Warren Buffett versus Amory Lovins

An article from the June 23, 2005 edition of Forbes Magazine was titled Buffett Still Power Hungry. Here is a quote from that article:

Buffett also said that Berkshire is looking at new-generation nuclear power plants with an “open mind.” While Buffett has spoken positively about the utility and pipeline segments of the energy business for several years now, this is the first time we’ve seen him comment on nuclear plants.

In his article Security Meltdown Lovins repeated one of the versus of his oft repeated dogma – that private investors will not finance a new nuclear power project.

This fervently held belief system asserts that nuclear power will become cost-effective if enough of it is bought; that its competitors, however laudable and successful, are and will always be inadequate; and that whatever it costs, and however unwilling the private capital market is to finance it, nuclear power must be bought anyway, because…well, just because.

While it is true that there had not been much private interest in new nuclear power plants for several decades, that changed at least three years ago as natural gas prices soared. Lovins has apparently not noticed the change, in his article he quotes a 2001 article from the Economist that was based on fuel price assumptions that are less than half of current prices. Warren Buffett has long been recognized as one of the greatest value investors of all time; he looks very diligently at current and near future numbers before he makes an investment. Buffett’s statement about nuclear power is obviously quite subdued; you cannot expect a man who is considering a multi-billion dollar investment to talk much about it before the deal closes.

Electricity demand in the US continues to increase as the population gets larger, houses get bigger, electrical appliances are installed, and more computer related devices enter service. Electric utilities have built hundreds of gas fired power plants since the early 1990s, yet annual production for that “cleanest of all fossil fuels” has been flat. As many of us learned in Econ 101, increasing demand married to flat supply causes increases in prices. No electric utility in the continental US is currently planning a large gas fired power plant and many of the projects that were started have been abandoned. New electrical power supplies need to come from somewhere, Buffett seems to think that nuclear power is one real possibility while Lovins fervently believes that we simply do not need as much. I’m betting with Warren.