Does Warren Buffet Have a Conflict When it Comes to Renewables?

March 4, 2016 By Sara Gutterman

Sara Gutterman

Warren Buffet has been slammed by the media lately for waging an outrageous war on solar. But a recent shareholder letter reveals that his perspective on renewables is purely clinical and unflinchingly focused on the bottom line.

Warren Buffet’s company, Berkshire Hathaway, has been the focus of an embroiled battle against solar in Nevada. One of its portfolio holdings, NV Energy, has been accused of colluding with the Public Utility Commission and Governor Sandoval to terminate net metering, effectively killing the residential solar rooftop industry in the State.

When analyzing the situation from a strictly financial standpoint, the decision is not surprising—distributed solar disrupts the traditional utility business model of producing and delivering energy, and it cuts into profits (the great irony, of course, rests in the fact that the residential solar industry has been the largest growth sector in Nevada for the last few years, spurring a tremendous boost in jobs and economic growth.)

However, in this year’s annual report to shareholders, Buffet’s message reveals that the situation isn’t as black and white as it may appear. Apparently, neither the company, nor the man, are unconditionally against solar.

In fact, Buffet wrote that the utility business is entering a period of uncertainty, and that renewable energy and energy efficiency are compelling utilities to move beyond ineffective business models and develop more competitive operational strategies.

Berkshire Hathaway owns 10 energy companies—three of these are large electric utilities serving territories across 11 states in the Midwest and West, so Buffet is paying keen attention to the sector’s transformation.

In his letter to shareholders, Buffet wrote, “In its electric utility business, our Berkshire Hathaway Energy operates within a changing economic model. Historically, the survival of a local electric company did not depend on its efficiency. In fact, a ‘sloppy’ operation could do just fine financially. That’s because utilities were usually the sole supplier of a needed product and were allowed to price at a level that gave them a prescribed return upon the capital they employed. That’s all changing.”

Buffet is in an interesting predicament. As a businessman with an extensive traditional fossil fuel-based portfolio, he must dig in to protect his current holdings, fighting against the transformation to renewables. But, he also has a fiduciary responsibility to his shareholders, now and into the future, to continually optimize profit and update his company’s business model, particularly as third party energy providers (namely, the solar companies) pilfer an increasing amount of market share from regulated power companies, which delivers him to the understanding that he must embrace the inevitability of clean energy.

The multi-billionaire is as shrewd as a hawk, and he sees the writing on the wall. While widely criticized for thwarting Elon Musk’s efforts to revolutionize the future of solar energy, Buffet’s view on renewables is all about the bottom line. It’s pretty simple—he supports renewables if they help him make money.

“At the end of the day, when renewable energy sources financially outperform fossil fuels, Warren Buffet will be the biggest champion they’ve ever seen,” says Ron Jones, President, Green Builder Media.

For now, he favors the centralized model over the distributed one, where his utilities own the solar and wind systems and can continue to monopolize (and monetize) the generation and distribution of energy. Anything that compromises this model, including distributed solar (where homes and businesses have the ability to generate and sell their own power), must be quashed.

So Buffet’s war on solar isn’t universal—it’s just on the segments that threaten his coveted centralized model. In fact, Berkshire Hathaway has poured $16 billion into renewables in recent years and now owns an impressive 7% of the country’s wind generation and 6% of solar generation.

And Buffet isn’t stopping there—he plans to invest in large-scale clean energy projects “in support of international climate goals.” In his letter, he wrote that “it seems highly likely that climate change poses a major problem for the planet.”

Buffet, who has endorsed Hillary Clinton for President, does believe in a clean energy future, despite all of the media hoopla that indicates otherwise. He feels optimistic, chiding current Presidential candidates for the drumbeat of negativity that is making Americans worry that their children will be worse off than they are. “That view is dead wrong,” he says. “The babies being born in America today are the luckiest crop in history.”

“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. American’s golden goose of commerce and innovation will continue to lay more and larger eggs.” And, with Berkshire Hathaway’s earnings growing to $24.08 billion in 2015 and revenues reaching a spectacular $210.8 billion, I certainly wouldn’t bet against the most respected business man in the country.

This story has been republished with permission from Green Builder

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