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Warren Buffett betting on green energy in Nevada: Why?

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First Posted: Jun 03, 2013 09:33 PM EDT
A view of the Las Vegas Strip. Warren Buffett is investing $5.6 billion dollars in the renewable energy industry in Nevada. NV Energies, the company that supplies electricity to much of Nevada, was acquired by MidAmerican Energy Holdings, a subsidiary of Berkshire Hathaway owned by Buffett.

A view of the Las Vegas Strip. Warren Buffett is investing $5.6 billion dollars in the renewable energy industry in Nevada. NV Energies, the company that supplies electricity to much of Nevada, was acquired by MidAmerican Energy Holdings, a subsidiary of Berkshire Hathaway owned by Buffett. Credit:iTech Post

Warren Buffett is investing $5.6 billion dollars in the renewable energy industry in Nevada. NV Energies, the company that supplies electricity to much of Nevada, was acquired by MidAmerican Energy Holdings, a subsidiary of Berkshire Hathaway owned by Buffett.

The casinos in Las Vegas purchase almost all of their power from NV Nevada, as do 90 percent of the state's residents. This makes it the largest utility company in the state. MidAmerican's purchase includes one gigawatt (GW) of power production in the form of renewable energy assets. These include solar, geothermal and and wind-powered energy production facilities.

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"Through MidAmerican, we have found in NV Energy a great company with similar values, outstanding assets, and a superb management team," Warren Buffett said in a press release.

This investor, known as "The Oracle of Omaha," is the fourth-richest person in the world, with a net worth of $53.5 billion dollars, according to Forbes magazine. He invested in wind farms early and has been expanding into solar projects.

Utilities are usually perceived as a safe bet, largely due to their near-monopoly on local markets. Buffet himself, in 2006, joked that utilities are a way to stay rich.

However, the power company came with roughly $4.4 billion dollars in debt, which increases Buffet's price for the company to around $10 billion dollars. Even before the debt is factored in, the purchase price offered on the day of the purchase was 23% over stock value. This amounted to $23.75 a share for a company whose stocks were worth $19.28 each. That stock value quickly rose up to $23.59 on the news of the acquisition, however, recovering the excess cost.

Nevada, however, has been suffering from an economic collapse that began with the housing crisis of 2007, from which they still have not recovered.

The state has great potential for solar and wind energy production given its large size and location. The Sagebrush State has also ruled that utilities companies in Nevada generate at least 25% of their power from renewable sources. A 3.5 percent rate hike went into effect last year, helped to increase profits for NV Energies, which climbed from $163 million dollars in 2011 to $322 million dollars the following year.

This deal would bring the total value of MidAmerican up to $66 billion dollars. More importantly, 8.4 million people will now be buying their electricity - nearly exclusively - from MidAmerican.

"We'll see how this plays out, but it's a great shot in the arm and a great vote of confidence in Nevada," Nevada governor Brian Sandoval said.

Buffett has made one of the world's most successful careers out of investing in safe stocks. This is another such buy and helps him to sell electricity to millions of new customers who can't purchase electricity from anyone else. Buffett not only has a safe bet in Las Vegas, but he has the house advantage.

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