Railroads & Windmills: Berkshire's 'Green' Bets

By SCOTT PATTERSON
Adair, Iowa
Warren Buffett's blockbuster deal this past week for Burlington Northern Santa Fe Corp. was based partly on the view that railroads are more efficient than trucks when energy prices are high.
But another company in Mr. Buffett's portfolio, MidAmerican Energy Holdings Co., also is making a "green" bet, building windmills and investing in high-tech batteries in one of the most significant pushes by a regulated utility in clean energy.

Dozens of state-of-the-art windmills that tower over rolling corn and soybean fields in this Iowa town are part of a MidAmerican wind project that generates enough electricity to power more than 50,000 homes.
It is one of several wind projects launched since 2004 by MidAmerican, of Des Moines, for billions of dollars. Iowa has become second in the nation in wind-energy capacity, behind Texas, due in part to MidAmerican.
On Thursday, just days after Mr. Buffett's deal for Burlington Northern, an Iowa utility board approved a new, roughly $2 billion wind project that will nearly double MidAmerican's wind capacity in the state, adding between 400 and 600 turbines. MidAmerican also owns wind farms in the Northwest.
"In Iowa there was wind but nothing to harness it 10 years ago," Mr. Buffett said in an interview. MidAmerican changed that, he said, "and we've got more on the way."
The profit motive is clearly at work at the company. Mr. Buffett believes that the investments will ultimately reward MidAmerican and its parent, Mr. Buffett's conglomerate Berkshire Hathaway Inc.
"Clearly he thinks oil prices are going higher and Burlington is a way to have a low-cost provider, and you see that in MidAmerican, too," said Justin Fuller, partner at Midway Capital Research & Management, which closely tracks Berkshire.
The windmills are a risky move. Alternative energy has been one of the hottest, and least successful, investments in recent years.
High costs and technological hurdles have put a leash on once-hot areas such as ethanol and solar power. From Texas oilman T. Boone Pickens to U.K. energy giant BP PLC, the so-called smart money has lately scaled back on some once-highly touted clean-energy plans.
"The one thing we won't do is get involved in fads," said David Sokol, chairman of MidAmerican, in an interview. "We're looking at game changers."
Mr. Sokol is considered a top candidate to one day succeed Mr. Buffett, and his rising status at Berkshire puts a spotlight on his company's wind-power plans. MidAmerican has spent about $4 billion on wind projects and has billions more in the pipeline to finance wind and other alternative-energy projects around the country.
"Renewable energy has always been a fascination from my perspective, where it can make economic sense," Mr. Sokol said.
Messrs. Buffett and Sokol aren't on an environmental crusade. MidAmerican owns a vast number of coal-fired power plants, among the biggest emitters of greenhouse gases. Electric-power companies in the U.S. produce about 40% of the country's energy-related carbon-dioxide emissions, according to Energy Department data.
The railroad, while more efficient than trucking, hauls large quantities of coal. About 10% of the electricity produced in the U.S. comes from coal hauled by Burlington Northern, the railroad says.
Earlier this year, Mr. Sokol testified before Congress against legislation supported by many environmentalists to establish a market to trade carbon credits, arguing it would "impose a huge and unacceptable double cost on customers."
Mr. Sokol, who has said the wind-power industry still requires government support, also is trying to solve one of the longstanding problems of alternative energy -- how to store excess energy when the wind is blowing and transmit energy when it isn't.
MidAmerican has invested $232 million to buy 9.9% of Chinese battery maker BYD Co. If the company succeeds in producing batteries that can make power storable and portable, that could change the economics of alternative power. MidAmerican, which currently produces more electricity than its customers need, would be a winner.
Some see MidAmerican as a potential winner in the wind power race in part thanks to Mr. Buffett's deep pockets.
"If somebody is going to do wind energy successfully, my guess is would be it would be MidAmerican," said David Petina, a researcher for Freedonia Group, a Cleveland market-research firm who has studied wind power.
Write to Scott Patterson at scott.patterson@wsj.com