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New legislation could boost renewable energy investment in USA

The New Alphabet of Renewable Energy Investing: MLPs and REITs, Forbes, 24 April 13, Institutional investors manage more than $70 trillion in assets globally. But when it comes to renewable energy, a large portion of that capital is sitting on the sidelines.

It’s not that renewable energy is a bad investment—in fact, as I’ve explained before, clean energy projects provide exactly the kind of stable, consistent returns that long-term investors love. For example, when Warren Buffett’s Berkshire Hathaway subsidiary MidAmerican Energy Holdings issued a $850 million bond offering for its Topaz Solar Farm last year, it was oversubscribed by nearly $400 million.

Investors want in on renewable energy investments; however, the types of investment vehicles available today are limited. Some of these limitations can be addressed by extending the same benefits that fossil fuel and real estate developers have enjoyed for years. New legislation and a call for clarity from the Internal Revenue Service could make two investment structures, Master Limited Partnerships (MLPs) and Real Estate Investment Trusts(REITs), the new alphabet of renewable energy investing.

MLPs and REITs could help to get some institutional capital off the sidelines and into play, but it is important to note that these measures alone will not open the floodgates to renewable energy investment. They are positioned to become part of a broader toolkit, one that the federal government has used successfully in the past to develop domestic energy resources.

Just as shale gas developers were supported with roughly $10 billion in tax credits, along with millions more in research and development funding, theProduction Tax Credit and Investment Tax Credit remain essential tools within the renewable energy industry. MLPs and REITs will provide complementary benefits as the industry matures, and most important, the proposed changes will help to level the playing field.

How? For decades, Congress has enabled investors to bundle energy projects like oil and gas pipelines and other fossil fuel developments under a structure called the Master Limited Partnership, which is taxed like a partnership but trades like a stock. Most of the investors we work with through ourInvestor Network on Climate Risk, for example, are investing primarily in stocks and bonds, so the liquidity that MLPs offer is appealing. In other words, investors like MLPs because they can buy and sell their shares in the public markets, and project developers like them because they can access cheaper capital through the markets.


Unfortunately, the tax code currently restricts MLPs to projects with “depletable” resources. This restriction was originally designed to prevent companies of all kinds from reformulating themselves as MLPs to avoid corporate taxes—even the Boston Celtics were an MLP for a time—but it has the effect of supporting fossil fuel projects while shutting out renewable energy developments. Not exactly the level playing field developers are looking for.

The Master Limited Partnerships Parity Act, re-introduced today by a bipartisan group of senators, hopes to achieve parity in the treatment of renewable and fossil energy. When the bill was first introduced last year, lead sponsor Sen. Chris Coons (D-Del.) said, “Congress should be setting a realistic and stable policy pathway to sustain innovations in domestic energy development, and help the market work to its fullest potential. That starts with leveling the playing field and giving renewable energy the same shot at market success as fossil fuels.”……

April 25, 2013 - Posted by | general

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