Warren Buffett-controlled MidAmerican Energy Holdings announced that it has established a new business arm as a conduit for a deepening of the company's move into the unregulated renewables market. The new vehicle, MidAmerican Renewables, LLC, will oversee wind, geothermal, solar and hydro projects to produce energy for the renewables market.
MidAmerican Renewables will be based in Des Moines, Iowa, and will encompass MidAmerican Wind, LLC; MidAmerican Geothermal, LLC; MidAmerican Solar, LLC; MidAmerican Hydro, LLC; and project development and commercial management.
The company of course already has significant exposure to the wind market and late last year raised eyebrows in the clean energy world by making two significant deals related to two solar farms:
- First, MidAmerican purchased 100% of First Solar's $2bn, 550 MW Topaz Solar Farm, in San Luis Obispo County, California. You can read more on that deal here.
- Secondly, MidAmerican acquired 49% of NRG Energy's $1.8bn Agua Caliente project in Yuma County, Arizona. You can read more about this second deal here.
We argued at the time that MidAmerican appeared to be suggesting that further deals should be expected. From this perspective, the following quote from the press statement announcing the Agua Caliente deal is particularly interesting. Greg Abel, chairman, president and CEO of MidAmerican Energy Holdings Company, was quoting as saying:
We are aggressively pursuing opportunities to expand our presence in the renewable energy sector, and the Agua Caliente project is another important step toward that goal ... We look forward to partnering with NRG Energy on this exciting project.
In the press statement related to the company's latest moves, Abel is further quoted as saying:
"MidAmerican Renewables is open for business ... We look forward to expanding our wind, geothermal, solar and hydro portfolio, so we can offer energy in the renewables market. We believe the need for renewable energy will continue to grow, and we are excited to be a leader in this area."
As we have argued before, a major issue facing the solar market has been one of the financing of the 24 GW project pipeline currently in place in the U.S. utility scale sector. This issue has been particularly pressing in the aftermath of the end to the DoE's Loan Guarantee Program. Moves such as those by MidAmerican continue to show that the private sector can fill the gap for what in the end represent good value, low risk investments.
From this perspective, these developments in particular add to our view of a continued recovery in solar stocks, which we see being primarily driven by three factors:
- On the demand side, the rest of the world has been making up for slack demand out of Europe. As a key example, the latest data points to blistering demand in the U.S. - more detail here.
- Likewise, China and Asia are showing extremely strong demand growth - see our article on the issue here.
- And most importantly, on the supply side, major Chinese players have drawn a halt to their excessively aggressive capacity expansion plans - more detail here.
As a result, since late November we have been recommending being long a basket of three tier one Chinese solar players - Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL). All three have performed well. STP has by far been the best performer at up 41.5%. TSL is up 23.6% and YGE up 10.76%. We continue to think that this basket should perform from here.
We also suggested adding First Solar (FSLR) to that basket. First Solar has now bounced quite well from its lows. However, falling polysilicon prices and related increased competition from C-Si module makers looks likely to make the outlook for thin film producer First Solar more uncertain. For now we would stick with the basket of tier one Chinese solar players discussed above.
Additional disclosure: Please add STP, YGE and TSL as focus tickers.