Warren Buffett Buys World's Largest Solar Project from SunPower for $2.5 Billion
treehugger.com
treehugger.com
So from Buffett's perspective this just looks like a bond. I don't think it's a bet for or against solar, but rather a bet on deferred cash vs present cash (so on interest rates).
My friends etc always say "It's not Christmas until you see the Coke ad" in reference to the build up to Christmas.
However, they weren't the first company to do so as in 1915 and 1923, White Rock Beverages used a today's version of Santa (Red & White) to sell mineral water and ginger ale respectively.[4]
[1] http://www.coca-colacompany.com/topics/heritage
[2] http://www.vintageadbrowser.com/coke-ads-1930s/3#ad5w0neuut0...
[3] http://www.vintageadbrowser.com/coke-ads-1930s/3#aduieywoavp...
[4] http://www.bevnet.com/news/2006/12-18-2006-white_rock_coke_s...
Santa already had a red coat with white trimming - at some unspecified point in the past he did have a green coat.
Coke took an already-popular meme with no trademark and co-opted it for their own marketing, popularising it even further. The expansion of the Coke-themed Santa led to the belief that they invented it.
Something to absorb for those who are trying to work out how to market things.
I know all this because up until 10 days ago I also thought that Coke invented Santa, until I realised I should fact-check that, and found out I was wrong.
Google it yourself. You probably are in a better position to verify it than I am, with my wonky android browser freezing up and saying "bite me, bitch" on a regular basis.
No PPA without this type of hedge/terms is financeable - today more than ever.
They always seek massive rent capture via outright purchase of a corp with a very large moat.
While this is always a tough strategy -- because the easier they are to find, the more likely these companies are to become overrated -- it gets a little easier when you have a massive amount of capital. It's still tough to do consistently though.
The term "Rent Capture" calls out the distinction between entrepreneurs and landlords. The worth of land is obvious and so it takes other competitive advantages besides ingenuity to close a big deal. Pejoratively, as dxbydy mentioned, "rent capture" implies that the owners don't have to work very hard for their money.
"a very large moat" refers to the barriers to entry. Imagine you have 4 or five companies who built power plants 40 years ago. It was expensive for them at the time, but they made back their initial investment years ago and now the only thing they care about is market share. The size of their moat is proportional to how much it would cost for some new company to build their own power plant.
I think you do :) Probably you disagree with the characterization. I don't see why rent capture generally has such a negative connotation outside of finance circles. Its a perfectly legitimate strategy. And who has a larger moat than BNSF or Vestas or SunPower ? Even if you were a Zuckerberg you couldn't build these things in decades. Takes forever just to buy the land, spec out these things & get the specs approved by regulatory bodies. So if you could buy these concerns outright, you would. You would buy, whether it was making solar power or your underwear. ( He owns the largest underwear maker Fruit of the Loom ). Given the asymmetric info advantage he has, he's sold millions of puts expiring in 2019 & is sitting on top of billions in premium ( while simultaneously telling the American public that derivatives are instruments of the devil :) Got to park those assets someplace, otherwise fiat risks accumulate. His stock purchases for 2012 are quite ho-hum...utilities, banks, big media ( http://static.cdn-seekingalpha.com/uploads/2012/12/4/sauploa... )
Well, it violates a lot of views of how the market "should" operate, on both the left and the right. On the right, some simplified versions of free-market views assume relatively perfect, efficient markets will normally develop absent government distortion, so they're suspicious of areas where rent is being extracted as probably due to some kind of intervention preventing a proper free market from operating. And on the left, many see rent-extraction as a paradigmatic example of the power of capital relative to labor (the ability of passive rent-extractors to in effect collect a "tax" from active economic activity).
In other words, express your command of a subject by how simple you make it appear, not by demonstrating how impressive and complicated the subject is.
I remind myself of this concept routinely, and struggle to reflect it in my writing and peer communications.
Your first comment also dumbed down the exact same material - but in a different way. In the present day, among computer users and maybe people interested in finance, I have noticed the use of terser expressions, dense walls of text and shorter words to approximate the meaning of longer concepts (e.g. "moat", "sticky") to avoid recreating 2000+ word wikipedia articles.
Your first comment and the earlier commenter suggesting 'coca cola' having 'invented' santa claus (the user didn't mean the dictionary definition of invented), where two people are using language that has moved on from the dictionary definition, reminds me in some way of this essay by George Orwell.
https://www.mtholyoke.edu/acad/intrel/orwell46.htm
I prefer the present-day contracting "meaning concentrating" style of abuse of language rather than the olden-day expanding "meaning dilution" style of abuse, however both make for uncertain reading!
He is simply finding companies with very high switching barriers that have occurred naturally in the market.
We usually associate "Rent Capture" with activities like limiting the amount of taxi licenses in a given city which helps incumbents but drives out competitors.
A moat protects your marketshare. A very large moat then would be, I guess (I'm not an investor or anything), a company with a large competitive advantage and a market share that would be very difficult to steal.
They've invested enormous sums in marketing sugary syrup, a product with a sizable margin. Others produce sugary, fizzy water too, but there's only one Coca Cola and it's impossible to overcome in the marketplace.
Fiat risk: inflation.
To paraphrase Silvio Gesell, an economist in favor of symbolic currency almost a century ago, "All the physical assets of the world are at the disposal of those who wish to save, so why should they make their savings in the form of money? Money was not made to be saved!"
ie: you don't need to buy whole companies outright to avoid saving in currency.
It is unlikely that new solar plants would be able to get the same types of long-term power supply contracts that an existing plant might have got 5 years ago. At the residential level, most solar FIT have been slashed as government programs ran out of money and public enthusiasm waned as the non-participants bills went up.
But yes, a solar power plant is a utility, and if it has locked in contracts (I admit I have no idea if it does) it would be a good buy, if nothing else but for the inflation hedging as power always follows inflation but many other revenue streams do not.
Both excellent ideas that were unlikely to earn back the cost to produce them, but if bought after bankruptcy and sunk costs have been written off they could be profitable.
In effect, Buffet is now making a demand for green companies for copy-cat investors to invest in.
http://www.amazon.com/The-Essays-Warren-Buffett-Corporate/dp...
He is incredibly passionate about capitalism. Especially smart capitalists responding to pricing signals intelligently. And the symbiosis of good management and good investors to keep companies efficient, take smart risks, and earn consistent, healthy returns.
Making huge, counter-intuitive investments is nothing new for Buffett. (Railroads anyone?) I imagine he is doing this for the reason he usually does: he thinks he is getting a huge amount of value for a low price.
He may think that it would not have done that without his investment -- so it could be both, but Buffet promises investors that cash will be deployed more efficiently than you could by just buying an S&P index fund.
I don't think this isn't an investment, but I think there were motivations beyond purely investment; and having heard him speak and read what he has written, I am taking a guess that he was motivated out of an idea to influence good (while still making a sound investment).
http://www.dsireusa.org/incentives/incentive.cfm?Incentive_C...
The reason this may not be a tax play for him is that ConEdison or SunPower may have already stripped the tax credits from the project and sold them independently. This means there may only be a long term investment vehicle that insurance-type companies like to hold. But someone benefited from the tax credits and I wouldn't be surprised if they were part of the deal.
However, even if it is a tax play, it's not inconsistent with his POV that the rich should pay their fair share. You can believe that the rules are currently broken, yet play by the current rules. One is about what you believe to be fair and the latter is about what is in the best interest of your shareholders.
With companies offering financing for the sell-back programs with solar it's going to improve, I know bungalows in our area that can get a decent sized system installed can make about $2200 a year, pay nothing for the installation of the system, and get tax cuts. Smaller systems are still worth it, you're just not going to get many people paying $10,000 up front for a few kilowatt system that'll take 7-8 years to pay back.
I expect as efficiency in systems go up there'll be a huge improvement in the numbers of people with solar. I know with the current systems I can only get a 2-3KW system on my roof (the south facing portion), which isn't worth it with the install costs, etc required for the sell-back programs. In 10 years when the solar panels being sold are close to the efficiency we see in labs today, it will be cost effective for just about every property in a suburban area to get solar systems set up.
We're literally on the precipice of a power revolution. I wouldn't be surprised if we see architecture change to increase the amount of south facing roof to increase the amount of energy properties can get. Imagine when the majority of power for cities is being supplied by the suburbs surrounding them.
Any abundance in electricity will absolutely fuck the natural gas market. I know running an electric furnace in my area costs about 50% more than natural gas, but when home owners are making more money from their solar system than they're consuming, electric furnaces and hot water heaters will break peoples energy expenses even. Paying $0 a month for all your utilities, or even getting paid per month, will change the entire energy market.
Isn't shale gas actually making energy more affordable at the moment?
The first half of this statement is correct and the second half is completely wrong: "He only buys when he's sure that an asset is undervalued and is likely to have bottomed in market price."
If you anticipate technology improving or prices for energy coming down, you wouldn't invest in today's technology.
You're mixing the cost to the consumer with the investment return.
If energy prices come down, he will lose money.
Why not? The amount of profit he makes is already basically fixed up front, and more generally the amount of profit these investments generate will probably only decrease as the technology improves.