
Warren Buffett Buys World's Largest Solar Project from SunPower for $2.5 Billion - MikeCapone
http://www.treehugger.com/renewable-energy/warren-buffett-buys-worlds-largest-solar-project-sunpower-25-billion.html
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nilsbunger
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-
pr...](http://www.elp.com/articles/2013/01/antelope-valley-solar-projects-
will-generate-579-mw-for-southern-california-edison.html)

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).

~~~
antr
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
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.

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underdown
... thanks to government subsidies. This is still not an industry that is
profitable on its own.

~~~
colechristensen
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.

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dxbydt
Am a huge follower of Charlie Munger, and I re-read his writings every so
often (
[http://www.tilsonfunds.com/motley_berkshire_charlie_speeches...](http://www.tilsonfunds.com/motley_berkshire_charlie_speeches.php)
). 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.

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Tycho
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._

~~~
dxbydt
> I don't understand your terminology

I think you do :) Probably you disagree with the characterization. I don't see
why rent capture generally has such a negative connotation outside of finance
circles. Its a perfectly legitimate strategy. And who has a larger moat than
BNSF or Vestas or SunPower ? Even if you were a Zuckerberg you couldn't build
these things in decades. Takes forever just to buy the land, spec out these
things & get the specs approved by regulatory bodies. So if you could buy
these concerns outright, you would. You would buy, whether it was making solar
power or your underwear. ( He owns the largest underwear maker Fruit of the
Loom ). Given the asymmetric info advantage he has, he's sold millions of puts
expiring in 2019 & is sitting on top of billions in premium ( while
simultaneously telling the American public that derivatives are instruments of
the devil :) Got to park those assets someplace, otherwise fiat risks
accumulate. His stock purchases for 2012 are quite ho-hum...utilities, banks,
big media ( [http://static.cdn-
seekingalpha.com/uploads/2012/12/4/sauploa...](http://static.cdn-
seekingalpha.com/uploads/2012/12/4/saupload_Berkshire-13F-Q3-2012-Update_1.jpg)
)

~~~
_delirium
> I don't see why rent capture generally has such a negative connotation
> outside of finance circles.

Well, it violates a lot of views of how the market "should" operate, on both
the left and the right. On the right, some simplified versions of free-market
views assume relatively perfect, efficient markets will normally develop
absent government distortion, so they're suspicious of areas where rent is
being extracted as probably due to some kind of intervention preventing a
proper free market from operating. And on the left, many see rent-extraction
as a paradigmatic example of the power of capital relative to labor (the
ability of passive rent-extractors to in effect collect a "tax" from active
economic activity).

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chii
people who do not own "rent producing assets" have a bias towards those who
do, because a "rent producing asset" is something that gives the owner money,
without the owner producing value, other than making the asset available. It
is basically a facet of jealousy if you ask me...

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mmanfrin
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
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
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).

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thebmax
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.

~~~
kvb
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?

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thebmax
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_C...](http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US02F)

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
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.

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kirinan
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
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.

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gabyar
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."

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klochner
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
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
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.

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joeag
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.

~~~
klochner
Thanks - that's helpful to know.

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codegeek
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.

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ianstallings
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.

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

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imran
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.

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TommyDANGerous
What a buy.

