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2015: When will distributed electricity generation threaten Berkshire's utilities?
GREGGORY WARREN: This question is on the energy business.
During last year’s meeting, we touched briefly on the topic of distributed generation, a method of generating electricity on a small scale at the point of consumption, from renewable and nonrenewable energy sources. Much of this has come around the last several years due to the growth of renewable energy sources like solar and wind.
Up until now, though, it has been difficult, if not cost prohibitive, for self-generators to store this energy.
Now that Elon Musk has joined the fray this week with his idea of batteries for the home, for his new Tesla Energy initiative, which could lead the way for larger systems, and realizing that disruptive technologies can, at times, upend an industry’s business model and competitive positioning, how long do you believe it will be before distributed generation becomes a meaningful threat to your utilities, especially if power can be stored more easily at the end user’s place of business or home?
WARREN BUFFETT: Well, you put your finger on storage being the key. And Charlie follows storage a little bit more than I do, and maybe I’ll have Greg Abel talk about it.
But obviously, distributed energy is something we pay a lot of attention to.
One of the — probably the best defense is to have very low-cost energy, and MidAmerican has done a terrific job in that respect. And the figures, in terms of people who have adopted solar in our territories, are just minuscule and will stay that way.
But huge improvements in storage would make a difference in a lot of ways. And, Charlie, what are your thoughts on that?
CHARLIE MUNGER: Well, obviously, we’re going to use a lot more renewable energy because the fossil fuels aren’t going to last forever. And, obviously, Berkshire is very aggressive and very well located, in terms of this development.
You know, I grew up here in this part of the world, and to have 20 percent of the power of Berkshire utilities in Iowa coming from the wind, I regard as a huge stunt.
And it’s, of course, very desirable, in a windy place like Iowa where the farmers like the extra income, to be getting a lot of power out of the wind. And, of course, we’re going to have a lot better storage, and the technology has been improving.
And this is — it’s not a threat, it’s a huge benefit to humanity, and I think it will be a huge benefit to Berkshire. And everything is working for us.
I love owning MidAmerican in an era where we’re going to have more storage, more wind, more solar, more grid.
And I think we’re so lucky. What the hell would we do if the fossil fuels run down, if we didn’t have the sun to use indirectly in these forms?
And, of course, the — it’s going to be a lot more storage. And, of course, there will be some disruption in the utility industry, but there will be more opportunity, I think, than disruption.
WARREN BUFFETT: Just in the last week, we’ve announced two different — we’re already the leader — and we’ve announced two different projects.
One in Nebraska — I think it’s 400 megawatts in Nebraska. That will be the first time we’ve had a wind farm here.
And then, we just got approval in the last couple days for, I think, a billion-and-a-half-worth more of wind in Iowa.
And I think Charlie mentioned 20 percent, but if we could — if Greg Abel could take the microphone, I think it’s a lot greater percentage than that now. It’s a moving target. So I may not have kept Charlie posted on the number.
But, Greg, would you bring people up to date on what percent we will be in Iowa when the present projects are completed, and also what has happened in Nevada and a few places like that? Greg?
GREG ABEL: So, I’d love to provide an update. Actually, as it’s been touched on, we announced our tenth project in Iowa. That brings us to more than 4,000 megawatts built over the last ten years in that state.
And at the end of 2016, we will now have 58 percent of our energy — approximately 58 percent — of our energy that we provide to our customers coming from wind.
And then, if you continue to — thank you. (Applause)
And then, if you continue to look at our other utilities and our unregulated businesses — Warren, you’ve touched on this in the past — we now have more than $18 billion committed to renewable assets across our different utilities.
And if you look at NV Energy, our Nevada utility, for example, we’ve committed to retire 76 percent of their coal by 2019, and a large portion of that will be replaced with renewable energy. So, clearly a continued commitment to that. (Applause)
CHARLIE MUNGER: Greg, in our utility business, do you think we have more disruption to fear, or more opportunity to love?
GREG ABEL: Distributed generation and solar bring great opportunities for all of our different utilities, and we’ll embrace it.
CHARLIE MUNGER: The answer is, you couldn’t be luckier, is what I’m telling you.
WARREN BUFFETT: And one thing that has helped in this respect, is that wind and solar are — the development of wind and solar at present — are dependent on tax credits.
In other words, the federal government has made a decision that the market system would not produce solar or wind under today’s economics, but it has an interest, as a society, in developing it. So they have established a credit — I think it’s one-point — electric is 1.9 cents a kilowatt — for ten years.
And because Berkshire Hathaway Energy is part of the consolidated tax return of Berkshire Hathaway Incorporated, it has been able to invest far more money than it would make sense to invest on a stand-alone basis.
Among electric utilities in the United States, there’s really no one situated as well as MidAmerican Energy is, because it’s part of this consolidated tax return, to really put its foot to the floor, in terms of developing wind and solar.
So it’s become the biggest developer, by far, among the utility industry, and it — I think it’s very likely to continue to be, simply because most utilities really don’t pay that much income tax and, therefore, they’re sort of limited in how far they can push development of wind and solar.