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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-

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.
    - colechristensen 14y ago
      It seems a fair argument until you notice that oil is subsidized too though the relationship of these subsidies and how they compete with eachother is complicated and not worth debating.
technotony 14y ago
Very interesting. Could you expand a little on this, ie what exactly his bet on interest rates is? Is he expecting them to stay low or go up?
- _delirium 14y ago
  He's betting that they'll stay lowish, or at least lower than whatever return he's getting here (not enough information in the article to tell). If you treat this investment, in return for a 20-year guaranteed rate, as sort of like a 20-year bond, it shares the characteristics of long-term bonds that you're betting against any unexpected increase in interest rates. If interest rates increase more than was priced in at the beginning, e.g. there's a big rate spike in 2017, then you would've been better off keeping your money in short-term bonds where you can take advantage of any upwards movements, rather than locking in a fixed return for 20 years.
  - antr 14y ago
    Agree to your comment, but all PPAs I've seen/been part off, are indexed/hedged to CPI/energy CPI and/or oil & gas prices. It would be irresponsible for whomever negotiated and valued the PPA not to factor these. No PPA without this type of hedge/terms is financeable - today more than ever.
rjtavares 14y ago
Interesting. Should be a pretty good hedge against inflation, assuming the prices aren't fixed (couldn't tell from your link).
- joeag 14y ago
  Unfortunately they almost always are. The utilities are in the enviable position of buying wholesale power from renewable generators on 20 to 25 year fixed price, flat contracts. Of course they would never agree to sell power to the customers on the same terms - which is why it is great being a utility!
  - justincormack 14y ago
    No its not. If prices fall utilities lose vast amounts of money. And they do a lot of hedging too.
    - joeag 14y ago
      I can only speak to California utilities, but in CA, by law, utilities are permitted to earn 11% return on capital. As there is no customer choice when it comes to electric power (you only have one provider running a wire to your home), the utilities simply get the rate approved that they need to generate the allowable return. So prices don't "fall", because the utility is constantly investing in new assets (generation, transmission, smart meters, new power purchase agreements) raising their capital base and thus either sustaining or raising the rates (price) to consumers.
orangethirty 14y ago
If anyone wants to learn more about how this stuff works (and why does Buffett does these types of deals), then read the book Security Analysis by Benjamin Graham.
- kkwok 14y ago
  Completely agree, and great book. Though I believe Buffet's strategies no longer follow Graham's as closely as they use to.
  - orangethirty 14y ago
    Yes, they have shifted from pure number crunching (which is Graham's approach) to a system that values future growth potential more. In Graham's style you can only judge a company on its past dealings, cash in hand, inventory, equipment, etc. But Buffett knows that companies also have other qualities that are very valuable, but not commonly considered as such. He went from a pure quantitative approach to one that is quantitative and qualitative. Hence, when he talks about moats, he is talking about those qualities that you cannot price, but are still very valuable. One great example of this is his investment in Coca-Cola. Not a great investment in terms of financials (dont get me wrong, it makes him money) only, but also in terms of all the goodwill that the Coca-Cola company enjoys (they invented Santa Claus!). So investing in it made sense because their long term prospects were positive given the past history and goodwill status.
    - killahpriest 14y ago
      Coca Cola INVENTED Santa Claus?!?!
      - Mz 14y ago
        No, they didn't. I am on an android and having trouble searching. But they apparently popularized a particular image of Santa. Off the top of my head, Santa is originally based on a real person but the modern image doesn't much resemble Saint Nicholas of actual history. Modern commercialization has had a huge impact on Christmas and pushed gift giving over more traditional spiritual celebrations and, iirc, modern commerce invented Rudolph the red nosed reindeer (though I think it was a different company, not coke). Google it yourself. You probably are in a better position to verify it than I am, with my wonky android browser freezing up and saying "bite me, bitch" on a regular basis.

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.
  - colechristensen 14y ago
    It seems a fair argument until you notice that oil is subsidized too though the relationship of these subsidies and how they compete with eachother is complicated and not worth debating.

technotony 14y ago

Very interesting. Could you expand a little on this, ie what exactly his bet on interest rates is? Is he expecting them to stay low or go up?

_delirium 14y ago
He's betting that they'll stay lowish, or at least lower than whatever return he's getting here (not enough information in the article to tell). If you treat this investment, in return for a 20-year guaranteed rate, as sort of like a 20-year bond, it shares the characteristics of long-term bonds that you're betting against any unexpected increase in interest rates. If interest rates increase more than was priced in at the beginning, e.g. there's a big rate spike in 2017, then you would've been better off keeping your money in short-term bonds where you can take advantage of any upwards movements, rather than locking in a fixed return for 20 years.
- antr 14y ago
  Agree to your comment, but all PPAs I've seen/been part off, are indexed/hedged to CPI/energy CPI and/or oil & gas prices. It would be irresponsible for whomever negotiated and valued the PPA not to factor these. No PPA without this type of hedge/terms is financeable - today more than ever.

rjtavares 14y ago

Interesting. Should be a pretty good hedge against inflation, assuming the prices aren't fixed (couldn't tell from your link).

joeag 14y ago
Unfortunately they almost always are. The utilities are in the enviable position of buying wholesale power from renewable generators on 20 to 25 year fixed price, flat contracts. Of course they would never agree to sell power to the customers on the same terms - which is why it is great being a utility!
- justincormack 14y ago
  No its not. If prices fall utilities lose vast amounts of money. And they do a lot of hedging too.
  - joeag 14y ago
    I can only speak to California utilities, but in CA, by law, utilities are permitted to earn 11% return on capital. As there is no customer choice when it comes to electric power (you only have one provider running a wire to your home), the utilities simply get the rate approved that they need to generate the allowable return. So prices don't "fall", because the utility is constantly investing in new assets (generation, transmission, smart meters, new power purchase agreements) raising their capital base and thus either sustaining or raising the rates (price) to consumers.

orangethirty 14y ago

If anyone wants to learn more about how this stuff works (and why does Buffett does these types of deals), then read the book Security Analysis by Benjamin Graham.

kkwok 14y ago
Completely agree, and great book. Though I believe Buffet's strategies no longer follow Graham's as closely as they use to.
- orangethirty 14y ago
  Yes, they have shifted from pure number crunching (which is Graham's approach) to a system that values future growth potential more. In Graham's style you can only judge a company on its past dealings, cash in hand, inventory, equipment, etc. But Buffett knows that companies also have other qualities that are very valuable, but not commonly considered as such. He went from a pure quantitative approach to one that is quantitative and qualitative. Hence, when he talks about moats, he is talking about those qualities that you cannot price, but are still very valuable. One great example of this is his investment in Coca-Cola. Not a great investment in terms of financials (dont get me wrong, it makes him money) only, but also in terms of all the goodwill that the Coca-Cola company enjoys (they invented Santa Claus!). So investing in it made sense because their long term prospects were positive given the past history and goodwill status.
  - killahpriest 14y ago
    Coca Cola INVENTED Santa Claus?!?!
    - Mz 14y ago
      No, they didn't. I am on an android and having trouble searching. But they apparently popularized a particular image of Santa. Off the top of my head, Santa is originally based on a real person but the modern image doesn't much resemble Saint Nicholas of actual history. Modern commercialization has had a huge impact on Christmas and pushed gift giving over more traditional spiritual celebrations and, iirc, modern commerce invented Rudolph the red nosed reindeer (though I think it was a different company, not coke). Google it yourself. You probably are in a better position to verify it than I am, with my wonky android browser freezing up and saying "bite me, bitch" on a regular basis.