by Sean Kidney
Warren Buffet is a famous proponent of value investing and he surely received a sign of the value in solar investments over fossil fuels last week. The MidAmerican Energy $850m Topaz solar project bond we mentioned a couple of weeks ago was so successful that a second tranche is expected to cover the remaining debt of the project. The offer was oversubscribed by $400m which would have mopped up the total $1.2bn of debt in the project; Buffet’s Berkshire Hathaway (BRK-A) controls MidAmerican.
In contrast, Buffet’s investment in $2bn of bonds from gas company Energy Future Holdings is taking a hit due to low gas prices in US. The market value of the investment is already at $878m with further write downs expected.
It’s interesting to note that the expansion of drilling in the US rewrites the script on the increased policy risk of renewable investments over fossil fuels. It seems investors are beginning to recognise the steady fixed returns on renewables over the volatility of fossil fuel prices. Topaz is the latest in several large solar bonds offered including Desert Sunlight ($595m) and NextEra Genesis ($562m) both at AAA tranches due to loan guarantees. Topaz and the secondary tranches of the other two projects were both rated at BBB-/A-.
Sean Kidney is Chair of the Climate Bonds Initiative, an “investor-focused” not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy.