With government incentives and long-term contracts, what is there not to like?
Billionaire investor Warren Buffet has turned into something of a sage. As a long-term value investor, his decisions are followed with great interest. So when MidAmerican Energy Holdings, the utility arm of Berkshire Hathaway, bought First Solar’s 550 MW Topaz Solar Farm Power Plant in San Luis Obispo, California for an undisclosed amount, everyone took note.
What makes the plant, which is already under construction, valuable to Mr. Buffet, is a long-term power purchase agreement (PPA) with the Pacific Gas & Electric Company (PG&E), which guarantees a steady stream of payment for 25 years – something that is hard to find anywhere these days. Although neither the value of the sale nor the details of the PPA were publicly disclosed, analysts speculate that MidAmerican paid under $2 billion, and the output is sold to PG&E starting at 14-16 cents/kWh, dropping off to 10-12 by 2014, according to stories reported by Bloomberg and others.
Like other solar businesses, First Solar, based in Tempe, AZ, presently the largest US PV solar company and among the world’s lowest-cost manufacturers, has been struggling to cope with the global glut of manufacturing capacity and rapidly falling prices, down 40% in 2011 alone (see box above).
The company had secured loan guarantees from Department of Energy (DOE) for 3 other utility scale solar plants – but not Topaz plant – of the same order of magnitude and was struggling to manage the logistics of manufacturing panels as well as financing and construction activities. It has since sold its DOE financed projects to NextEra Energy Inc, NRG Energy Inc and Exelon Corp. With its latest sale to MidAmerican, it can focus on supplying the PV panels for the 4 massive projects.
Referring to the Topaz acquisition, Greg Abel, the CEO of MidAmerican said, The deal “demonstrates that solar energy is a commercially viable technology without the support of governmental loan guarantees,” but failed to point out the existence of the even more crucial PPA contact with guaranteed and generous prices for 25 years.
There is speculation that Buffett, who bought a 10% stake in China’s BYD Co Ltd – the world’s biggest electric vehicle manufacturer – in late 2008, will make use of synergies between electric battery technology and intermittent solar energy.
Perry Sioshansi is the editor of EEnergy Informer, and a consultant for energy firms. He can be reached at fpsioshansi@aol.com.
A recent book, Smart Grid: Integrating Renewable, Distributed, and Efficient Energy, edited by Sioshansi, explores the many dimensions of the smart grid . With contributions from a number of prominent experts, scholars and practitioners with different perspectives, the book provides a broad coverage of the what, how, when, why and other facets of the smart grid.
