Why Warren Buffett’s $15 Billion Renewable Energy Bet Isn’t Big Enough

Warren Buffett pledged to double the $15 billion that Berkshire Hathaway has invested in renewable energy. While that sounds like a bold bet, it’s just pennies on the dollar of what’s needed to be invested.

Jun 15, 2014 at 9:10AM

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Warren Buffett made headlines this week when he pledged to double the $15 billion that Berkshire Hathaway has invested on renewable energy projects. While $15 billion sounds like a lot of money, and even for Berkshire Hathaway it's a large sum of money, it's still just a small fraction of the capital that needs to be invested in renewable energy.

The $48 trillion problem
According to the International Energy Agency the world needs to invest $48 trillion between now and 2035 to meet its growing energy needs. A bulk of those funds will be used to offset declining base oil and gas production and to replace aging power plants as well as to fund projects to meet the growing energy needs of emerging market economies. Overall, the International Energy Agency sees $10 trillion needing to be spent in power generation alone -- including $6 trillion on renewables -- with another $7 trillion in transmission and distribution.

Needless to say the $15 billion that Warren Buffett's Berkshire Hathaway is expecting to invest in wind and solar is not nearly enough. In fact, the base investment case of the International Energy Agency doesn't even get the globe any closer to its goal of keeping a lid on carbon emissions. Under a scenario of higher standards the world's investments in renewables would need to increase to nearly $9 trillion with overall investments in low-carbon energy supplies requiring a nearly $900 billion annual investment.

What this means for Berkshire Hathaway
While Berkshire Hathaway's $15 billion renewable energy bet is small potatoes in the grand scheme of things, that by no way means it's not a smart investment on his part. It's quite the opposite. Given that the globe needs to invest so much money on renewables it really points to the massive growth opportunity that Buffett and Berkshire Hathaway investors will be profiting on for decades to come. With so much capital required to meet future needs Berkshire Hathaway's energy segment will have a near endless supply of profitable growth opportunities to pursue in the decades ahead.

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Further, Berkshire Hathaway is one of the few companies with the size to make large scale renewable power projects come to life. For example, last year Berkshire Hathaway made the commitment to invest upwards of $2.5 billion to build two solar power projects in California. This commitment is stemming from the company's purchase of the 579 megawatt Antelope Valley project from SunPower (NASDAQ:SPWR). Under the terms of the agreement SunPower is building and will then operate the project for Berkshire Hathaway. It's the second mega solar project that Berkshire Hathaway has purchased over the past few years as it also acquired First Solar's (NASDAQ:FSLR) Topaz Solar Farm for $2 billion a few years back. The First Solar project is a 550 megawatt solar farm, which, for perspective, is about half of the size of a new nuclear power reactor. Both projects are foretasted to yield solid returns for Berkshire over the long-term.

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Investor takeaway
Warren Buffett's Berkshire Hathaway is making a massive bet on renewable energy. While the bet is actually pretty small in the grand scheme of things, the opportunity alone is so vast that Buffett can cherry pick the most profitable investments for Berkshire Hathaway. One of the reasons for this is that due to the size and scale of Berkshire Hathaway, Buffett can chose to invest in large-scale projects like those he purchased from SunPower and First Solar, which can really help move the needle for Berkshire Hathaway. So while his bet might not be big enough right now, there's ample room for it to grow in the future. 

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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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