Buffett Ready for Obama Coal Cuts as Berkshire Targets Renewables

NEW YORK (TheStreet) - Berkshire Hathaway (BRK.A) is well positioned for President Obama's proposal to cut carbon pollution from the nation's power plants by about 30% by 2030. It also wouldn't be surprising to see Berkshire's head Warren Buffett become one of the proposal's biggest Wall Street supporters.

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Berkshire Hathaway, through its utilities division MidAmerican Energy, is already the largest generator of wind energy in the United States. When a set of multi-billion dollar solar energy plants built by SunPower (SPWR) and First Solar (FSLR) that Berkshire has invested in come online, the conglomerate will also become the nation's leading generator of solar energy.

In total, Berkshire's MidAmerican energy unit has invested $15 billion in renewable energy investments. Given Buffett and lieutenant Charlie Munger's plan to invest as much as $100 billion in the utility business in the next 10 to 15 years, it is easy to see that figure rising.

President Obama's Proposal

On Monday, the Environmental Protection Agency (EPA) said it would propose emission guidelines to curb greenhouse gas emissions from fossil fuel-fired utilities, creating state-specific and rate-based goals for carbon dioxide emissions.

Nationwide, the EPA said it expects its rule would cut carbon dioxide emissions by about 30% from emissions levels recorded in 2005. To achieve those reductions, the EPA will allow states to tailor their own solutions carbon reductions.

Nonetheless, even if the goals are met, coal and natural gas will remain the two leading sources of electricity generation in the U.S. with each power source contributing roughly 30% of the country's projected power generation.

Monday's announcement by President Obama of a carbon pollution reduction plan isn't entirely out of the blue and there is already a framework in place by which investors, legislators, voters and utilities can look upon. Some states such as California and Nevada are well on their way to their own greenhouse gas emissions reductions.

California is well into a decade-long project to have the state make up 33% of its electricity supply from solar, wind and other renewable sources of energy by 2020. Similar mandates have also been put in place in western states like Nevada.

Berkshire Goes West with MidAmerican

It is those state-backed renewable energy proposals where Berkshire Hathaway has made its biggest investments.

In acquiring the nation's largest solar plants such as Agua Caliente, Topaz and Antelope Valley, Berkshire is relying upon power purchase agreements from large west coast utilities like Pacific Gas & Electric and Edison International (EIX), whom are trying to meet renewable energy mandates.

Furthermore, Berkshire has generally invested in plants that broke ground with funding provided by President Obama's stimulus package, the American Reinvestment and Recovery Act, and came at a time when few would invest in such projects as the government withdrew its financial support amid political rancor.

Similar deals may now emerge for Berkshire if state government's take President Obama's EPA proposal as a means to invest in renewables. In New York, Consolidated Edison (ED) recently announced it would spend about $1 billion on renewable energy investments as part of its 2014 budget.

Buffett As A Renewable Investor

If Buffett and Berkshire have quietly come to the forefront of the renewable energy industry, the 'Oracle of Omaha' hasn't appeared interested in commenting on issues such as climate change and greenhouse gas emissions. Instead, Buffett has generally spoken about Berkshire's renewable energy investment from a businessman's perspective.

Investments like Agua Caliente, Topaz, Antelope Valley and a set of Nevada-based renewable investments acquired with the $5.8 billion takeover of NV Energy are described by Buffett to his shareholders as providing an attractive rate of return, and not as a matter of conscience or public policy. Analysts generally believe that is a fair assessment, especially at a time when bonds carry low yields and Berkshire needs to diversify its investments.

"We relish making such commitments as long as they promise reasonable returns. And, on that front, we put a large amount of trust in future regulation," Buffett said of renewable energy investments in Berkshire's 2013 letter to shareholders.

MidAmerican's utilities serve regulated retail customers in 11 states and the company is the industry's leader in renewables. Already, Berkshire's energy subsidiary is the top generator of wind energy in the U.S. and has renewable assets of 1,830 megawatts, according to company projections.

"From a standing start nine years ago, MidAmerican now accounts for 7% of the country's wind generation capacity, with more on the way," Buffett said. "Our share in solar -- most of which is still in construction -- is even larger."

The costs of many recent MidAmerican deals, especially in solar energy, haven't been disclosed. However, Berkshire did disclose that MidAmerican's renewable energy investment hit $15 billion at the end of 2013, indicating it is one of Berkshire Hathaway's biggest investment priorities.

"Our confidence is justified both by our past experience and by the knowledge that society will forever need massive investments in both transportation and energy," Buffett said of Berkshire's investments. "It is in the self-interest of governments to treat capital providers in a manner that will ensure the continued flow of funds to essential projects," he added, while concluding it is in Berkshire's interests to do business in a way that "earns the approval of our regulators and the people they represent."

Perhaps, as President Obama attempts to pitch the American public, a divided legislature, and states that have resisted other policies such as the Affordable Care Act, Buffett will add to his comments on renewable energy investments.

For now, Berkshire looks well positioned for the enactment of any further attempts to cut greenhouse gas emissions, especially if those efforts center upon using renewable projects to replace idled coal-fired plants.

Bottom Line: Warren Buffett became President Obama's most credible spokesperson of the stimulus and bank bailouts. While the 'Oracle' was lukewarm on healthcare reform, new EPA emissions guidelines prove to be a rallying cry.

Read More: Berkshire's Renewable Energy Investment to Hit $15 Billion

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-- Written by Antoine Gara in New York.

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