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Warren Buffett Should IPO MidAmerican Energy Now


When the US government stepped in to rescue banks in the 2008 financial crisis, it was Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) that invested billions into the likes of Goldman Sachs (NYSE:GS) and General Electric (NYSE:GE) in a cornerstone investment that gave investors the confidence to put money back into the banking system.

Quietly, in the wake of President Obama's $50 billion earmark to the renewable energy industry as part of the 2009 billion stimulus bill, Berkshire Hathaway is again playing the role of savior investor. This time in the crisis-stricken solar energy sector.

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After a Wednesday deal with California-based solar giant SunPower (NASDAQ:SPWR) for ownership of the world's largest solar plant, Berkshire Hathaway's energy subsidiary MidAmerican Energy (NYSE:BRK.A) now has stakes in the three largest US solar power plants -- two plants are built by First Solar (NASDAQ:FSLR) -- as the industry undergoes transformation and tries to survive without government financial support.

When the three plants are completed by 2015, MidAmerican Energy will become a top utility in the US and the world when it comes to "green energy" generation.

For investors who want to put their dollars behind renewable energy investments, Berkshire Hathaway by way of its MidAmerican Energy unit is in an enviable position. However, Warren Buffett's sprawling investment conglomerate and MidAmerican are far from a pure-play bet on the renewable energy sector.

If Buffett wants to be the cornerstone investor to the renewable energy sector -- as he was to the banking industry in his crisis-time Goldman investment and a big holding in Main Street lenders like Wells Fargo (NYSE:WFC) -- it's time for the "Oracle of Omaha" to consider spinning off MidAmerican Energy to public markets.

As a publicly traded standalone, MidAmerican's renewable strategy might get the investor attention it deserves, as the likes of SunPower and First Solar attempt to transform their business models to meet a post-stimulus reordering of the green energy business in America.

A MidAmerican spinoff would also give investors a safer, Buffett-like investment in renewable energy after publicly traded solar and wind energy stocks in the US were battered by commodity price fluctuations, political wrangling, and pricing pressure from highly subsidized international players, particularly in China.

Putting MidAmerican on public markets would, however, have to appeal to Buffett's charitable instincts and a seemingly increasing role in public policy debates such as taxation and investment.

MidAmerican Energy is the classic Buffett business with high capital expenditure needs that make use of billions in cash that Berkshire generates every year, and it provides stable, predictable returns. Outside of Berkshire's insurance businesses and a recent $26 billion takeover of railroad Burlington Northern Santa Fe, MidAmerican Energy is the company's third largest business by revenue and profitability, as of 2011.

To understand why Buffett should consider a MidAmerican IPO, it's important to know how the company gained what is arguably the strongest green energy position in the US and possibly the world.

As solar giants like SunPower and First Solar transition from manufacturing and selling solar energy panels on wholesale markets to building large plants with multi-decade purchase agreements with utilities, MidAmerican Energy appears to be the biggest backer of such projects.

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