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Google, KKR Deal on Fringe of Solar's Future (Update 1)

(Google, KKR solar story updated for comments from Recurrent Energy CEO Arno Harris)

NEW YORK ( TheStreet) -- It seems lately that every investment in solar has to be the proof that solar is economic without government help and a part of the long-term energy future.

Maybe it's the long tail of Solyndra at work. If so -- and it shouldn't be so, because Solyndra was an example of failed manufacturing and not failed energy generation, one of Solyndra's private equity investors, KKR (KKR - Get Report), is doing its part to undo some of the damage inflicted on solar's reputation as an economic energy source.

KKR announced on Tuesday that it has teamed with Google (GOOG - Get Report) to invest in 88 megawatts of solar power plants being built for the Sacramento Municipal Utility District (SMUD). The solar power plants are being constructed with the help of Sacramento's feed-in tariff (FIT) scheme, under which a government body can authorize the "feeding in" of renewable energy to the grid at a pre-determined rate.

The solar power plants are being developed by Sharp's U.S. renewable energy company, Recurrent Energy.

"The investment is a clear demonstration of solar's ability to attract private capital from well-established investors like Google and KKR," said Arno Harris, CEO of Recurrent Energy in a release. "This transaction provides an example of the direction solar is headed as a viable, mainstream part of our energy economy."

If the deal is an example of the direction solar is headed in, it's likely to be an isolated example. And that's because it relies on the FIT structure that has been a niche approach to solar from a select group of local municipalities in Texas and in Florida, as well as Vermont, as opposed to a main source of solar deployment throughout the U.S.

Every example of major investors like Google and KKR stepping up to invest in solar is an example, but it needs to be framed within the reality of the long road to being a major part of the U.S. energy landscape, and it's difficult to see FITs being a key large-scale mover.

In an interview with TheStreet, Harris said that the FIT program probably does not represent the future for solar in the U.S., however, a viable industry has to have "pillars of support." He added that more important to solar than the deal's structure is that it is representative of mainstream investors finally investing in a significant way in what had been a "backwater of the capital markets."

In the past month, there have been two investments by Warren Buffett's Berkshire Hathaway (BRK.B - Get Report) energy subsidiary, MidAmerican Energy, in solar projects created by First Solar (FSLR - Get Report), and in each case, there has been fanfare about Buffett endorsing solar. What's needed -- in both the Buffett case and the Google/KKR case -- is some balllparking of the investments relative to the larger energy landscape. For renewable energy stock investors, there is also risk of equating attractive deals for institutional investors with a general endorsement of renewable energy.

Take the acquisition by Buffett's MidAmerican Energy of First Solar's Topaz project and a 49% stake in the First Solar constructed Agua Caliente project owned by NRG Energy (NRG), Buffett's first major foray in solar.
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