In a good sign that solar plant developers will be able to use bonds to finance projects, a bond offering for Topaz Solar Farm has been oversubscribed.
After its successful bond offering of $850 million, Warren Buffet’s utility arm is planning a second one to finance its $2.4 billion Topaz Solar Farm in California.
The bond offering was the first for a US solar PV project that’s not backed by a Dept of Energy loan guarantee.
Originally, MidAmerican Energy planned to offer a bond for $700 million, but there was so much interest it upped it to $850 million. That too was oversubscribed by over $400 million even though the bond was rated BBB-, the lowest investment grade rating.
It was the first renewable energy project to be rated by the big three rating agencies. The second offering is expected to be for about $450 million.
It’s not clear why the project didn’t get a higher rating, given the high likelihood that the project will be completed and a power purchase agreement is already signed.
In a time when income investments are scarce, institutional investors are becoming more interested in renewable energy projects because of their reliable income from long term power purchase contracts.
Investors will receive 5.75% interest and reach maturity in September 2039. They begin paying this month.
In January, the utility created a separate renewables arm, MidAmerican Renewables. Among investor-owned utilities, MidAmerican has the most installed wind power in the US, totaling 2,284 megawatts when current projects are completed. Besides the two solar plants it recently bought, it plans to invest geothermal and hydro.
In December, 2011, MidAmerican bought one of the world’s largest solar PV plants – the 550 MW Topaz project under development in southern California. Immediately after that, it bought a 49% stake in the 290 MW Agua Caliente project in Arizona, which is expected to come online in 2014. First Solar is building both projects.
“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.”