Buffett bets on solar energy
Jan 11, 2013
Warren Buffett “has the hots for solar”, said Lex in the Financial Times. His MidAmerican Energy Holdings has agreed a deal with solar panel-maker SunPower to acquire and develop two of the group’s projects. Buffett will spend up to $2.5bn on what is set to be the world’s biggest solar photovoltaic operation.
So given Buffett’s reputation, does this make the sector worth a look? No. Buffett will “get returns that you can’t get on new projects”, as Gordon L Johnson of Axiom Capital Management points out. The two projects he has snapped up benefit from government guarantees and grants that are no longer available.
And the fundamentals are hardly inspiring. Johnson, who rightly warned of a solar-panel supply glut in 2009, remains bearish. In China alone there is almost twice as much production capacity as there is global demand, he reckons. Recent subsidy and incentive cuts in Europe are also now kicking in. Solar power firms are also grappling with the cost of energy storage capacity.
Buffett “is probably in this for the long haul”, concludes Lex. “Investors that are not are in for an Icarus moment.”
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.