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Warren Buffett Buys World's Largest Solar Project from SunPower for $2.5 Billion

208 points by MikeCapone 14y ago

gabyar 14y ago
This article significantly misconstrues Buffets investment style. He does invest for value. But he doesn't even think whether a stock has "bottomed in the market price". Predicting when a stock has "bottomed" is not possible as it's dependent on the whims of an irrational market. The first half of this statement is correct and the second half is completely wrong: "He only buys when he's sure that an asset is undervalued and is likely to have bottomed in market price."
kirinan 14y ago
It will be interesting to see where the energy market will be in the next ten years. I do believe that at some point people will need new forms of energy since the forms we currently have are too expensive (or getting to expensive) for the average person to afford. Since the market needs the majority of people (in the popular cases) to need their energy, maybe it will adapt. I would like to see some more competition in the market of energy; in most small cities in the midwest and some of the larger ones there are virtual monopolies allowed by the cities. This is sad, and I think the business sector can do a lot better. Warren Buffet paying into solar is a promising sign, however I think there needs to be a lot invested in brand new technologies that havent been created yet.
- electromagnetic 14y ago
  I know I've noticed a boost in the amount of properties that have solar in my area in just the past few years. Solar pool heaters are very common now too. With companies offering financing for the sell-back programs with solar it's going to improve, I know bungalows in our area that can get a decent sized system installed can make about $2200 a year, pay nothing for the installation of the system, and get tax cuts. Smaller systems are still worth it, you're just not going to get many people paying $10,000 up front for a few kilowatt system that'll take 7-8 years to pay back. I expect as efficiency in systems go up there'll be a huge improvement in the numbers of people with solar. I know with the current systems I can only get a 2-3KW system on my roof (the south facing portion), which isn't worth it with the install costs, etc required for the sell-back programs. In 10 years when the solar panels being sold are close to the efficiency we see in labs today, it will be cost effective for just about every property in a suburban area to get solar systems set up. We're literally on the precipice of a power revolution. I wouldn't be surprised if we see architecture change to increase the amount of south facing roof to increase the amount of energy properties can get. Imagine when the majority of power for cities is being supplied by the suburbs surrounding them. Any abundance in electricity will absolutely fuck the natural gas market. I know running an electric furnace in my area costs about 50% more than natural gas, but when home owners are making more money from their solar system than they're consuming, electric furnaces and hot water heaters will break peoples energy expenses even. Paying $0 a month for all your utilities, or even getting paid per month, will change the entire energy market.
- eru 14y ago
  > I do believe that at some point people will need new forms of energy since the forms we currently have are too expensive (or getting to expensive) for the average person to afford. Isn't shale gas actually making energy more affordable at the moment?
codegeek 14y ago
I really really hope that Solar energy takes off and is affordable/feasible enough to be used by consumer households. Yes we still are not quite convinced by it and probably not there yet, but imagine if we did.
thebmax 14y ago
This is most likely a tax play. Renewable energy projects are almost always financed through tax incentives that can be used to offset tax liabilities elsewhere. Could be seen as hypocritical of Buffet considering his recent musings that rich people should pay their fair share. Here he is trying to avoid taxes.
- jhuni 14y ago
  He meant other rich people should pay their fair share, of course.
- kvb 14y ago
  First of all, he's not personally buying it, so it's not like this would reduce his personal taxes. Secondly, your first sentence is clearly speculative, but then you act as if it's definitely true for the rest of your comment - do you have any evidence for this whatsoever?
  - thebmax 14y ago
    You are correct. Berkshire Hathaway would benefit, not him personally. The tax credits are a big reason these things get built. There is a 30% solar tax credit that can be passed through to owners against other income. http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US02F http://www.dsireusa.org/incentives/incentive.cfm?Incentive_C... The reason this may not be a tax play for him is that ConEdison or SunPower may have already stripped the tax credits from the project and sold them independently. This means there may only be a long term investment vehicle that insurance-type companies like to hold. But someone benefited from the tax credits and I wouldn't be surprised if they were part of the deal.
    - rprasad 14y ago
      According to your link, the tax credit is only available to the original installer of the solar facility, i.e., the solar plant in this case. In order to take advantage of the creditk, the solar plant company would have to file a consolidated return with Berkshire Hathaway.
klochner 14y ago
Isn't this something of a contrarian bet on solar technology, and energy technology more generally? If you anticipate technology improving or prices for energy coming down, you wouldn't invest in today's technology.
- mmanfrin 14y ago
  Prices come down due to scaling of existing manufacturing -- which benefits the players who bet early to invest in those processes. You're mixing the cost to the consumer with the investment return.
  - klochner 14y ago
    He didn't invest in a solar cell manufacturer, he bought a couple of solar energy plants - mostly fixed cost, variable revenue. If energy prices come down, he will lose money.
    - justincormack 14y ago
      I think all the production is pre-sold to the local power utility, possibly at fixed price. Its hard to get the details of these contracts though.
    - fennecfoxen 14y ago
      Then you could look at this move as a hedge against rising energy prices, not entirely unlike his purchase of Burlington Northern Santa Fe. Energy prices are, of course, a hard game to predict, with above-average political risk, especially in the renewables arena...
    - joeag 14y ago
      Fixed revenue usually. Actually to be more precise, fixed price, but declining revenue because the production goes down as the panels (and inverters) degrade. Usually assumed to be .5% per year. The contracts with SCE are typically not based on market prices.
mmanfrin 14y ago
I have a feeling that this is not an investment to Buffet, but rather a means for him to influence the market. People now follow his investments religiously, and an investment like this in to solar could spur a lot of people to make similar capital investments. In effect, Buffet is now making a demand for green companies for copy-cat investors to invest in.
- loumf 14y ago
  If by "not an investment", you mean that he doesn't believe that it will throw off more net-present value cash than a similar investment in the S&P, then I strongly disagree. He may think that it would not have done that without his investment -- so it could be both, but Buffet promises investors that cash will be deployed more efficiently than you could by just buying an S&P index fund.
  - mmanfrin 14y ago
    Sorry, I should clarify :] I don't think this isn't an investment, but I think there were motivations beyond purely investment; and having heard him speak and read what he has written, I am taking a guess that he was motivated out of an idea to influence good (while still making a sound investment).
- justincormack 14y ago
  What evidence have you got for this? He runs a public company, and demanding stuff is not really what he does, he is out to make money.
- thebmax 14y ago
  Solar energy investments are financed through tax incentives. Buffet is doing this to reduce his tax bill.
  - joeag 14y ago
    Nope. The tax incentives go to the investor involved in building the project and are usually captured by a bank that trades the tax credit for an equity investment which lasts for about 5 years (the minimum period to avoid recapture).
nilsbunger 14y ago
The SunPower facility has already sold its power under long-term contracts to SoCal Edison: http://www.elp.com/articles/2013/01/antelope-valley-solar-projects-will-generate-579-mw-for-southern-california-edison.html http://www.elp.com/articles/2013/01/antelope-valley-solar-pr... So from Buffett's perspective this just looks like a bond. I don't think it's a bet for or against solar, but rather a bet on deferred cash vs present cash (so on interest rates).
- txttran 14y ago
  Are the terms of these contracts public information? And if so, can that be used to give us an understanding of what "interest rate" Warren Buffet is getting on his purchase?
  - justincormack 14y ago
    No not usually. Power contracts are very hard to get details on.
- antr 14y ago
  I wasn't expecting this comment in Hacker News. I can only agree. Indeed, this is an investment with a risk/return profile of a utility, not the technology.
  - colechristensen 14y ago
    The telling point, and why this is on HN, is the important threshold that a seasoned investor can buy solar to make money for the purpose of making money.
    - underdown 14y ago
      ... thanks to government subsidies. This is still not an industry that is profitable on its own.
      - 14y ago
ianstallings 14y ago
This actually fits Buffet's investment model. He tends to purchase only when a company is down or undervalued and then plays the long angle. He's not a trend investor, he invests based on assets and P/E, etc. AKA "Traditional" value investing methods pioneered by his mentor Benjamin Graham.
imran 14y ago
It goes all along the profit way for buffet. Save TAX , make huge profit , CONTROL (energy, news media, etc) So its not about solar per sè its about profit , most probably Long-Term profit.
dxbydt 14y ago
Am a huge follower of Charlie Munger, and I re-read his writings every so often ( http://www.tilsonfunds.com/motley_berkshire_charlie_speeches.php http://www.tilsonfunds.com/motley_berkshire_charlie_speeches... ). What the two of them do is so much of a one-trick pony. They always seek massive rent capture via outright purchase of a corp with a very large moat. Then reduce the fiat risk by converting the cash into non-fiat income producing assets. This way they lock in wealth preservation regardless of what happens to the fiat. When I lived in New Mexico for a bunch of years, there was one constant - the incessant back and forth of the trains carrying coal containers from one end of the country to the other, and on the return trip carrying giant walmart containers shipped from China to the US ports, to their destinations in the rest of the mainland US. Everybody knew BNSF was the coronary artery of the US. One day I remarked to my wife - just you watch, Buffett is going to own BNSF. And then when it happened, she was like - how did you know ?! Its just so obvious. This SunPower thing was on the cards too. Prediction: He'll buy Vestas. Or Nordex. Just you watch...ofcourse you can't time these trades. Nobody knows the when, but the what is fairly well known at this point.
- Tycho 14y ago
  Could you explain what this means? I don't understand your terminology They always seek massive rent capture via outright purchase of a corp with a very large moat.
  - criley 14y ago
    Pretty sure "moat" is a term popularized by Warren Buffet himself to describe a company with some kind of inherent advantage over it's competitors. As in, when a company with a moat succeeds, his competitors have a hard time entering that market and replicating that success because of the moat. A moat protects your marketshare. A very large moat then would be, I guess (I'm not an investor or anything), a company with a large competitive advantage and a market share that would be very difficult to steal.
    - txttran 14y ago
      what about "rent capture" and "fiat risk"?
tubbo 14y ago
I'd eat a Warren Buffett any day of the week.
TommyDANGerous 14y ago
What a buy.
uptown 14y ago
I'm surprised that the largest solar project is only worth $2.5 billion.

208 points by MikeCapone 14y ago

This article significantly misconstrues Buffets investment style. He does invest for value. But he doesn't even think whether a stock has "bottomed in the market price". Predicting when a stock has "bottomed" is not possible as it's dependent on the whims of an irrational market. The first half of this statement is correct and the second half is completely wrong: "He only buys when he's sure that an asset is undervalued and is likely to have bottomed in market price."

kirinan 14y ago

It will be interesting to see where the energy market will be in the next ten years. I do believe that at some point people will need new forms of energy since the forms we currently have are too expensive (or getting to expensive) for the average person to afford. Since the market needs the majority of people (in the popular cases) to need their energy, maybe it will adapt. I would like to see some more competition in the market of energy; in most small cities in the midwest and some of the larger ones there are virtual monopolies allowed by the cities. This is sad, and I think the business sector can do a lot better. Warren Buffet paying into solar is a promising sign, however I think there needs to be a lot invested in brand new technologies that havent been created yet.

electromagnetic 14y ago
I know I've noticed a boost in the amount of properties that have solar in my area in just the past few years. Solar pool heaters are very common now too. With companies offering financing for the sell-back programs with solar it's going to improve, I know bungalows in our area that can get a decent sized system installed can make about $2200 a year, pay nothing for the installation of the system, and get tax cuts. Smaller systems are still worth it, you're just not going to get many people paying $10,000 up front for a few kilowatt system that'll take 7-8 years to pay back. I expect as efficiency in systems go up there'll be a huge improvement in the numbers of people with solar. I know with the current systems I can only get a 2-3KW system on my roof (the south facing portion), which isn't worth it with the install costs, etc required for the sell-back programs. In 10 years when the solar panels being sold are close to the efficiency we see in labs today, it will be cost effective for just about every property in a suburban area to get solar systems set up. We're literally on the precipice of a power revolution. I wouldn't be surprised if we see architecture change to increase the amount of south facing roof to increase the amount of energy properties can get. Imagine when the majority of power for cities is being supplied by the suburbs surrounding them. Any abundance in electricity will absolutely fuck the natural gas market. I know running an electric furnace in my area costs about 50% more than natural gas, but when home owners are making more money from their solar system than they're consuming, electric furnaces and hot water heaters will break peoples energy expenses even. Paying $0 a month for all your utilities, or even getting paid per month, will change the entire energy market.
eru 14y ago
> I do believe that at some point people will need new forms of energy since the forms we currently have are too expensive (or getting to expensive) for the average person to afford. Isn't shale gas actually making energy more affordable at the moment?

codegeek 14y ago

I really really hope that Solar energy takes off and is affordable/feasible enough to be used by consumer households. Yes we still are not quite convinced by it and probably not there yet, but imagine if we did.

thebmax 14y ago

This is most likely a tax play. Renewable energy projects are almost always financed through tax incentives that can be used to offset tax liabilities elsewhere. Could be seen as hypocritical of Buffet considering his recent musings that rich people should pay their fair share. Here he is trying to avoid taxes.

jhuni 14y ago
He meant other rich people should pay their fair share, of course.
kvb 14y ago
First of all, he's not personally buying it, so it's not like this would reduce his personal taxes. Secondly, your first sentence is clearly speculative, but then you act as if it's definitely true for the rest of your comment - do you have any evidence for this whatsoever?
- thebmax 14y ago
  You are correct. Berkshire Hathaway would benefit, not him personally. The tax credits are a big reason these things get built. There is a 30% solar tax credit that can be passed through to owners against other income. http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US02F http://www.dsireusa.org/incentives/incentive.cfm?Incentive_C... The reason this may not be a tax play for him is that ConEdison or SunPower may have already stripped the tax credits from the project and sold them independently. This means there may only be a long term investment vehicle that insurance-type companies like to hold. But someone benefited from the tax credits and I wouldn't be surprised if they were part of the deal.
  - rprasad 14y ago
    According to your link, the tax credit is only available to the original installer of the solar facility, i.e., the solar plant in this case. In order to take advantage of the creditk, the solar plant company would have to file a consolidated return with Berkshire Hathaway.

klochner 14y ago

Isn't this something of a contrarian bet on solar technology, and energy technology more generally? If you anticipate technology improving or prices for energy coming down, you wouldn't invest in today's technology.

mmanfrin 14y ago
Prices come down due to scaling of existing manufacturing -- which benefits the players who bet early to invest in those processes. You're mixing the cost to the consumer with the investment return.
- klochner 14y ago
  He didn't invest in a solar cell manufacturer, he bought a couple of solar energy plants - mostly fixed cost, variable revenue. If energy prices come down, he will lose money.
  - justincormack 14y ago
    I think all the production is pre-sold to the local power utility, possibly at fixed price. Its hard to get the details of these contracts though.
  - fennecfoxen 14y ago
    Then you could look at this move as a hedge against rising energy prices, not entirely unlike his purchase of Burlington Northern Santa Fe. Energy prices are, of course, a hard game to predict, with above-average political risk, especially in the renewables arena...
  - joeag 14y ago
    Fixed revenue usually. Actually to be more precise, fixed price, but declining revenue because the production goes down as the panels (and inverters) degrade. Usually assumed to be .5% per year. The contracts with SCE are typically not based on market prices.

mmanfrin 14y ago

I have a feeling that this is not an investment to Buffet, but rather a means for him to influence the market. People now follow his investments religiously, and an investment like this in to solar could spur a lot of people to make similar capital investments. In effect, Buffet is now making a demand for green companies for copy-cat investors to invest in.

loumf 14y ago
If by "not an investment", you mean that he doesn't believe that it will throw off more net-present value cash than a similar investment in the S&P, then I strongly disagree. He may think that it would not have done that without his investment -- so it could be both, but Buffet promises investors that cash will be deployed more efficiently than you could by just buying an S&P index fund.
- mmanfrin 14y ago
  Sorry, I should clarify :] I don't think this isn't an investment, but I think there were motivations beyond purely investment; and having heard him speak and read what he has written, I am taking a guess that he was motivated out of an idea to influence good (while still making a sound investment).
justincormack 14y ago
What evidence have you got for this? He runs a public company, and demanding stuff is not really what he does, he is out to make money.
thebmax 14y ago
Solar energy investments are financed through tax incentives. Buffet is doing this to reduce his tax bill.
- joeag 14y ago
  Nope. The tax incentives go to the investor involved in building the project and are usually captured by a bank that trades the tax credit for an equity investment which lasts for about 5 years (the minimum period to avoid recapture).

nilsbunger 14y ago

The SunPower facility has already sold its power under long-term contracts to SoCal Edison: http://www.elp.com/articles/2013/01/antelope-valley-solar-projects-will-generate-579-mw-for-southern-california-edison.html http://www.elp.com/articles/2013/01/antelope-valley-solar-pr... So from Buffett's perspective this just looks like a bond. I don't think it's a bet for or against solar, but rather a bet on deferred cash vs present cash (so on interest rates).

txttran 14y ago
Are the terms of these contracts public information? And if so, can that be used to give us an understanding of what "interest rate" Warren Buffet is getting on his purchase?
- justincormack 14y ago
  No not usually. Power contracts are very hard to get details on.
antr 14y ago
I wasn't expecting this comment in Hacker News. I can only agree. Indeed, this is an investment with a risk/return profile of a utility, not the technology.
- colechristensen 14y ago
  The telling point, and why this is on HN, is the important threshold that a seasoned investor can buy solar to make money for the purpose of making money.
  - underdown 14y ago
    ... thanks to government subsidies. This is still not an industry that is profitable on its own.
    - 14y ago

ianstallings 14y ago

This actually fits Buffet's investment model. He tends to purchase only when a company is down or undervalued and then plays the long angle. He's not a trend investor, he invests based on assets and P/E, etc. AKA "Traditional" value investing methods pioneered by his mentor Benjamin Graham.

imran 14y ago

It goes all along the profit way for buffet. Save TAX , make huge profit , CONTROL (energy, news media, etc) So its not about solar per sè its about profit , most probably Long-Term profit.

dxbydt 14y ago

Am a huge follower of Charlie Munger, and I re-read his writings every so often ( http://www.tilsonfunds.com/motley_berkshire_charlie_speeches.php http://www.tilsonfunds.com/motley_berkshire_charlie_speeches... ). What the two of them do is so much of a one-trick pony. They always seek massive rent capture via outright purchase of a corp with a very large moat. Then reduce the fiat risk by converting the cash into non-fiat income producing assets. This way they lock in wealth preservation regardless of what happens to the fiat. When I lived in New Mexico for a bunch of years, there was one constant - the incessant back and forth of the trains carrying coal containers from one end of the country to the other, and on the return trip carrying giant walmart containers shipped from China to the US ports, to their destinations in the rest of the mainland US. Everybody knew BNSF was the coronary artery of the US. One day I remarked to my wife - just you watch, Buffett is going to own BNSF. And then when it happened, she was like - how did you know ?! Its just so obvious. This SunPower thing was on the cards too. Prediction: He'll buy Vestas. Or Nordex. Just you watch...ofcourse you can't time these trades. Nobody knows the when, but the what is fairly well known at this point.

Tycho 14y ago
Could you explain what this means? I don't understand your terminology They always seek massive rent capture via outright purchase of a corp with a very large moat.
- criley 14y ago
  Pretty sure "moat" is a term popularized by Warren Buffet himself to describe a company with some kind of inherent advantage over it's competitors. As in, when a company with a moat succeeds, his competitors have a hard time entering that market and replicating that success because of the moat. A moat protects your marketshare. A very large moat then would be, I guess (I'm not an investor or anything), a company with a large competitive advantage and a market share that would be very difficult to steal.
  - txttran 14y ago
    what about "rent capture" and "fiat risk"?

tubbo 14y ago

I'd eat a Warren Buffett any day of the week.

TommyDANGerous 14y ago

What a buy.

uptown 14y ago

I'm surprised that the largest solar project is only worth $2.5 billion.