Warren Buffet: Utility Death Spiral Is Bull S*&^

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distributed generation utilitiesWe’ve covered the “utility death spiral” a lot here on CleanTechnica. Frankly, we haven’t really seen anyone claiming that a utility death spiral from the solar revolution isn’t something to worry about… until now.

The Edison Electric Institute (EEI), an association of investor-owned utilities, published a report last year that discussed the great threat distributed solar was to utility profits. From that report:

Start with the increased cost of supporting a network capable of managing and integrating distributed generation sources. Next, under most rate structures, add the decline in revenues attributed to revenues lost from sales foregone. These forces lead to increased revenues required from remaining customers … The result of higher electricity prices and competitive threats will encourage a higher rate of [distributed generation consumer projects] …. These competitive and financial risks would likely erode credit quality. The decline in credit quality will lead to a higher cost of capital, putting further pressure on customer rates.

Recently, a survey of utility insiders found that “95% anticipate that their utility’s regulatory model will change over the next 10 years, and 57% believe it will change significantly,” and about 30–50% thought distributed solar generation was a great threat to the industry.

But Warren Buffet is calling out this death spiral talk as a bunch of bull. From Smart Grid News:

Last year, Warren Buffett paid more than $5 billion for the Nevada utility NV Energy. In his annual letter to Berkshire shareholders on March 1, Buffett confirmed that NV Energy will not be his last major acquisition in the power sector. Bloomberg confirms he is hunting for more utilities, predicting his targets include Wisconsin Energy Corp. and Alliant energy Corp. They say there are 19 utility and pipeline owners that meet Buffet’s minimum requirements for profit and a return on equity.

There are some key points to note, though. Famed investor Buffet isn’t just going after any utilities.

Buffett “is likely looking at a lot of small, regulated utilities that have a lot of growth on the table where his low cost of capital is an incredible advantage,” MorningStar analyst Mark Barnett told Bloomberg.

And over at UtilityDive, reporter Ethan Howland speculates that several European utilities may already be spiraling downwards, including Sweden’s Vatenfall and Germany’s RWE. But he concludes that Buffett will avoid such pitfalls by sticking to utilities that operate in traditionally regulated states.

He quotes Buffett as saying “society will forever need massive investments in both transportation and energy. It is in the self-interest of governments to treat capital providers in a manner that will ensure the continued flow of funds to essential projects.”

Interesting. And, indeed, some of our commenters routinely note the usefulness of utilities. Nonetheless, it seems that utilities are going to have to shift tremendously in the coming years. We’ll see if the ones Buffet picks are the best able to adapt to a changing world.

For more about this matter, see: Utility Insiders See Major Changes Coming (Charts)

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Zachary Shahan

Zach is tryin' to help society help itself one word at a time. He spends most of his time here on CleanTechnica as its director, chief editor, and CEO. Zach is recognized globally as an electric vehicle, solar energy, and energy storage expert. He has presented about cleantech at conferences in India, the UAE, Ukraine, Poland, Germany, the Netherlands, the USA, Canada, and Curaçao. Zach has long-term investments in Tesla [TSLA], NIO [NIO], Xpeng [XPEV], Ford [F], ChargePoint [CHPT], Amazon [AMZN], Piedmont Lithium [PLL], Lithium Americas [LAC], Albemarle Corporation [ALB], Nouveau Monde Graphite [NMGRF], Talon Metals [TLOFF], Arclight Clean Transition Corp [ACTC], and Starbucks [SBUX]. But he does not offer (explicitly or implicitly) investment advice of any sort.

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