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Buffett's Second First Solar Christmas

Stocks in this article: BRK.A FSLR SPWRA NRG WFR GE GS

When MidAmerican bought into the Topaz project, a solar analyst compared the potential investment returns of the plant to an annuity - products that Berkshire's been selling for decades through its insurance units. That's because MidAmerican can expect a steady stream of income from solar panels and distribution contracts, which have multi-decade lives and require little maintenance.

Like with Topaz, MidAmerican is buying a thin-film photovoltaic solar energy development on contract with PG&E, one of California's largest energy providers. Both energy distribution contracts, which will help Californians meet a mandate to receive a third of their energy from renewable sources by 2020, will give MidAmerican solar returns above current market prices.

First Solar shares are down over 75% plummet in its stock price year-to-date. First Solar, the largest U.S. solar company and other members of the 17-member Bloomberg Industry Global Leaders Large Solar Energy Index have been hit by a fall in solar panel prices and uncertainty over government loan guarantees for plant development.

First Solar is also developing the Desert Sunlight project, even as the outlook for the solar industry darkens. The company will continue to build Topaz and Agua Caliente for MidAmerican and provide maintenance for the plant once completed, according to a press release. When Agua Caliente is complete in 2014, it's expected to displace 5.5 million metric tons carbon emissions and generate electricity for 56,000 homes, said First Solar in a press release.

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For MidAmerican, the move into solar energy isn't so surprising. Currently MidAmerican, a natural gas and electricity powerhouse, is the largest wind energy provider in the U.S. and expects to generate 28% of its capacity from renewable sources by the end of the year. The energy unit of Berkshire, which generates over $11 billion in annual revenue, is looking at alternative energy as a way to bolster revenue and profits, which are below 2007 levels.

"Partnering with an industry leader like MidAmerican on Agua Caliente, one of the largest PV projects in the world, enhances the strength and credibility of what was already one of the world's leading solar projects," said David Crane Chief Executive of NRG.

MidAmerican's Topaz buy came at an opportune time for both First Solar as a seller and for Berkshire as an investor, its Agua Caliente investment signals that the company's still got a large green appetite.

Many large solar projects are on shaky footing after a scandal at now-bankrupt Solyndra, which received $535 million in government-backed loans. In Solyndra's bankruptcy, taxpayers are expected to recoup little of the loan, causing Congress to question the viability of President Barack Obama's strategy to finance the development of alternative energy sources.

In late-September, the Department of Energy approved nearly $6 billion in loan guarantees to projects run by SunPower, SolarReserve and Sempra Energy (SRE). According to its Web site, the DOE has provided $40 billion in loan guarantees to support over 40 clean energy projects across the U.S.

For Buffett, who has also seen giant investment returns from a $231 million investment in Chinese battery company BYD in 2008, the solar projects may be similar to other Buffett deals like preferred share investments in Goldman Sachs (GS) and General Electric (GE) during the financial crisis because he may be locking in above market returns.

-- Written by Antoine Gara in New York

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