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Don't Be Fooled: Warren Buffett Doesn't Like Solar Stocks

NEW YORK ( TheStreet) -- Will Warren Buffett not rest until he convinces everyone that solar is a good investment?

For the second time this month, Warren Buffett's energy company, MidAmerican Energy, made an acquisition of a solar energy project being developed by First Solar (FSLR - Get Report).

This time, it's a 49% stake in the Agua Caliente project already sold by First Solar to NRG Energy (NRG). Earlier this month, Berkshire Hathaway (BRK.B - Get Report) energy subsidiary MidAmerican acquired First Solar's Topaz project.

These are the first two solar power plant purchases by Buffett's energy company, which is already one of the largest players domestically in wind energy. And so the headlines follow about how Buffett is finally stepping up to endorse solar energy, but please do not confuse an institutional investor like Berkshire Hathaway or its utility -- in making a project finance investment to generate a guaranteed revenue stream -- with a general endorsement of solar as an investable stock sector. These are two very different things.
Warren Buffett's energy company buys into another solar project, but solar stocks still stink.

Investing in a solar energy power plant that has already secured the rights to sell all of the electricity generated by the plant to a utility -- in the case of Agua Caliente the buyer is Pacific Gas & Electric (PCG) -- is in no way, shape, form or investment sense a call on solar stocks.

Through what is known as a power purchase agreement (PPA), PG&E has agreed to buy the energy generated by this solar plant at a pre-determined price over decades. That's a pretty sure thing for a conservative insurance investor like Buffett. When the Topaz deal was announced, it was compared to a 20-year annuity by those who understand the project's economics.

Also, Buffett is known for driving a hard bargain and taking advantage of distressed companies: Think Bank of America (BAC), Goldman Sachs (GS) or General Electric (GE).

There's nothing more stressed than solar companies at the moment, and the Topaz project that MidAmerican bought was one First Solar had hoped to sell for more money with the help of a federal loan guarantee. It didn't get the federal loan, a condition which First Solar had previously admitted would lead to a lower sales price as the equity buyer would need to secure more expensive debt financing.
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