$1 Billion Bond Offering Completed for World's Largest Solar Project

Warren Buffett’s MidAmerican Energy utility has just completed  a $1 billion bond offering – the largest single bond financing for a solar project to date. 

Interest on the Series A note will be paid starting in June 2016 at 5.375%; the notes mature in June 2035. 
 
The funds will be used to complete the build-out of the world’s largest solar plant, the 579 megawatt (MW) Solar Star Project, previously called Antelope Valley. It consists of two co-located but separate projects, Solar Star 1 and Solar Star 2, in southern California’s Antelope Valley. 

MidAmerican Solar bought the project from SunPower for $2 billion in January, and SunPower is developing it using its own panels. 650 people are employed to build the project on 3200 acres, and in 2015 it will begin providing power to 400,000 homes. It is one of several large solar projects being built in the Lancaster area – the first city to require solar on all new homes.

Antelope Valley Solar Project

Solar Star is being built on disturbed land – former agricultural lands that were planted with alfalfa and other crops that require heavy irrigation. Because it is near existing transmission lines no new infrastructure is needed.

Third Big Solar Bond Offering

This is MidAmerican’s third successful bond offering in solar, all of which have been oversubscribed.

Another huge offering supports construction of the world’s second largest solar project, also in California: the 550 MW Topaz Solar Farm – which raked in $850 billion. The $2.4 billion project is expected to generate a 16.3% return on investment for selling the electricity under a 25-year contract to utility PG&E at $150 per megawatt-hour. 

It also has a 49% stake in the 290 MW Agua Caliente project in Arizona, which comes online next year. First Solar is building both projects.

Until recently, investors viewed these projects as too risky without government backing, but as solar prices kept dropping, it became clear that investors could make strong, reliable returns.  Once the capital investment is made, solar electricity is free with very low operating costs.

"A solar power project with a long-term sales agreement could be viewed as a machine that generates revenue," Marty Klepper, an attorney at Skadden Arps Slate Meagher & Flom LLP, told Bloomberg. "It’s an attractive investment for any firm, not just those in energy."

"We can make this sort of investment because MidAmerican retains all of its earnings, unlike other utilities that generally pay out most of what they earn," says Buffett in his annual shareholder letter. "Many more wind and solar projects will almost certainly follow."

Interestingly, tax professionals lag in their knowledge of clean energy investment opportunities and aren’t guiding their clients to them.

Since it began acquiring renewable energy projects last year, MidAmerican Renewables has quickly grown to an 1830 megawatt (MW) portfolio in wind, geothermal, solar and hydro. When current wind projects are completed, it will have 2284 MW in wind alone, making it the largest owner of US wind farms by an investor-owned utility. The utility also recently agreed to retire seven old coal plants.  

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