, and installers because they earn reliable, monthly payments over a long-term contract. Homeowners and businesses like the model because they bear neither upfront costs nor responsibility for maintenance, and their locked-in monthly price -- which is often lower than the rate for conventional energy -- protects them from rising utility bills. As government incentives for solar fade away, solar leasing is expected to be a key growth driver for the foreseeable future.

SolarCity (NASDAQ: SCTY  ) is a leader in the solar leasing space. With 13.3% of the residential solar market, the company has seen its share price increase more than 35% since its IPO in December. Of course, it's been a volatile ride for SolarCity, to be sure, as it has been for SunPower and First Solar over the same period. If you're interested in these stocks, monitoring day-to-day price movements will not be a good strategy for you. My guess is that they are well positioned to benefit from the coming renewables renaissance, and a buy-and-hold investor should take a close look.

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  • Report this Comment On January 28, 2013, at 10:18 AM, TMFLomax wrote:

    Great piece, Sara! Particularly like the line that global warming doesn't care whether people believe in it or not. And it IS happening. Best for companies and investors to get ahead of this ASAP.

    Best,

    Alyce

  • Report this Comment On January 28, 2013, at 11:43 AM, gskinner75006 wrote:

    Climate change will happen with or without you. Is it better to use natural gas to run turbines then coal? Absolutely! Is it better to use water to run turbines then natural gas? Absolutely! We can go on and on about whats best, but in the end, you will not stop the natural patterns of mother Earth. It takes a lot of carbon to produce these articles and these comments. Just remember that the next time you turn the light on.

  • Report this Comment On January 30, 2013, at 9:49 AM, TripleEFocus1 wrote:

    Excellent article Sara. Love your "no bones about it approach."

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