By Todd Foley
The American entrepreneurial spirit is an incredibly strong force in the domestic and global marketplace. And when markets allow businesses – small and large – to compete, grow, and innovate on an equal and fair playing field, all Americans benefit.
Since 1987, many conventional energy sources have taken advantage of Master Limited Partnerships (MLPs), a business structure that is traded like a corporate stock but is taxed as a partnership, avoiding double taxation. However, renewables have been excluded from utilizing the MLP market that exceeds $400 billion in capital investments.
It’s time to allow renewable energy access to this important market tool, which has spurred tremendous investment in the nation’s energy infrastructure.
It is true there is a serious need for renewable energy policies at the federal and state levels that create long-term market certainty, boost distributed generation, and spur the growth of all renewables. The existing tax credits and CLEAN contracts, or feed-in tariffs, have been successful and remain vitally important. But that hardly means MLPs are a "lousy policy for renewables," as John Farrell wrote in a May 31 commentary published on Midwest Energy News.
Rather, MLPs can drive much larger sources of private, low-cost capital needed to finance the continued scale up of renewable power generation and fuels. The current lack of access to low-cost capital that traditional sources enjoy continues to be a barrier for renewable energy projects, and negatively impacts their ability to compete.
The value of the existing Investment Tax Credit (ITC) and Production Tax Credit (PTC) are utilized over the five year period after a solar or wind project comes online. Following that five year period, the project owner can aggregate the projects into an MLP and this lower cost capital can be used to finance additional projects. By doing so, developers could access lower-cost capital that can be used to deploy community, residential, and utility scale renewable energy projects.
Right now we can’t do that because the law does not permit renewable energy projects to utilize MLPs.
An important and straightforward tweak of current law – enacting the 600-word, bipartisan MLP Parity Act introduced by Senators Coons (D-DE), Moran (R-KS), Stabenow (D-MI) and Murkowski (R-AK) and Representatives Poe (R-TX) and Thompson (D-CA), would enable the renewable energy market and investors access to this important capital market.
Although upfront project costs for renewables are capital intensive, prices for renewable energy have been declining at a significantly faster rate than the prices of conventional energy sources in recent years due to technology and policy innovation. At the very least, renewable energy is a hedge against the volatile prices of fossil fuels. But it’s becoming more apparent that renewables are simply a smarter investment for financiers and consumers looking to save or make money on energy costs.
And by allowing project financiers the opportunity to break into untapped capital developers would benefit from lower upfront expenses while access to lower cost of capital benefits all energy consumers by helping to lower the delivered cost of energy to utility buyers.
Right now, Congress has the unique opportunity, on a bipartisan basis to leverage more private investment for renewables by extending a benefit that fossil fuels have long enjoyed and are likely to continue to enjoy. They can also do this by extending the existing tax credits.
MLPs strongly complement other policies such as the production tax credit, the investment tax credit, and Renewable Portfolio Standards (RPS). Renewable energy is increasingly competitive and provides a variety of community, residential, commercial and utility scale solutions. Growing these market opportunities requires much greater levels of lower cost capital.
MLPs would help provide this lower cost capital and thus along other successful policies, can make a renewable energy future a reality.
Todd Foley is the Senior VP of Policy and Government Relations for the American Council On Renewable Energy, based in Washington D.C.