President Donald Trump's landmark piece of legislation passed by Congress earlier this year is a huge spending package touching everything from taxes to immigration to environmental policy. Notably, the bill made the tax cuts that Trump spearheaded in his first term permanent and also implemented other tax provisions, many of which will be temporary.
But as is common in large congressional bills, the legislation also included many smaller provisions that will make a big impact in other policy arenas. One of these provisions may prove to be a drag for Berkshire Hathaway (BRK.A +1.14%)(BRK.B +1.20%), one of the largest conglomerates in the world.
Berkshire's wind portfolio
As most investors know, Berkshire is a conglomerate composed of many businesses. The big ones that stand out are insurance, energy, mortgage, and transportation, but Berkshire owns and operates many other businesses and businesses within businesses. One of these is Berkshire's portfolio of wind energy assets.
Image source: The Motley Fool.
Berkshire owns two subsidiaries, MidAmerican Energy Company and PacifiCorp, making Berkshire the largest U.S. owner of wind-powered electric generation. MidAmerican Energy owns roughly 3,400 wind turbines in Iowa, which produce roughly 7,700 megawatts of wind generation capacity. PacifiCorp generates roughly 2,400 megawatts of wind capacity. In addition, Berkshire's 2024 annual report said its subsidiaries have invested roughly $7.3 billion in wind projects sponsored by third parties.
Up until recently, these wind-powered assets received tax credits, as many prior politicians have tried to push green energy initiatives. These credits have been a significant boon for Berkshire Hathaway Energy (BHE), a unit of Berkshire that generated $3.7 billion of earnings in 2024. In each of the past three years, this unit has also had an effective negative tax rate ranging from -51.8% to -215%, in large part due to "significant production tax credits primarily from wind-powered electricity generation," according to the company. Between 2022 and 2024, BHE realized more than $5.5 billion of income tax benefits.
Interestingly, in 2014, Buffett told Fortune magazine in an interview, "I will do anything that is basically covered by the law to reduce Berkshire's tax rate. For example, on wind energy, we get a tax credit if we build a lot of wind farms. That's the only reason to build them. They don't make sense without the tax credit." Now, a lot has changed in the decade-plus since Buffett made that statement and the world needs as much energy as possible, given the demands of industries like artificial intelligence. But without these tax credits, the wind projects will undoubtedly become more expensive and less attractive for investors.
NYSE: BRK.B
Key Data Points
Trump's large spending bill will phase-out tax credits for large wind and solar projects beginning construction after July 5, 2026, according to the law firm Williams Mullen. Berkshire specifically raised this aspect of the bill in its third-quarter filing with the Securities and Exchange Commission, saying the bill will eventually eliminate clean electricity production and investment tax credits.
"We are currently evaluating the potential implications of the OBBBA (One Big Beautiful Bill Act) on BHE's (Berkshire Hathaway Energy) financial results and capital expenditures related to renewable energy, storage and technology neutral projects, including the potential impact on the economics and viability of such projects," Berkshire's filing read.
Investors need to understand the larger impact, but it's not the end of the world
The end of these tax credits is certainly a drag for Berkshire's energy business, so it's something worth watching in future earnings reports to see what ultimately happens, particularly whether Berkshire will continue to invest in this business without the credits.
This is not the end of the world, and I expect management to be able to work through it. Part of the reason to own Berkshire is that it has many revenue streams, making it a defensive stock that can generate good returns through the economic cycle. Even with Buffett on his way out, investors can buy and hold the stock long term and know that their money is in good hands.
