German Insurers Put Long-Term Capital Into Renewable Energy

| About: SunPower Corporation (SPWR)

Two German insurance giants are stepping up their investments in renewable energy, not because they've gone green, but because they see a better return.

Allianz Group (OTCQX:AZSEY) and Munich Re (OTCPK:MURGY) announced separately they plan to increase investments in solar and wind parks this year, with the latter specifying the aim of gaining a return of 7-8%.

Warren Buffett's Berkshire-Hathaway (NYSE:BRK.A) holds a 10.24% stake in Munich Re, an investment of $2.9 billion, making the world's largest reinsurance company its sixth-largest holding.

Munich Re board member Thomas Blunk estimated the size of the coming renewable energy investments at $3.6 billion over the next five years, a huge jump from the “low three digit euro range” held at the beginning of this year.

The money would probably back scaled solar and wind systems whose power is sold directly to utilities.

The best-known of Munich Re's existing investments in the space is a 2.5 megawatt carport SunPower (SPWRA) is installing at Munich Re offices in Princeton, New Jersey. The company also bought 40 wind turbine systems in Germany earlier this year.

The coming investments should put more wind in the sales of the entire solar and wind ecosystem. Sunpower, which is putting in the solar carport, is 60% owned by the French oil giant Total (NYSE:TOT). But other solar companies can expect to become equally well-capitalized as a result of this decision.

The biggest problem in the space is often the financing of commercial and residential installations. The expense of solar systems makes them 20-year property, and they are typically leased for their potential power generation over that term.

Berkshire is heavily into reinsurance, having already bought Cologne Re to add to its existing General Re business. Reinsurance, which covers the top dollar of risks and is bought by other insurers that are crafting large commercial policies, is a business that can draw high returns, but also has high risks when things like oil rigs blow up. Thus there is a priority placed on making safe investments promising high returns.

What's significant here is not only Munich Re's willingness to take on the risks of the renewable business, but its willingness to do direct investments based on a search for total return. It indicates lower total risks in the renewable sector, but does imply that the sector is still paying high prices for capital, which given the publicity attendant to it may surprise some people.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.