"Someone's sitting in the shade today because someone planted a tree a long time ago." -- Warren Buffett
Maybe more than any other, this quote from Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) CEO Warren Buffett exemplifies both how he invests and how he has built Berkshire. One need only look at two of the most important subsidiaries -- BNSF Railways and MidAmerican Energy -- to see this firsthand. Both of these two companies will provide significant and steady cash and profits to the company for many years to come -- and largely because of competitive advantages that were first established decades before Berkshire acquired either business.
Buffett's success is also his ability to acknowledge that sometimes things do change and that new competitive advantages can and must be built. MidAmerican Energy has been doing just that for the past nine years, working with companies like Siemens (NASDAQOTH:SIEGY), SunPower (NASDAQ:SPWR), and Vestas (NASDAQOTH:VWDRY) to add renewable energy to its mix in a big way. Renewables are becoming a huge -- and growing -- part of Berkshire's competitive advantage at MidAmerican. Let's take a closer look at how these companies are all expanding in the surge of demand for renewable energy with Berkshire and beyond.
Nine years in and just getting started
Buffett had this to say about renewables in his latest annual letter to shareholders:
From a standing start nine years ago, MidAmerican now accounts for 7% of the country's wind generation capacity, with more on the way. Our share in solar -- most of which is still in construction -- is even larger... When our current projects are completed, MidAmerican's renewables portfolio will have cost $15 billion. We relish making such commitments as long as they promise reasonable returns. And, on that front, we put a large amount of trust in future regulation.
Buffett's team at MidAmerican aren't making these investments in renewables just because they are good for the planet -- though I'm sure that does play some role -- these investments are being made because they are profitable, and offer durable advantages and reasonable returns. MidAmerican's contribution to Berkshire's 2013 earnings was $1.47 billion, up 11% from 2012.
SunPower's deal with MidAmerican just one of many globally
SunPower's big 2012 deal with MidAmerican -- valued at between $2 billion and $2.5 billion -- to construct two co-located solar farms in the California desert north of Los Angeles is well under way, having been recently synchronized to the grid and already producing 10% of the planned output. Not only will SunPower build the 579 MW facility, but it will also maintain it after completion.
SunPower has since signed a number of agreements to build solar farms around the world, including an 86 MW plant in South Africa it will build with majority shareholder Total; supplying the panels for a combined 96MWs at two plants in Japan -- 69 MWs of which will be a single installation, and the country's largest to date; and another deal with Total for a 70 MW plant in Chile. The company also recently completed a 250 MW facility in California for NRG Energy.
Siemens, Vestas spinning up
Vestas and Siemens have both supplied MidAmerican in the past, but Siemens' latest deal for 448 turbines, which will generate a combined 1 gigawatt of power, is the largest-ever order for onshore wind generation equipment. Just how big was this order? Vestas sold 627 MWs in all of North America in 2013. You have to add in South America's sales to get a bigger number, and then it's only about 100 MWs more than just this one order. Additionally, Siemens has been awarded a contract with Cape Wind to supply its industry-leading 3.6 MW offshore turbines to the first major offshore wind farm in the U.S.
Not getting either of these deals doesn't put Vestas out of the game. To the contrary, neither deal is really transformative for the giant conglomerate that is Siemens. Despite missing the big deal with MidAmerican, 2013 was a transformative year for Vestas.
The company largely reorganized itself, shedding assets that it wasn't leveraging effectively due to the cyclical nature of its business, meaning much lower fixed costs -- and higher profits -- in slower years. Additionally, its joint venture with Mitsubishi Heavy Industries for offshore wind generation will be huge -- literally and figuratively -- on the back of the 8 MW offshore turbine in development, which will be the largest in output available when production starts in 2015. As much as 2013 put Vestas back on the path of profitability, this new offshore generator will make it a formidable competitor against Siemens' current domination of the offshore market as soon as next year.
Final thoughts: Buffett's looking for long-term, durable generation of profits and power
Buffett wasn't wrong when he wrote, "Our confidence is justified both by our past experience and by the knowledge that society will forever need massive investments in both transportation and energy." SunPower, Siemens, and Vestas have all contributed to how MidAmerican will be positioned to provide for the energy needs of its customers and return profits to Berkshire. SunPower and Vestas are well-positioned to do the same thing for their shareholders.