Buffett’s Big Energy Bets Go Beyond ExxonMobil
Warren Buffett grabbed his share of recent headlines when he disclosed a $3.45 billion stake in ExxonMobil. And although this story received large amounts of attention from the media, it’s only fair to acknowledge Berkshire Hathaway’s subsidiary, MidAmerican Energy Holdings, which has also been busy lately.
Green with NV
On Monday night, Nevada utility regulators approved the sale of the state’s largest electric utility, NV Energy (NYSE: NVE ) , to MidAmerican Energy for $5.6 billion. Before being finalized, the deal needs to be approved by the Federal Energy Regulatory Commission, but that is expected to be coming any day. The acquisition of NV Energy will add approximately 2.4 million customers to MidAmerican Energy’s current 6.4 million electricity and 700,000 natural gas customers.
An investment in NV Energy is an investment in renewable energy. Nevada’s renewable portfolio standard states that at least 25% of the company’s retail energy sales are derived from renewable sources by 2025. Working toward that goal, NV Energy reached 1 GW of renewable energy under contract. Further demonstrating its commitment to renewable energy sources, NV Energy is working toward bringing its Crescent Dunes Solar Thermal project online in 2014. The 110 MW, concentrated solar thermal project will be able to store energy and provide it to customers at night or when it’s cloudy.
The winds in Iowa
It’s not just acquiring utilities or buying stakes in big oil companies that define Buffet’s recent interest in the energy sector. According to the company’s website, “In May 2013, MidAmerican Energy announced plans to invest up to $1.9 billion to expand its wind generation fleet and add up to 1,050 megawatts of wind generation in Iowa by year-end 2015.” This explains why MidAmericanEnergy has agreed to purchase about $1 billion worth of wind turbines from German industrial powerhouse Siemens AG (NYSE: SI ) . The 448 2.3-megawatt turbines will be used in five projects throughout Iowa. The deal marks Siemens’ largest order to date for land-based wind equipment according to Bloomberg. At over 1 MW of capacity, the turbines will produce enough power for about 320,000 households.
This unprecedented order maintains Siemens’ success in its wind power segment, where the company recognized a fourth-quarter revenue gain of 10% year over year. However, in comparing the same period, Siemens saw a 33% decrease in orders. This deal will be a big step in addressing that issue.
News of the deal between Siemens and MidAmerican Energy comes on the heels of unfortunate news for GE (NYSE: GE ) , one of Siemens’ major competitors in the manufacturing of wind turbines. GE announced on Monday that a “spar cap manufacturing anomaly” is the culprit in incidents involving turbine blade failures in November — one in New York and one in Michigan.
Prior to the announcement of the deal with Siemens, MidAmerican Energy identified the GE 1.5 megawatt wind turbine as the most common wind turbine in MidAmerican Energy’s wind turbine fleet. It will be interesting to see if the Siemens turbine will now be the most common turbine, and, if not, whether further deals with Siemens result in the decline of GE’s importance to MidAmerican Energy in the wind power sector.
Foolish final words…
Just ask Buffett. There’s plenty of room in an energy portfolio for oil companies like ExxonMobil and wind turbine manufacturer Siemens. The energy landscape is constantly evolving, and Buffett is clearly intent on not falling behind. Perhaps this is the validation that Siemens needs for investors to realize the potential that wind power offers.