Why Warren Buffett and Wall Street Like Commercial Solar
26th Feb 18
Cameron Quin

Warren Buffett is arguably the most successful investor in the world. He has been ranked 1st among the world’s billionaires on several occasions by Forbes, beating Bill Gates. He has also been nicknamed “The Oracle of Omaha” due to his successful investments. You would be surprised to know that he likes commercial solar power, and in fact he owns some of the largest solar farms in the world through his holding company Berkshire Hathaway. An example is the Solar Star project in Rosamond, California: a colossal 579-MW photovoltaic system that has been operational since 2015. Berkshire Hathaway also own the 550-MW Topaz Solar Farm in San Luis Obispo County, California, which has been operational since 2014.

The fact that successful investors like Warren Buffett are betting on solar power should send a clear message. Investors are characterised by not taking business decisions lightly, and when they commit their capital to solar power, it is because they have seen its potential. Commercial solar has many attributes that make it a solid business decision and you benefit the environment in the process. Warren Buffett is known for being skeptical about new technology, even though he is one of Bill Gates’ closest friends, but he made the exception for solar power in his investment portfolio.

This article will describe some attributes of commercial solar power that make it attractive from the financial standpoint. The technology has many qualities that financiers like.

Attribute #1: Commercial Solar is a Predictable Investment

Successful investors do not like to gamble: they take calculated risks when commiting capital to a business venture, but in general they like certainty. When we look at commercial solar, it is one of the safest investments: energy generation depends on sunshine, which is guaranteed to be available for billions of years into the future and not a fossil fuel with a volatile price that can increase without warning.

From the investment point of view, fossil fuels represent an unpredictable expense, while sunlight is a guaranteed free resource assuming you select a good project site. Commercial solar power also offers predictable expenses in terms of maintenance: having no moving parts, there are no mechanical components subject to wear and sudden failure. In addition, the service life of solar PV system components is known in advance, and covered by warranties if you use equipment from qualified providers.

Another attribute of solar power is that is can be deployed quickly, thanks to the modular design of solar panels and inverters, and also the simplicity of racking systems. If a land extension or a rooftop is found to be suitable, it is possible to have a commercial solar array installed and running in just a few weeks.

Attribute #2: Commercial Solar Offers Guaranteed Revenue

Commercial solar investors like the Power Purchase Agreement (PPA) business model, where they agree on a kilowatt-hour price and a contract term with their client – typically an energy retailer or a company seeking to reduce energy expenses. In places like Australia, where electricity has doubled in price in less than a decade, both parties win from a commercial solar PPA. The client gets a guaranteed electricity price for many years, while the project developer gets a guaranteed source of revenue – the client saves much more on power bills that what must be paid for the PPA.

Developing commercial solar to sell electricity through PPAs is very attractive for investors, since it is a win-win business deal. In other words, they make money by helping others save it, and keep a share of the savings in exchange.

Attribute #3: Commercial Solar Gets Government Incentives

In addition to predictability, investors also like tax breaks and subsidies. Although these vary by country, they always have the same end result: increasing the financial return on each dollar spent upfront. Consider that Warren Buffett lives in the USA, where solar power gets a 30% federal tax credit. In other words, investors get $300,000 back in tax breaks for every million dollars committed to solar power and other renewables. It is important to note that this benefit is not exclusive for commercial solar; it also applies in the residential and utility sectors.

Australia does not have a solar tax credit, but utility and commercial solar get Large-Scale Generation Certificates (LGC), based on yearly energy generation.

  • One LGC is credited for every megawatt-hour of clean energy produced, and investors can then sell them for extra income.
  • LGCs are purchased by energy retailers and other institutions held accountable for controlling emissions by the Australian Clean Energy Regulator.
  • Liable entities can accumulate their own LGCs with clean energy generation, or they can purchase them from other clean energy generators not held accountable by the AER.

In the case of commercial solar, projects above 100 kW of installed capacity or having at least 250 MWh of annual generation are eligible to accumulate LGCs. Projects below these thresholds get another type of incentive, called Small-Scale Technology Credits (STC).

Attribute #4: Commercial Solar Boosts Corporate Image

In addition to its economic benefits, commercial solar improves the public image of investors and businesses. You just have to look at the media: clean energy investors are regarded as change agents and environmental stewards, while those who cling to established energy sources are seen as reluctant to change or willing to damage the environment for the sake of profit.

Solar power already offers predictability for investors, and in many cases government incentives. On top of that they gain a marketing benefit, and other environmentally-conscious companies are more likely to sign business deals with them.

Conclusion

Commercial solar is very attractive for investors, especially when developing projects to sell electricity through PPAs, such as Solar Bay’s Energytec. Solar power has many attributes that investors seek in their business ventures: predictable costs, low risks, guaranteed income and government incentives. In addition, they get a public image boost for doing business that is beneficial for the planet. When you consider all these factors, it comes as no surprise that top investors like Warren Buffett like commercial solar power.

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Cameron Quin

26th Feb 18
Cameron Quin

Cameron Quin has been heavily involved in business development from an early age. After founding and selling two online companies, Cameron found a strong passion for renewables and the opportunities it brings for the commercial and industrial sector. Sharing the possibilities of solar and the knowledge from the Solar Bay team is his favourite pastime.