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).
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.
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.
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?
Am a huge follower of Charlie Munger, and I re-read his writings every so often ( 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.
I am presuming that the moat being in this case the high locked in prices paid for solar power at the peak of the 'we must create renewable energy' frenzy.
It is unlikely that new solar plants would be able to get the same types of long-term power supply contracts that an existing plant might have got 5 years ago. At the residential level, most solar FIT have been slashed as government programs ran out of money and public enthusiasm waned as the non-participants bills went up.
But yes, a solar power plant is a utility, and if it has locked in contracts (I admit I have no idea if it does) it would be a good buy, if nothing else but for the inflation hedging as power always follows inflation but many other revenue streams do not.
I always wondered if it would be possible to create a fund or something that invested/bought up bankrupt but useful infrastructure projects. The two that spring to mind our Iridium Satellite Phone and the UK-France Channel Tunnel.
Both excellent ideas that were unlikely to earn back the cost to produce them, but if bought after bankruptcy and sunk costs have been written off they could be profitable.
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.
He is incredibly passionate about capitalism. Especially smart capitalists responding to pricing signals intelligently. And the symbiosis of good management and good investors to keep companies efficient, take smart risks, and earn consistent, healthy returns.
Making huge, counter-intuitive investments is nothing new for Buffett. (Railroads anyone?) I imagine he is doing this for the reason he usually does: he thinks he is getting a huge amount of value for a low price.
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.
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.
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?
I don't think it is because Buffet is all about making long term investments. Tax incentives that will go out of fashion at some point (probably in next 10 years) wouldn't impact his decision as much as sound business fundamentals and future potential.
However, even if it is a tax play, it's not inconsistent with his POV that the rich should pay their fair share. You can believe that the rules are currently broken, yet play by the current rules. One is about what you believe to be fair and the latter is about what is in the best interest of your shareholders.
If this is hypocritical, so is paying the lower tax rate than his secretary, even thought he complains about it. Anyone thinking its hypocritical is missing the point. He does it to show it exists. Sure, you can not do it, and donate to the government on your own, but that's not fixing the problem. The small number of donators can't fix the deficit on their own. It takes a law that required everyone to play ball in order to fix the problem.
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.
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.
> 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?
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."
1. Investment is a contrarian thing. Else you overpay.
2. If it makes sense now as a profitable, you go for it. He probably pre-sell a lot of the output at fixed prices, or you hedge or whatever. Technology always improves, but future money is worth less than money now.
"If you anticipate technology improving or prices for energy coming down, you wouldn't invest in today's technology."
Why not? The amount of profit he makes is already basically fixed up front, and more generally the amount of profit these investments generate will probably only decrease as the technology improves.
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.
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.
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.
[+] [-] nilsbunger|13 years ago|reply
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|13 years ago|reply
[+] [-] orangethirty|13 years ago|reply
[+] [-] technotony|13 years ago|reply
[+] [-] txttran|13 years ago|reply
[+] [-] rjtavares|13 years ago|reply
[+] [-] dxbydt|13 years ago|reply
[+] [-] Tycho|13 years ago|reply
They always seek massive rent capture via outright purchase of a corp with a very large moat.
[+] [-] brc|13 years ago|reply
It is unlikely that new solar plants would be able to get the same types of long-term power supply contracts that an existing plant might have got 5 years ago. At the residential level, most solar FIT have been slashed as government programs ran out of money and public enthusiasm waned as the non-participants bills went up.
But yes, a solar power plant is a utility, and if it has locked in contracts (I admit I have no idea if it does) it would be a good buy, if nothing else but for the inflation hedging as power always follows inflation but many other revenue streams do not.
[+] [-] gadders|13 years ago|reply
Both excellent ideas that were unlikely to earn back the cost to produce them, but if bought after bankruptcy and sunk costs have been written off they could be profitable.
[+] [-] mmanfrin|13 years ago|reply
In effect, Buffet is now making a demand for green companies for copy-cat investors to invest in.
[+] [-] eupharis|13 years ago|reply
http://www.amazon.com/The-Essays-Warren-Buffett-Corporate/dp...
He is incredibly passionate about capitalism. Especially smart capitalists responding to pricing signals intelligently. And the symbiosis of good management and good investors to keep companies efficient, take smart risks, and earn consistent, healthy returns.
Making huge, counter-intuitive investments is nothing new for Buffett. (Railroads anyone?) I imagine he is doing this for the reason he usually does: he thinks he is getting a huge amount of value for a low price.
[+] [-] loumf|13 years ago|reply
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.
[+] [-] thebmax|13 years ago|reply
[+] [-] justincormack|13 years ago|reply
[+] [-] thebmax|13 years ago|reply
[+] [-] kvb|13 years ago|reply
[+] [-] melvinram|13 years ago|reply
However, even if it is a tax play, it's not inconsistent with his POV that the rich should pay their fair share. You can believe that the rules are currently broken, yet play by the current rules. One is about what you believe to be fair and the latter is about what is in the best interest of your shareholders.
[+] [-] blario|13 years ago|reply
[+] [-] jhuni|13 years ago|reply
[+] [-] kirinan|13 years ago|reply
[+] [-] electromagnetic|13 years ago|reply
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|13 years ago|reply
Isn't shale gas actually making energy more affordable at the moment?
[+] [-] gabyar|13 years ago|reply
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."
[+] [-] klochner|13 years ago|reply
If you anticipate technology improving or prices for energy coming down, you wouldn't invest in today's technology.
[+] [-] mmanfrin|13 years ago|reply
You're mixing the cost to the consumer with the investment return.
[+] [-] justincormack|13 years ago|reply
[+] [-] Alex3917|13 years ago|reply
Why not? The amount of profit he makes is already basically fixed up front, and more generally the amount of profit these investments generate will probably only decrease as the technology improves.
[+] [-] fragsworth|13 years ago|reply
[+] [-] codegeek|13 years ago|reply
[+] [-] ianstallings|13 years ago|reply
[+] [-] uptown|13 years ago|reply
[+] [-] imran|13 years ago|reply
[+] [-] TommyDANGerous|13 years ago|reply
[+] [-] tubbo|13 years ago|reply
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