Investing Icon Cashes In On Alternative Energy

How Investing Icon Cashes In On Alternative Energy

If you’re flying into Las Vegas you might see a construction site spanning 7,000 acres. 

It’s not the latest money-extracting, adult play pen only Vegas can dream up though.

It’s the Gemini Solar+Battery Project.

When completed the project will have 1.8 million solar panel modules.

It will have production capacity of 690 MW, enough to power  260,000 households.

And it will have battery storage equivalent to about 250,000 Tesla entry level Model 3 batteries.

The estimated cost is around $2 billion and it should be adding electricity to the grid in 2023. 

There are all kinds of ownership structures, contractors, financing, and buying and selling of pieces of it. 

It’s going to be the largest solar power plant in the United States when it’s done. 

Of course, the economics of these plants are dubious. 

They require a lot of direct (i.e. government cash grants or loan guarantees) and indirect subsidies (agreements to pay higher electricity rates) to make economic sense. 

They rarely produce as much power as promised.

But they do make money for some people. 

And there’s a surprising way for investors to get in on the good sides of these projects before the bull market in electricity prices really takes off. 
 

Cash Flow King Likes Alternative Energy
 

The key here is not the size and scale of the project, but who owns it. 

Now, if you’ve ever looked closely at these big solar or wind plants, you will know their ownership structures are
extremely complicated and opaque. 

The solar panel panel makers often own and/or finance a piece. There’s a big lender usually involved. 

They get complicated fast. 

Opacity is definitely a feature in these deals. 

But this one being so big, it’s clear to see where the cash flows are going to end up. 

The power produced at this plant will be sold to a company named NV Energy. 

NV Energy is an electric utility company in Nevada. 

It boasts ownership of 57 alternative energy power plants to provide power to more than 1.5 million customers. 

The key here is that NV Energy is a subsidiary of Berkshire Hathaway (BRK.A). 

In other words, Berkshire is an investor and benefactor of the Gemini Solar Project.  
And here’s why. 

NV Energy, the Berkshire Hathaway subsidiary, will be buying the electricity produced by the Gemini solar field for $0.038 per kWH. 

They’ll be selling onto the market at an average price of $0.14 kWh. 

That’s a markup of more than 270% that will only get higher with the long-run increase in electricity prices. 

That’s a great deal if you can get it. 

But for Berkshire, it’s just one of many deals they can get.

Rise Of Alternative Energy Kingpin

Berkshire boasts on its website that its energy subsidiary has invested more than $30 billion in alternative energy projects including solar, wind, and geothermal projects. 

Berkshire’s first major bet on solar was in 2011 when Berkshire bought the Topaz Solar Farm. 

This solar plant is located in central California and is big enough to power 160,000 households. 

Today the solar plant is pumping out about $200 million of annual revenue from ultra-low cost energy. 

Is Buffett some “green energy” altruistic hero though?

Probably not. 

Michael Horwitz, the solar analyst for Robert W. Baird at the time of the 2011 solar farm acquisition, saw through the green energy hype.

He stated at the time:


Let's be clear, this is not Warren Buffett taking a bet on solar technology.

This is Warren Buffett investing in a power plant that is guaranteed to yield large cash flows for at least 20 to 25 years.

The power plant just happens to be solar powered.


Buffett is a shark. 

A cash flow show shark. 

He smells it all around alternative energy projects. 

And he’s probably going to be proven right in a big way. 
 

Berkshire Becoming A Backdoor Into Alt Energy Cash Flow

It’s deals like these that are putting Berkshire in the position as a major energy provider. 

Or, more correctly, it’s $30 billion-and-counting worth of alternative energy deals that will make Berkshire Hathaway an energy powerhouse. 

More importantly, it’s showing where the gains will come from alternative energy projects. 

Buffett and Berkshire aren’t investing in solar power manufacturers, infrastructure companies that build them, or anything like that. 

Instead, they’re investing in the projects and their future production. 

That’s where the long-term cash flows will be. 

And over time, as electricity prices rise, the cash flows will only multiply from these projects. 

Buffett has another winner with these energy bets.