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How to Invest in Renewable Energy with Berkshire Hathaway

By Toby Bordelon and Lou Whiteman - Jan 16, 2022 at 11:00AM

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The company's long-term plan is paying off.

In this segment from Motley Fool Live, recorded on Jan. 4, Fool contributors Toby Bordelon and Lou Whiteman discuss the utility arm of Berkshire Hathaway (BRK.A 2.10%) (BRK.B 2.12%) and how its ongoing transition to renewable energy has bolstered the stock and made it enticing for investors.

Toby Bordelon: They have a really big geographic footprint. Berkshire Energy is their utility subsidiary. It used to be called MidAmerican. If you were a longtime Berkshire shareholder, you may know that name. They actually changed their name in 2014. It's been a while. They changed from MidAmerican Energy to Berkshire Energy and part of that I think is because of the geographic scope of this company.

Hard to call yourself MidAmerican when you have operations on the West Coast and in the U.K. and in Canada? This is a global utility now. You can see this here. I want to point out these dark green squares all over this map, those are actually renewable generation plants.

This is a renewable company too. If you think to yourselves, yeah I want to get into energy but you know what I'm all about renewable energy and not about old school utilities in coal and oil and gas so on, I want renewable energy. You might give us a look, I think.

We're going to get into this a little bit more. I'm going to show you this but you definitely want to give them a close look. They have a lot of renewables going on. Then on the right-hand side you see the revenue they earned from each geography.

My home state of Nevada, one of their largest at 16% of their energy revenue coming from there. But it's fairly diverse. A lot of different places this is coming from.

Lou Whiteman: Then the other thing to look at, it's a great visualization. But also notice the green blocks but also notice those lines. Those are transmission lines. I didn't read your script Toby but we may be talking about railroads as part of this too. But transmission lines, railroad tracks, those are things that are hard to build new. It's a valuable asset to own.

Toby Bordelon: Yeah, definitely true. You see where a lot of the transmission lines are concentrated in the middle of the country that's where you kind of get this MidAmerica idea from. They own a lot of pipelines, a lot of transmission lines going up and down the country.

Here's some stats for Berkshire. First, you see the growth in various metrics on the right-hand side there. Growth in assets. They continue to reinvest and grow their property plan equipment, growing their cash flow, and all that leads into growth in shareholder equity.

Fairly consistent over the years. 9.1 million customers, 34 gigawatts of power, 36,000 miles of transmission lines, Lou, as we were talking about, 21,300 miles of pipeline. A lot going on. A lot going in this company very large in scale here.

This is the power generation source of the breakdown here. You see here wind at 33% now, 41% total from renewables when you add in the small amount they have from solar, hydro, and geothermal.

In 2005, they were at 71% from coal. They've come a long way in terms of moving to renewable energy. I remember going to shareholder meetings years ago at Berkshire and all these people from the audience saying something like, "When are you getting into renewables, why are you using nasty coal?" Even then Warren Buffett was like look we're doing more than anyone else and just stay tuned we have a long-term plan and here it is.

They're approaching 50% from renewable sources in terms of regeneration. This is definitely a company, I think that is serious about renewable energy and doing it in a pretty good way. But it's not all about like your typical renewable.

This is very interesting, they are working on a nuclear power plant in Wyoming. There's been some news on this recently. This is the nuclear plant designed by TerraPower, which is Bill Gates' company. He owns that. It's called the Natrium plant is an advanced nuclear reactor. It's got a sodium-cooled reactor, some salt-based energy storage.

Interesting things going on here and they can easily integrate with renewable, in theory, is what they're trying to figure out how to do. We have nuclear, can we pair it with renewable to make a nice next-generation power system here? They're doing interesting projects like that all over the place.

One thing I want to note here, they don't pay a dividend. When you think about utilities, you think about dividend payers. That's typically what they are and why people have traditionally invested in utilities, steady dividend payers.

But Berkshire Energy being owned by Berkshire Hathaway doesn't have to do that. They can retain their cash flow within the company, which they do. That allows them to reinvest more easily if they need to do new projects because they're able to just build up this cash flow and consistently reinvest.

They don't have to constantly go back to regulators and say we need a rate increase for this project. Now, they'll do that when their costs go up. But they have this internally generated cash. They don't have to pay out their shareholders that's available for them. It gives them a little bit of a competitive advantage I think in terms of reinvestment and innovation. That's a very nice position to be in.

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