Berkshire Hathaway Energy continues to go green

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Introduction

My thesis is that Berkshire Hathaway Energy (“BHE”) (NYSE:BRK.A) (NYSE: BRK.B) will continue to increase the percentage of their overall electricity generation from renewable energy.

Hydroelectricity is a form of renewable energy, but this article discusses separately, so that “renewable” in this context refers to green sources other than hydropower such as wind and solar.

Numbers

There is more consensus than ever that the world must limit the amount of electricity generated from coal and natural gas. Here are the numbers from Our World in Data:

world electricity production

world electricity production (Our World in Data)

The United States encourages companies like BHE to limit the use of coal and natural gas. These incentives are working, as the EIA shows that coal has declined as a percentage of electricity generation in the United States, from around 40% in 2012 to a forecast close to 20% for 2023:

Electricity production in the United States

United States Electricity Generation (EIA)

The BP (BP) Statistical Review of World Energy 2022 shows that 23.5% of electricity in Europe was produced by renewable energies in 2021 [946.5 TWh out of 4,032.5 TWh]. In the lead, the United Kingdom with 37.7% [116.9 TWh out of 309.9 Twh] and Germany at 37.2% [217.6 TWh out of 584.5 TWh]. BHE is on its way to more renewable production like the UK and Germany. Combining wind, solar and geothermal, BHE has grown from 4% of its total electricity production coming from renewable energies in 2005 to 27% in 2021 according to the BHE 2022 presentation on fixed income:

BHE Renewable Energies

Renewable BHE (BHE 2022 Fixed Income Presentation)

BHE is encouraged to continue investing in renewable energy, given tax credits and data center company projects. Projections show that 52% of BHE’s electricity generation will come from renewables in 2030, and I think those numbers are realistic. Berkshire can be a little reluctant with tax planning details, but they have said in summary that they are one of the few energy companies in the United States with a full enough tax appetite to use incentives properly. BHE’s MidAmerican subsidiary is about to continue its meteoric expansion on the wind side:

MidAmerican Investments

MidAmerican Investments (BBB 2022 Fixed Income Overview)

The BHE 2022 fixed income presentation shows that MidAmerican had approximately 23,000 GWh of wind generation in 2021. This is evident from the fact that the 2021 annual 10-K shows MidAmerican wind capacity of 7,186 MW which we multiply by 8,760 hours per year times 0.36 times capacity a MWh to GWh conversion factor of 0.001 to get just under 23,000. The EIA shows that the US as a whole had 380 TWh of wind generation in 2021, so I think it’s cool to know that this subsidiary of BHE had about 23 TWh, or about 6% of the national total.

BHE is used to signing renewable agreements for data centers. In April 2014, BHE announced that MidAmerican had entered into an agreement to supply wind power to a Google (GOOG) (GOOGL) data center in Council Bluffs, Iowa. In January 2017, BHE revealed that its subsidiary NV Energy and Apple had agreed on solar projects to support Apple’s data center in Reno. A May 2018 release by BHE describes a Utah data center for Meta (META) powered entirely by renewable sources. A January 2020 news article from DCD describes Google’s Nevada data center project with NV Energy, claiming that a solar farm is the source of power.

Evaluation

There are limits to the expansion of BHE. Wind and solar will continue to replace coal and natural gas, but hydroelectricity is expected to remain. As such, I doubt BHE would get involved in hydro-heavy markets. 59.4% of Canada’s electricity [380.8 TWh/641 TWh] comes from hydroelectricity. South and Central America are also phenomenal in terms of hydroelectricity; these areas produce 48% or 660.1 TWh out of 1,364.8 TWh of their total electricity from this source. Brazil is the largest contributor in the region, where hydroelectricity is responsible for 55.4% of their electricity [362.8 TWh/654.4 TWh]. China is the leader in gross hydroelectricity TWh with 1,300, but it accounts for only 15.2% of its total electricity production of 8,534.3 TWh.

My thoughts on the evaluation are still in line with the views of my April article. It’s encouraging to think about what the 10-K 2021 says about operating cash flow:

Net cash provided by operating activities for the years ended December 31, 2021 and 2020 were $8.7 billion and $6.2 billion, respectively. The increase was primarily due to $970 million of additional net cash flow from BHE GT&S operating activities, improved operating results and changes in working capital.

Disclaimer: Anything in this article should not be taken as a formal investment recommendation. Never buy a stock without doing your own thorough research.

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