Warren Buffett Should IPO MidAmerican Energy Now
To understand why Buffett should consider a MidAmerican IPO, it's important to know how the company gained what is arguably the strongest green energy position in the U.S., and possibly the world.
As solar giants like SunPower and First Solar transition from manufacturing and selling solar energy panels on wholesale markets to building large plants with multi-decade purchase agreements with utilities, MidAmerican Energy appears to be the biggest backer of such projects.
In late 2011, when First Solar broke ground on its Topaz and Agua Caliente projects to take advantage of the final throes of a Department of Energy loan guarantee program, MidAmerican Energy stepped up to invest in the plants and the corresponding return that will be generated over the life of their power purchase contracts with utilities like Southern California Edison and NRG Energy.
While the solar plant business of First Solar and SunPower is still uncertain in the absence of DoE loan guarantees, their Antelope Valley projects outside of Los Angeles and similar ones in California's Mojave desert will be a test as to whether the U.S. solar business survives and gets a new round of investment.
In the new ordering of the solar world, First Solar or SunPower break ground on projects with a power purchase agreement in place, sell the plant to the likes of MidAmerican, and get contracted to maintain the plants over their lifespan.
The strategy is to move away from competing against highly subsidized Chinese panel manufacturers, who've pushed panel prices lower on wholesale markets.
The transition comes at a time when states like California will essentially force regional utilities to become a big investor in solar or other renewable energy generation, as they try to meet a state mandate of a one-third renewable energy mix by 2020. With stakes in three of the nation's largest solar plants, MidAmerican appears to be in a leading position in California as the plants come online in 2014 and 2015.
MidAmerican's solar energy deals now include ownership of SunPower's 579-megawatt Antelope Valley Solar project worth a reported $2.5 billion, First Solar's $2 billion 550-megawatt Topaz plant and a 49% stake in another plant built by the company called Agua Caliente, which is projected to generate 290-megawatts of solar energy.
In total, MidAmerican says its plants will create hundreds, if not thousands of green energy jobs, while pumping roughly a billion dollars total into local economies. The plants will also replace millions in carbon dioxide emissions annually, in aggregate.
Meanwhile, the company is also the largest wind power producer in the U.S. and it's recently taken stakes in large General Electric (GE) built wind farms. MidAmerican also has geothermal and hydroelectric businesses, and by way of it's green energy portfolio, has power purchase agreements with some top utilities including Southern California Edison , NRG Energy (NRG) and Hawaiian Electric (HE) .