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Buffett's Solar Play Signals Green Light for Investors


Warren Buffett owned MidAmerican Energy is making big bet on the solar industry by buying a $2 billion project called Topaz from First Solar (FSLR), signaling that the legendary investor is becoming increasingly green minded and bullish on the sector.

Other solar energy stocks are benefiting from the news. Shares of SunPower (SPWRA), Suntech (STP), and Canadian Solar (CSIQ), among other global solar players saw shares rise sharply. The deal shows support for a sector that has suffered from a wave of bankruptcies like government-supported Solyndra and Evergreen Solar, a former Standard& Poor's 500 Index component, among others.

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The project, one of the largest photovoltaic solar energy developments in the world, will be integrated into Berkshire Hathaway's (BRK-A) MidAmerican Energy business, according to a release announcing the deal that didn't indicate a purchase price. For Buffett's mix of businesses, which began with an insurance focus, the move isn't so surprising.

"It's a twenty five year annuity, perfect for an insurance company," says Aaron Chew, a solar analyst at the Maxim Group, about the Topaz project that MidAmerican is buying, regardless of whether Buffett was personally involved in the investment decision. That's because MidAmerican can expect a steady stream of income from solar panels and distribution contracts, which have multi-decade lives and require little maintenance.

MidAmerican is buying a $2 billion thin-film photovoltaic solar energy development, which currently has a 25-year power contract with Pacific Gas and Electric (PCG-PA), one of California's largest energy providers. The energy distribution contract, which will help Californians meet a mandate to receive a third of their energy from renewable sources by 2020, was signed prior to a collapse in energy prices and will give MidAmerican solar returns above current market prices, according to Chew of Maxim Group. "Whatever way you look at this, it is a positive for First Solar," adds Chew.

First Solar shares rallied nearly 11% in early trading to above $51 a share, stemming a near 60% plummet in stock prices year-to-date. First Solar, the largest U.S. solar company and other members of the 17-member Bloomberg Industry Global Leaders Large Solar Energy index have been hit by a fall in solar panel prices and uncertainty over government loan guarantees for plant development.

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