"In his writings, a wise Italian says that the best is the enemy of the good." --Voltaire
And when it comes to energy and investing, there aren't many better phrases for investors to take to heart. Energy generated from oil, natural gas, and coal cause pollution. Green energy usually brings along government subsidies to be cost-competitive. And for many investors, one or both of these issues are cause to stay away.
But to ignore the sector (which may be the most important in the world) completely is to leave serious money on the table. Let's take a look at how several companies are benefiting from being "good" and why you shouldn't let the lack of perfection keep you from investing in them.
Warren Buffett isn't one to blow hot air
If you own shares of Berkshire Hathaway (NYSE:BRK-B), you're already invested in one of the largest producers of green energy in the U.S., with more than 30% of subsidiary MidAmerican Energy's power generation coming from wind, solar, and geothermal. The company has stated plans to have nearly 40% of total power generated from wind alone by 2017, and will have at least three gigawatts in generation capacity from solar and geothermal by then as well. Here's how Buffett looks at MidAmerican. From his 2012 letter to shareholders:
In addition, we are the leader in renewables: first, from a standing start nine years ago, we now account for 6% of the country's wind generation capacity. Second, when we complete three projects now under construction, we will own about 14% of U.S. solar-generation capacity ... Projects like these require huge capital investments. Upon completion, indeed, our renewables portfolio will have cost $13 billion. We relish making such commitments if they promise reasonable returns – and on that front, we put a large amount of trust in future regulation. Our confidence is justified both by our past experience and by the knowledge that society will forever need massive investment in both transportation and energy.
Considering that MidAmerican put $1.3 billion in profits in Berkshire's wallet in 2012, rest assured that investing in renewables really is about getting a "reasonable" return.
Power to the people
Brookfield Infrastructure Partners (NYSE:BIP) owns all kinds of infrastructure assets, including more than 6,000 miles of power transmission lines. And when it comes to wind and solar generation, large projects are often in remote locations, necessitating the construction of large transmission line networks to connect these projects to population centers. Two significant opportunities for the company today are in Texas and Ontario, Canada. The Texas project is on schedule to be completed this year, while the opportunity in Canada is tied to legislation passed in 2012. From the 2012 annual report(emphasis mine):
A cornerstone of the (Canadian) Green Energy Act requires the decommissioning of existing coal plants and replacement with renewable and clean sources of power ... Expansions of the electricity transmission system will be required to connect this generation to the existing grid. As an incumbent utility, our Ontario electricity transmission system has an advantage in competing for these projects, and we have identified projects where, due to their geographic location and size, we believe that we have a unique competitive advantage to build and own these new lines.
Brookfield Infrastructure Partners has returned more than 287% over the past five years. Even if you're not interested in investing directly in renewable energy, Brookfield offers a way to gain from the expansion.
Power from the people
The magic for SolarCity (NASDAQ:SCTY.DL) is how it offers a benefit for every stakeholder:
- Homeowners get the immediate benefit of lower utilities today.
- The utilities gain added power generation during peak periods without having to invest major capital in adding generation.
- SolarCity gets to make money from both parties, and expand at the same time.
And while there is risk of competition from the utilities (see MidAmerican's solar expansions,) the grid needs more power sources. The recent deal SolarCity signed with Direct Energy is a clear sign. From the press release:
This unique relationship demonstrates how traditional energy companies and renewable energy companies can work together to make clean energy more accessible and affordable," said Jimmy Chuang, vice president of structured finance for SolarCity. "Direct Energy is giving business and industrial customers direct access to cheaper, cleaner energy. SolarCity gains an important new avenue to provide its groundbreaking services to businesses at a lower cost.
This is just one of a handful of deals in place with utilities, and a big part of why the company is guiding to nearly double the amount of power generation deployed next year. Despite an almost 400% return in less than a year, SolarCity is a tremendous opportunity for investors today.
Energy is the foundation
Everything in our modern lives is driven by cheap, accessible energy. And with the planet's population set to increase by 1 billion in just over a decade, every possible source will be important. Foolish investors would make sure their portfolios were set to gain from this.
Jason Hall owns shares of Berkshire Hathaway, Brookfield Infrastructure Partners, and SolarCity. The Motley Fool recommends Berkshire Hathaway, Brookfield Infrastructure Partners, and SolarCity. The Motley Fool owns shares of Berkshire Hathaway and SolarCity. 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.