Buffett’s MidAmerican Energy Makes A Billion Dollar Bet On Wind Power

Buffett’s MidAmerican Energy Makes A Billion Dollar Bet On Wind Power

MidAmerican Energy Holdings Company describes itself as a global leader in the production, transportation and delivery of energy from a variety of fuel sources, including coal, natural gas, wind, hydro, solar, nuclear, geothermal and biomass.

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It is the unlisted power arm of Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B). The company was in the news yesterday for the huge order it placed on Siemens AG (NYSE:SI) (FRA:SIE) for the supply of 448 wind turbines, each capable of generating 2.3 megawatts.

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The order, estimated to be worth over $1B, will enable MidAmerican to add over 1000 megawatts to its generation capacity, to be distributed across various locations such as the O’Brien, Webster, Grundy, Madison and Marshall counties.

MidAmerican Energy fact sheet (as of end-2012)

With total assets of $52 billion and operating revenues of $11.5B, MidAmerican has 7.1 million customers.

Total Generation Capacity: More than 23,500 megawatts (owned and contracted)
Total Electricity Distributed: 117 billion kilowatt-hours
Total Natural Gas Supplied: 1.96 billion decatherms
Electricity Transmission and Distribution Lines: 178,000 miles
Natural Gas Transmission and Distribution Pipelines: 39,000 miles
Natural Gas Transmission Pipeline Design Capacity: Approximately 7.7 billion cubic feet per day in-service
Total Employees: 16,000

Renewable energy business

MidAmerican Renewables is the arm that generates energy from renewable sources. According to the corporate brochure, MidAmerican Renewables has committed to invest over $7B in new wind and solar projects. It is building two of the world’s largest photovoltaic solar projects – Topaz Solar Farms and the Antelope Valley Solar Projects I and II, and has a total of 2,285 megawatts of owned wind-powered generation capacity.

Its MidAmerican Geothermal subsidiary owns a 50% interest in 10 geothermal facilities in California’s Imperial Valley that have the capacity to produce up to 327 megawatts. It also owns and operates or has a stake in several natural gas-fueled plants across the country.

The MidAmerican Hydro unit owns 50 percent of the 10-megawatt Wailuku hydroelectric generation project, which is located at the junction of the Wailuku River and the Kalohewahewa Stream on the eastern coast of the island of Hawaii. Electricity generated is sold to the Hawaii Electric Light Company, Inc.

also see: MidAmerican Buys NV Energy In Synergistic Deal

MidAmerican Renewable energy generation capacity (megawatts)

Solar               1,271

Wind                   381

Geothermal        164

Hydro                      5

Natural gas        785

Total              2,579

Read the company’s fact sheet here.

Investment strategies

MidAmerican entered solar generation in 2011 when solar panel prices were at lows due to massive global oversupply. Warren Buffett also justified his foray into the solar business in a letter to shareholders as follows:

“MidAmerican will have 3,316 megawatts of wind generation in operation by the end of 2012, far more than any other regulated electric utility in the country. The total amount that we have invested or committed to wind is a staggering $6 billion. We can make this sort of investment because MidAmerican retains all of its earnings, unlike other utilities that generally pay out most of what they earn. In addition, late last year we took on two solar projects – one 100%-owned in California and the other 49%-owned in Arizona – that will cost about $3 billion to construct. Many more wind and solar projects will almost certainly follow.”

The Siemens wind turbine order we mentioned above is, similarly, savvy capex ordering. Markus Tacke, chief executive officer of Siemens Energy’s wind power division, said, “The U.S. is leading the way toward grid parity,” which is the cost point at which the cost of generation from a renewable source is the same as that from a non-renewable source such as coal.

also see: Berkshire’s MidAmerican Energy Buys NV Energy in All Cash Deal

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Saul Griffith is an investor in stocks, commodities and forex, writing under a pen name. Saul has top accounting qualifications and extensive experience in industry and the financial markets. He also has an abiding interest in breaking news that could be a harbinger of new trends and give insight into an instrument’s potential for providing value, growth or yield.
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