Premium ContentMouse over Home then click on Premium Content for information.MidAmerican Energy Holdings' second planned solar energy investment is heartening an industry beset with problems, although observers say the two deals have special features that make them less than a total endorsement by Warren Buffett of all solar energy projects.
MidAmerican, the Des Moines-based energy division of Berkshire Hathaway Inc. of Omaha, is putting an undisclosed amount of money — hundreds of millions, by most estimates — into two solar energy farms being built by First Solar, an industry leader. The first deal, for a California project, is an outright purchase. The second, in Arizona, is the purchase of 49 percent of a solar farm.
The first probably wouldn't have happened without government support, according to Raz Godelnik, who wrote on TriplePundit.com. He teaches about "green business" at the University of Delaware.
Federal tax credits would offset about 30 percent of the California project's construction costs, he wrote, and Pacific Gas and Electric's agreement to buy the plant's power for 25 years — which helped attract Berkshire as a buyer — was prompted at least in part by the State of California's renewable energy mandate.
"The bottom line is that Buffett knows how to identify a good deal. Here it happened to be a solar energy deal," Godelnik wrote. "This is why you won't see Buffett buying more solar plants unless he's got similar terms."
Lo and behold, the second deal, announced a few days later by MidAmerican and NRG Energy, has some "similar terms." Pacific Gas and Electric has a long-term contract to buy all of the plant's electricity, too, plus a $967 million loan guarantee from the U.S. Department of Energy.
Brian Prescott of smallcapnetwork.com said Berkshire's interest sparked some "short-term investor interest," but the solar industry needs "breakthrough products" to lower the cost of solar power and generate profits.
"It may take another five years before these kinds of products hit the markets, and investors may continue to lose money in solar companies in the meantime," Prescott said.
Berkshire's investments provide "a desperately needed ray of financial sunshine to the long-suffering U.S. solar energy industry," according to the News Consortium's story on Catholic Online. The industry has been hurt by setbacks, including the failure of California-based solar company Solyndra and the resulting political fallout from its $535 million federal loan guarantee.
"In a lot of ways, this is classic Warren Buffett," said Bruce Bullock, executive director of the Maguire Energy Institute at Southern Methodist University. "He comes into an industry that is starving for capital investment. At the same time, this is something that also tells people it's time to take solar power seriously."
MidAmerican Chairman and CEO Greg Abel said the company is "aggressively pursuing opportunities to expand our presence in the renewable energy sector."
Short of goal
Dyan Machan noted on SmartMoney that the $500 million small-business assistance effort announced by Buffett and Goldman Sachs amid lots of positive publicity in 2009 is far short of its goal.
The effort was formed at a time when Goldman and other big banks were suffering image problems from their roles in the credit crisis and Great Recession.
But halfway through its five-year schedule, the program has hit only 5 percent of its goal of reaching 10,000 small businesses with education sessions, mentoring and other benefits, including some loans.
"Goldman is reassessing the amount of time (the project) will need," Machan wrote. "And what of Buffett, who has maintained an active role (though not a financial one) in the plan? The often chatty co-sponsor declined to comment." Berkshire had invested in Goldman at the time, injecting capital when many of the large banks were struggling to stay afloat.
The 10,000 Small Businesses program, based on job-creation research by Michael Porter of the Harvard Business School, has started in New York, Houston, New Orleans, Chicago, Los Angeles and Long Beach, Calif., with $20 million loaned so far and 500 small businesses taking part.
The New York branch reported that its 82 graduates have created about 200 jobs, but program totals are lacking.
Paul Kedrosky, senior fellow at the Kauffman Foundation, which researches entrepreneurship, said that most community-based jobs-creation programs are "train wrecks" and that productive businesses that create jobs usually have no trouble getting money for growth.
Machan quoted Goldman's Dina Habib Powell as saying that Goldman is pleased so far, but part of the problem is competition from other government and private job-creation efforts. "We want to take the time to help businesses grow," Powell said.
In New Orleans, Betty Nguyen-Archote and Donovan Archote used a $50,000 Goldman loan toward renovating their pizzeria but were too busy to attend the business classes. Their goals are focused more on reducing debt than creating jobs, Machan wrote.
One participant in New Orleans, Simone Bruni, met Buffett when he attended her class graduation, telling him that he inspired her. "Buffett kissed her hand, saying, 'No, young lady, you inspire me,' " the story said.
But after analyzing the expenses of her excavating company, Bruni decided to cut some jobs and buy equipment she had been leasing.
Newground
At Berkshire's 2011 annual shareholders meeting, Newground Social Investment, a Seattle financial firm that wants corporations to adopt policies on environmental and social issues, asked Berkshire to set goals for greenhouse gas emissions by its companies.
Berkshire's board recommended voting against the proposal, saying that it would be costly and that the company's utilities already are reducing emissions. In the end, 83.5 percent of Berkshire shareholders followed that advice.
For 2012, Newground submitted a similar proposal but then, as a "good-faith sign of our genuine desire to discuss the topic and to avoid the distractions and formalities of the proposal/proxy process," withdrew the proposal and instead asked for a "meaningful dialog" on the subject.
No word yet on a dialog.
Contact the writer:
402-444-1080, steve.jordon@owh.com
twitter.com/buffettOWH
Copyright ©2012 Omaha World-Herald®. All rights reserved. This material may not be published, broadcast, rewritten, displayed or redistributed for any purpose without permission from the Omaha World-Herald.
