NEW YORK (
-owned MidAmerican Energy is making a second big solar industry bet by buying a non-controlling, 49% stake in a $1.8 billion, 290-megawatt solar project called Agua Caliente from
The investment in Agua Caliente, which was first developed by the once high-flying industry leader
is Buffett's second big push into mega-sized solar projects, signaling that the legendary investor is becoming increasingly solar minded.
Earlier in December, MidAmerican snapped up a $2 billion project called Topaz from First Solar.
Buffett's buying into projects with long-term energy distribution agreements already in place signals how some may invest in other once strong-performing U.S. players like
( SPWRA) and
. Weak earnings outlooks and lower distribution prices have spurred the recent bankruptcies of
, in addition to earnings cuts throughout the industry.
"We are aggressively pursuing opportunities to expand our presence in the renewable energy sector, and the Agua Caliente project is another important step toward that goal," said Greg Abel, chief executive of MidAmerican Energy in a statement announcing the deal.
The project has already broken ground and has the support of a $967 million loan guarantee from the
U.S. Department of Energy
. More importantly, Agua Caliente has a long-term power agreement to sell its energy generation to
Pacific Gas & Electric
at above current market rates.
Agua Caliente is one of a few multi-billion developments by First Solar that are ready for an investor like Buffett. The Tempe, Az.,-based company is struggling to hit earnings and on Wednesday the company cut its 2012
on lower energy selling prices as it scrambles to lower the cost-per-watt to produce panels, leading shares 20% lower to 2011 lows.
for more on the U.S. solar industry.
The project MidAmerican is buying from NRG -- and an earlier Topaz purchase -- are two of the largest photovoltaic solar energy developments in the world, which will be integrated into
MidAmerican energy business. For Buffett's mix of businesses, which began with an insurance focus, the move isn't so surprising.
, 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.
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,
. 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
in 2008, the solar projects may be similar to other Buffett deals like preferred share investments in
during the financial crisis because he may be locking in above market returns.
-- Written by Antoine Gara in New York