Warren Buffett Reveals His Big Bet on Renewable Energy

Photo: ChristofferRiemer

At the Edison Electric Institute's annual meeting in Las Vegas Monday, two big agenda items had the conventioneers full of anticipation: A pending federal rule regulating greenhouse gases produced at power plants, and an appearance by billionaire investor Warren Buffett. 

Buffett, the chairman and CEO of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) was there to discuss his newly expanded Berkshire Hathaway Energy unit, formerly known as MidAmerican Energy. Considering the pace at which Buffett has been increasing his energy holdings, attendees were probably not too surprised to learn that bigger investments are on the horizon.

What might have stunned the group, however, was the direction of Buffett's energy move – closer to the sun.

Energy: the new-ish frontier
Buffett told attendees that his company has been pushing into the energy sector for the past 15 years as Berkshire Hathaway becomes less dependent upon its insurance-based businesses. He noted that the move has helped the company build wealth, even as he has "poured billions and billions and billions of dollars" into the investment. 

Part of that investment has been solar energy. Berkshire Energy, then MidAmerican, bought the Topaz Solar Farm in California in late 2011, and hasn't looked back. Now, with tax credits in the offing with the advent of new emission-control rules – the very laws that the energy industry has fought against – Buffett sees a new opportunity in alternative energy investment. 

The Environmental Protection Agency's new rules strive to cut carbon dioxide emissions by 30% by 2030, and encourages clean energy production, like solar, over fossil fuels – particularly coal. The 30% investment tax credit, which is scheduled to be phased out beginning in 2016, may be extended for projects begun before that deadline. Since there is a good chance that even the fossil-fuel industry may explore solar in order to comply with the new regulations, postponing the expiration of the tax credit program could spur copious new growth. 

Buffett said that his company could invest another $15 billion in renewable energy projects in the near future, and is looking at expanding his current operations, as well. He noted that he wants to extend his reach in Canada, and the chair and CEO of the Berkshire Hathaway Energy unit, Greg Abel, has mentioned that the company's recent acquisition of Alberta's largest transmission company, AltaLink, may be just the beginning. 

Though the economy is still rather lethargic after the last recession, Buffett commented that things are beginning to look up. Meantime, as usual, the man knows a smart investment when he sees one.

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  • Report this Comment On June 15, 2014, at 7:43 PM, cbarcus wrote:

    Looks like a foolish investment:

    "Here's the idea in a nutshell: in the US, a kWh of energy (unweighted) costs about 10 cents but it produces about 70 cents worth of GDP, a ratio of 7 to 1. (Note the switch: we're talking money now, not joules.) If we do the same computation in exergy terms, the ratio is 16 to 1. That means the fully monetary ROI of exergy, for the economy as a whole, is 16. But remember that if we have an exergy source whose EMROI is less than 16, its fully monetary ROI must be less than that -- which means that deploying such a source on a large scale will reduce GDP. The economy becomes less efficient as we deploy less efficient energy sources to run it. As we spend more of our time and effort making exergy, we will spend less making all the other stuff we need and GDP goes down. The flip side of this is that as the price of electricity goes up and GDP goes down, the economic threshold decreases: more marginal energy sources will become profitable."

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Amanda Alix

Foolish financial writer since early 2012, striving to demystify the intriguing field of finance -- which, contrary to popular opinion, is truly what makes the world go 'round.

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