Buffett Affiliate MidAmerican Places Bet on Solar’s Future

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First Solar

First Solar (NASDAQ:FSLR) struck a deal to sell its 550 MW Topaz plant in California to MidAmerican Energy, a unit of Warren Buffet’s Berkshire Hathaway. [1] While details of the deal were not disclosed, the plant is expected to be worth more than $2 billion and will be completed in 2015. MidAmerican, a large player in the wind energy sector, has chosen to make its foray into solar at a time when costs are falling sharply but projects such as Topaz still qualify for the Treasury Department’s grant program that is set to expire at the year end. [2] Competitor SunPower (NASDAQ:SPWR) has also been involved with sales of such utility-scale projects in the U.S.

We have a $111 price estimate for First Solar which is more than double its current market price.

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Good Deal for MidAmerican

The power purchase deal on the Topaz project was signed three years ago when pricing terms were more favorable for utility plants. [1] San Francisco-based utility PG&E will buy power from the Topaz plant for 25 years under the contract. Construction of the project began last month after panel prices fell by 44% in 2011 alone. Combined with the U.S. Treasury Dept’s 1603 incentive scheme, which reimburses 30% of the project’s development costs in cash grants, the rate of return for MidAmerican’s equity stake in the project may be as high as 15% according to SunEdison’s founder Jigar Shah.((ref:2))

First Solar will build, operate and maintain the Topaz project which will use the firm’s own low-cost thin film cells. [2] While future projects may not enjoy high rates of return because of lower contract prices and reduced incentives, analysts expect more interest in such utility plants in the U.S. signaling that solar panel sales should rise over the next few years. [1] First Solar had earlier failed to win a DoE loan guarantee for the Topaz project because it did not meet certain requirements by Sept 30th, when the program expired. The MidAmerican deal spurs hope that government-backed credit may no longer be crucial for solar projects.

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Notes:
  1. Buffett Gets U.S. Incentive, High Power Rates in $2 Billion Solar Farm Bet, Bloomberg [] [] []
  2. 2nd UPDATE: First Solar Sells $2B California Solar Farm To MidAmerican Energy, WSJ [] []