While master limited partnerships (MLPs) and real estate investment trusts (REITs) are hardly new, their ability to fuel clean technology projects with new investment is game changing. And the Bloomberg New Energy Finance Summit in New York City, legislators from Alaska, Colorado and New Mexico talked a big game about the potential of both MLPs and REITs.
Lisa Murkowski (R-Alaska), a senator and ranking member of the Senate Energy and Natural Resources Committee, said oil and gas industries haven’t lobbied to stifle legislation that would extend MLPs from just those industries to renewable energy industries. Other than typical beltway politics, resistance from oil and gas lobbyists was one of the biggest anticipated sources of resistance to legislation that would allow cleantech companies to take advantage of MLPs.
“It’s important to keep in mind that so many of the energy companies that we view as traditional oil and gas – [Royal Dutch] Shell and BP – are heavily invested in renewables,” said Murkowski, during a keynote address at the Bloomberg New Energy Finance conference in New York. Therefore, they won’t stand in the way of legislative change that would allow clean technology companies to take advantage of them.
In late April, a group of legislators – U.S. senators Chris Coons (D-Del.) and Jerry Moran (R-Kan.), and U.S. representatives Ted Poe (R-Tex.) and Mike Thompson (D-Calif.) – reintroduced the Master Limited Partnership Parity Act with new language. (The bill had first been introduced last year.) The bill would allow clean energy projects to use MLPs as a business structure. Currently, the structure is only open to oil and gas projects, but the bill broadens the definition of energy sources to include clean energy technologies related to biochemicals, carbon capture and storage, closed and open loop biomass, energy efficient buildings, fuel cells, hydrokinetic, hydropower, solar, and wind, among others.
An MLP structure is taxed as a partnership, but the ownership interests are traded like securities on an exchange, explains Coons in an announcement about the bill. But while profits from a public company are taxed at both corporate and shareholder levels, income from MLPs is taxed only at the shareholder level. Projects financed using MLPs are able to access capital at a lower cost, plus they’re more liquid than financing vehicles used in energy projects.
During her address in New York, Murkowski seemed confident that MLPs had broad support in both the U.S. House of Representatives and the Senate.
“This is just an important part of what we need to do to move forward,” said Murkowski.
Murkowski’s comments were confirmed a day later when Jack Gerard, president and CEO of the American Petroleum Institute – one of the most influential lobbying groups for the oil industry – blessed MLPs when asked about them directly.
“We don’t have a problem with [the legislation] at all,” said Gerard. According to Gerard, oil and gas companies will only move to block measures that penalize the oil and gas industry at the expense of renewable energy.
IRS Allows for REITs
For their part, REITs allow for the same fundraising as a corporation, but with the tax benefits of a partnership, explains a Brookings Institution study on MLPs and REITs in the clean tech sector. Recent so-called “private letter rulings” by the IRS have allowed for investment in energy projects related to natural gas pipelines and terminals, power transmission lines, railroad tracks, and cell towers, but they still haven’t been able to invest in renewable energy.
According to the Brookings study, it would take executive or legislative action to allow REITs to invest in renewable energy. The Department of Treasury could use private letter rulings, or a legislative amendment to the tax code could do it.
“A series of signals from Capitol Hill and the administration suggest that MLPs and REITs are emerging as potentially transformative tools to advance renewable energy, with significant economic, security, and environmental benefits,” states the Brookings study. “Let’s get the deal done.”