Posted by: Dr Churchill | January 19, 2013

Clean Energy Rocks PE Investment Portfolios in 2013 – Solar Manufacturing & Energy Outlook

Since the beginning of the new year, solar stocks have seen a moderate gain in value. It is estimated that this gain is the result of a recent move by long term value investor in the Energy business Warren Buffett.

Finally it was announced formally what we all knew for a couple of months now that MidAmerican Energy Holdings — a subsidiary of Buffett’s Berkshire Hathaway — had acquired the almost 600 megawatt solar development project in Southern California, which, upon completion, should provide electricity for upwards of one million US residents.

MidAmerican acquired the development known as the Antelope Valley Solar projects from American solar panel developers SunPower for $2.5 billion USD. And at this price it’s a steal… because the project has already signed a 30 year PPA with the local Power Utility company. Like buying an energy plant that it’s complete output is going to be fully pre-sold for thirty years to a triple AAA rated P&U company. Naturally Mr Buffet uses our invention “the Green Bonds” to finance part of this transaction since the project SPV company is investment grade and the bonds are investment grade AAA as well. The public appetite for this type of bonds is great as proven in the past with the first time Mr Buffet used thee bonds for the purchase of another solar farm and we see a virtuous cycle pattern forming. [PPA is a long term Power Purchase Agreement between a Solar developer and a blue chip Power & Utility Co]

Construction of the project is set to begin in the first quarter of 2013 and is expected to be complete by the end of 2015. When it is complete, the two solar panel arrays will comprise the largest solar power project in the World.

To put the size of this project into perspective, consider this: one megawatt is one million watts and a solar panel an individual might install on their own roof is typically about 230 watts. This means the project is equivalent to more than 2.5 million of these 230-watt panels.

The MidAmerican investment comes as good news for the solar industry as it has taken a few hits over the past couple years.

In Europe — the largest solar power market in the World — government funding and support for solar energy has declined as of late and selling prices of solar panels hit the floor after a massive oversupply of panels flooded the market.

Solar Cells are already a commodity manufacturing business. Oversupply and Moore’s law effect on microchips has now fully embraced this most basic and cheapest to manufacture microchip. Prices have gone down as low in extremis to 60 cents per Kw. Consolidation and aggregation in the Solar Manufacture Business has been fierce, but the fundamentals are great.

It’s a great long term value business for those that pick up assets from that restructure their debt or just pick up the assets from the auction block, and go out to built this as a simple commodity business very much like making matches or toilet paper. You got to have plants everywhere because it doesn’t pay to ship this type of cheap commoditized product very far and being close to the install base also supports the replacement and upkeep and continuous improvement these plants require.

By picking up assets and companies that iterate well with low costs and good technological throughput – you win both races. And as we are nearing the bottom of the trough, it’s good to know that by weeding out the unfit, the Solar energy industry has gone from 750 solar module and solar cell manufacturing companies in the World in 2010 to about 150 semi-viable firms still producing cells competitively by the end of year 2012.  So the number had dropped to 150 contenders and will drop even further soon. Maybe one fifth of those in existence today will see the light of Sun by New year 2015.

The reason that the survivors will drop way further is obvious if one compares this fairly novel industry to the development and upkeep of the computer chip making industry and it’s trajectory.  What happened to the manufacturers of chips for computing — will happen to the solar photovoltaic chip makers. And as we mentioned the vaunted Moore’s Law coursing through the system regardless of various government subsidies, intervention and support mechanisms — the effect has been somewhat cushioned and instead of all of it happening at once it has been spread over the space of a few years. Advise to government Energy departments worldwide: “You can only buck the tides for so long before you are inundated and both You and long term value investors need to remember this well.”

My long term and short term VIEWS are as follows:

The solar energy industry will soon face another big hit as another round of firms get consolidated and aggregated this year as the price of solar cells drops to 50 cents and stabilizes there to observe Grid Parity with coal worldwide.

This in turn will power up another huge demand, same as that announced by China and now by the US most dynamic and conservative long term value investor, and all the boat will be lifted by the tide with the price remaining stable in the 50 -60 cents per Kw in the foreseeable future.

And this way, we could soon see a bit of a recovery thanks in part to these XL investments made by our friend Warren Buffett —  last year and this year too.

So how do you take advantage of this?

Sadly, you can’t do it like Buffet no matter how much you’d like to emulate the big guy.

Maybe you can dance like Mick Jagger and drink like Richard Barton, but You still can’t do it like Buffet.

Because for smaller investors the amount of leverage required is out there and you can’t invest directly in Green Bonds because they aren’t available for non institutional investors and well — you don’t own a Utility company like MidAmerican to spot the leveraged finance against it’s balance sheet….

So what is a passionate Solar enthusiast and Warren B. follower must do to get in the ground floor if this game?

Don’t despair – we’ve got solutions.

Follow on because we now have a new way for you to participate in this steady same returns game Buffet enjoys, and that the long term PPA with a P&U majors provide. Yet because, there are still a few fundamental problems with investing directly into solar energy as a private small family investor. It’s a big dollars game and only open to institutional investors mainly. It’s large ticket for the admission even for most PE firms…

Regular folks and small investors – Mom & Pop investors balancing the check book around the computer or in the kitchen table, need to be able to participate in this revolution of Energy for us to solve the problem.  Yet because people can invest money into the stock market and purchase stocks of a solar company, that doesn’t mean they are investing in solar energy, but rather in a listed company that usually manufactures the cells… And as we said earlier, this business has been murdered and still is an ongoing bloodbath. And since investing in a working “abattoir” is not for the faint of heart or the ones investing the family kitty — let’s look elsewhere.
What I suggest is this:

First go ahead and install solar panels on your roof. And while You are at it, put a solar water heater up there too. You’ll get massive returns on that investment and it’s all gravy. Hot water and your own electricity and perhaps central heating from the sun and No taxes for the investment returns – if anything a tax break in most municipalities. When an individual places a solar panel on their roof, they may use the energy for their own needs, or sell it back to the grid making their meter spin backwards, or receive tax breaks and reductions on their energy bill… Or they may opt to receive special electricity tariffs FIT rates from the utility — guaranteed by the government — who siphons the generated electricity back up into the power grid. Still producing electricity from your own photovoltaics – PV cells – is the most democratic way of energy production and the most local, efficient and direct use of your capital. It is also the most environment and community friendly method of investing in Solar Energy. Long term this is the best method of solar investment and it also adds value to your own home. What’s not to like about this investment that will keep you warm and cozy in the colds of winter simply by hooking up the solar water heater to the central heating system and augmenting it with solar electricity produced on your roof from your own photovoltaic panels. Do this and you’ll Thank me for it for a long time to come.

Second if you want to trade dollars for dollars, you ought to find a way to invest in other people’s larger Solar Power projects in a location near you. And that takes some digging around and finding the local Solar developer and if you live in the areas where the sun is not plentiful, you must find the Solar Power Association in the State, City and address you like and then go ahead and do this via a direct investment in a cooperative or community project, or a new company project that allows this. It all works very much like a REIT. A real Estate Investment Trust for Solar Energy production from the roof or greenfield opportunity. Large Solar developers and reputable Operators do this all the time, but they don’t advertise on late night TV, so be cautious with the people you get in bed. still all of it is gonna work out with the required due diligence. Yet this method i a little bit more than most people and small investors are willing to handle.

Third method is to invest in a distributed fashion. And this is good because it leaves the diligence nad hard work to the professionals. And as luck would have it is now available because of a brand new company that is called Mosaic. Mosaic, based out of Oakland, California, is a company that allows individuals the ability to invest in solar energy, similarly to the way that Buffett just has. After all California has about 80% of all new Solar projects in the US today …  So it’s a good bet.
Mosaic allows individuals to invest directly into solar projects through crowd-funding. Founded over two years ago, the company operates through a unique business model that could truly revolutionize the way people invest in green energies.
Solar projects are often expensive and require large amounts of funding. What Mosaic does is connect investors with solar projects that need funding. It’s sort of like Kickstarter for solar projects.

So go ahead and make Solar part of your investment kitty this year because it looks rather promising.




Make sure now to invest directly in solar projects in your rooftop and in your own backyard… so to speak.

REMEMBER: Avoid investing in Solar manufacture and just go ahead and make your mark by investing in local and distributed solar energy production from photovoltaic cells in your rooftop and other people’s rooftops … Quite Simple really.

And with this new Mosaic thing — you can enjoy the same rates of return like Mr Buffet, without having to front the $2.5 Billion ticket to just play the game.
In Mosaic, the return for the investor initial investment, is a steady same rate of return – as it derives from the building and development funding mechanism and the PPA deal the Project owners have negotiated with the Power & Utility company that acquires the produced energy.

And when the projects are complete, the people who pay for the electricity provided by the solar projects, generate revenues, which Mosaic then pays out to its investors incrementally increasing their returns.
Although the Solar Projects Mosaic funds are of a much smaller scale than the one just purchased by Buffet’s MidAmerican, Mosaic allows individuals the ability to invest in green energy opportunities previously unavailable to them and get a good to great rate of return.  Still due to regulation, only CA and NY residents can play for now…

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