FW: Renewable Energy Master Limited Partnerships: NY Times Editorial

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We recently posted an article on the concept of using REITs to create
long-term financial investment vehicles for renewable energy, ones that
everyone could invest in.

Last week, the NY Times ran an Op-Ed that speaks to this subject, "How to
Make Renewable Energy Competitive." It's by Felix Mormann and Dan Reicher at
Stanford's Steyer-Taylor Center for Energy Policy and Finance.

Here's an excerpt:

Renewable energy needs help. Technological innovation has significantly
reduced the cost of solar panels, wind turbines and other equipment, but
renewable energy still needs serious subsidies to compete with conventional
energy. Today, help comes mostly in the form of federal tax breaks.

These tax incentives, and the Congressional battle over extending them for
wind projects beyond the end of this year, mean that other, more powerful
policies to promote renewables are not getting the attention they deserve.
If renewable energy is going to become fully competitive and a significant
source of energy in the United States, then further technological innovation
must be accompanied by financial innovation so that clean energy sources
gain access to the same low-cost capital that traditional energy sources
like coal and natural gas enjoy.

Two financial mechanisms that have driven investment in traditional energy
projects - real estate investment trusts and master limited partnerships -
could, with some help from Washington, be extended to renewable energy
projects to lower their cost and make America's energy future cleaner,
cheaper - and more democratic.

Federal support for renewable energy today consists primarily of two tax
breaks: tax credits and accelerated depreciation rates. But both tools have
a very limited reach. Only investors with hefty tax bills, typically big
banks or corporations, can exploit them to reduce their tax burden. Most
potential investors, including tax-exempt pension funds and, importantly,
retail investors trading stocks, don't have big enough tax bills to exploit
the break.

There are better options. They may sound wonky, but they could prove
revolutionary.

Real estate investment trusts, or REITs, which are traded publicly like
stocks, could tap far broader pools of capital to vastly lower the cost of
financing renewable energy. REITs have a market capitalization of over $440
billion while paying shareholders average dividends below 10 percent -
roughly a third of the cost of tax equity investments for renewable energy.

Master limited partnerships carry the fund-raising advantages of a
corporation: ownership interests are publicly traded and offer investors the
liquidity, limited liability and dividends of classic corporations. Their
market capitalization exceeds $350 billion. With average dividends of just 6
percent, these investment vehicles could substantially reduce the cost of
financing renewables.

But current law makes using both of these investment vehicles for renewable
energy difficult if not impossible. Washington could help in two ways.
First, the Internal Revenue Service needs to clarify the eligibility of
renewable power generation for REIT financing.

Second, Congress needs to fix a bizarre distinction in the tax code that
bars master limited partnerships from investing in "inexhaustible" natural
resources like the sun and wind, while allowing investments in exhaustible
resources like coal and natural gas. In 2008, as surging gasoline prices
were infuriating American voters, Congress amended the tax code to enable
master limited partnerships to invest in alternative transportation fuels
like ethanol. We should treat power sources, like wind and solar farms,
similarly.

There is hope. Senator Chris Coons, Democrat of Delaware, plans to introduce
a bill to allow master limited partnership investment in renewable energy.
This approach is preferable to a recent proposal by Senator Bernard Sanders,
independent of Vermont, and Representative Keith Ellison, Democrat of
Minnesota, to eliminate this investment option for fossil-fuel projects.
Both moves would level the playing field between conventional and renewable
energy, but the Coons bill does so by promoting, rather than limiting,
economic growth across the energy industry.

These approaches could help renewable energy projects reduce their financing
costs up to fivefold. These cost improvements could significantly reduce the
price of renewable electricity and, over time, erase the need for costlier
subsidies.

Read the full editorial:
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