Buffett Buys Into GE-Powered Wind Project (Update 1)

Updated to include GE chief financial officer comments starting in fifth paragraph and added data

NEW YORK ( TheStreet) -- Warren Buffett's utility company MidAmerican Energy is continuing its big alternative energy push by buying an 81-megawatt wind energy project from Invenergy Wind.

After buying into two big solar projects being built by First Solar ( FSLR) in December, Berkshire Hathaway's ( BRK.B) MidAmerican Energy is increasing its wind energy portfolio -- an area in which it is already a U.S. leader -- taking advantage of multi-decade power purchase agreements (PPAs) from regulated utilities.

Buffett's investment in Bishop Hill II and previous deals for solar plants comes at a time when the alternative energy industry faces significant headwinds, including falling power prices, lower government subsidies and a European slowdown. Wind energy investment fell 17% in the U.S. to $21.6 billion in the fourth quarter, while wind generation fell for the first time in a decade in 2011, according to Bloomberg data. Previously, the industry had seen greater than double-digit annual growth.
Warren Buffett

Economics in the wind energy market have favored investors rather than wind turbine manufacturers in the past few years. GE ( GE), one of the world's largest wind power companies, released earnings on Friday that showed margins in the wind turbine business remain challenging and it expects them to be a headwind for its energy infrastructure division through 2012.

"One drag that was just on the whole company all year long was wind," said GE Chief Financial Officer Keith Sherin on a Friday earnings call with analysts. Sherin noted that while the wind business dragged overall operating profit by $700 million in 2011, he expects a 2012 improvement.

The Invenergy Wind project features 50 General Electric wind turbines.

MidAmerican Energy, which is already the top wind generation producer for regulated utilities in the U.S., will add the Illinois-based Bishop Hill II to the $6 billion in U.S. wind-power generation investments that it's made in Iowa, Wyoming, Washington and Oregon since entering the sector in 2004. Currently, MidAmerican has built or acquired 3,300 megawatts of wind energy capacity. Iowa has the highest percentage of wind energy, relative to the state's total energy generation capacity, in the U.S.

The power purchase agreements on the solar projects and the Bishop Hill II wind project fit the stable investment model of an insurance investor like Buffett -- companies and projects with stable long-term returns, much like an annuity.

The Bishop Hill II project has a 20-year purchase agreement with Ameren's ( AEE) Illinois-based utility and will be ready for commercial use in 2012, according to a press statement.

"Wind energy is a renewable generation source that meets current and future energy needs in an environmentally efficient and cost-effective manner," said MidAmerican CEO Greg Abel in a statement. "The Bishop Hill II wind project fits our model of investing in the renewable energy sector," he added.

An acquisition price wasn't disclosed for Buffett's latest alternative energy buy, but it follows MidAmerican Energy's December purchases of the Agua Caliente and Topaz solar projects.

See the 5 stocks JPMorgan warns to absolutely avoid and Al Gore generation investment management for more on the U.S. solar industry.

In December, MidAmerican bought a non-controlling 49% stake in Agua Caliente, the $1.8 billion, 290-megawatt solar project, from NRG Energy ( NRG).

That project and purchase of the $2 billion Topaz development have multi-decade energy distribution contracts with Pacific Gas & Electric, a California utility that will need to get a third of its energy from renewable sources by 2020.

Currently, MidAmerican 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 profit, which are below 2007 levels.

Yet on the manufacturing side of the alternative energy equation, the solar panel provider and constructor of the Topaz and Agua Caliente projects, First Solar, has struggled, seeing 75% shaved off its market value in 2011 as a glut of cheap panels from China and declining European subsidies for solar disrupted its business model.

General Electric, the largest U.S. maker of wind turbines and a competitor to European turbine giants like Denmark's Vestas ( VWDRY), Siemens ( SIE) of Germany and Gamesa ( GTCAF) of Spain, reported that its profit in its energy infrastructure division fell 9% to $6.6 billion in 2011 even as wind turbine orders doubled to over 1,000. Meanwhile, wind turbine installs in the U.S. fell by nearly 50% to 5,805 megawatts in 2010.

For Buffett, who also made a $231 million investment in Chinese electric car battery company BYD in 2008 -- BYD also has plans to enter the solar market -- the solar and wind projects may be similar to other contrarian deals like preferred share investments in Goldman Sachs ( GS) and General Electric during the financial crisis, which locked in above-market returns as others retreated from the market.

-- Written by Antoine Gara in New York