What This Comment From Warren Buffett Might Mean For SembCorp Industries Limited?

During the Berkshire Hathaway Inc’s annual general meeting, Warren Buffett was asked about the future of the energy sector and what it means for the subsidiary, Berkshire Hathaway Energy. Here is the question:

Question: During last year’s meeting, you talked about the idea of distributed generation, where power is not tied into the grid. Up until now, it’s been hard for self-generators to store energy. More recently, Elon Musk introduced batteries for use in home power applications. How long will it be until distributed energy becomes a meaningful threat?

Distributed generation is basically the idea of generating the power at the point of consumption rather the current centralized model of generation. Buffett commented that storage of power is really the key. If there is a good system of storing the energy properly at the point of consumption, we might be able to change the way the power industry has operated over the past century.

Imagine that the energy usage of your own flat is generated through solar panels around the building and stored in a battery inside the block. If this is possible, it would eliminate the need for the expensive infrastructure of power distribution from the power plant.

Although the idea might seem futuristic, this is the direction that the energy industry is moving towards. So what are the implications for utility companies such as SembCorp Industries Limited (SGX: S51)?

Currently, SembCorp Industries Limited’s energy segment, as well as all utility companies in Asia, still produce power centrally in a power plant and distributes the energy through the grid. If the future of energy is in distributed generation, does that mean the current model in SembCorp Industries would be rendered obsolete?

Foolish Takeaway

In my personal opinion, investors should not worry too much about it. Even if distributed generation is indeed the future of energy, it will still take decades before the idea will become mainstream. Moreover, as the energy needs for society is constantly increasing, distributed generation will most likely start out as a complementary source to the traditional model instead of totally replacing it right away.

More importantly, as a leader in the energy industry in Singapore, SembCorp Industries should be well-positioned to lead the change in the energy industry. As long as there is a strong demand for energy, there will be a great need for energy suppliers such as SembCorp Industries.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Berkshire Hathaway Inc.