New Pool of Capital, Lower Capital Costs
Allowing renewable energy industry participants to form MLPs would open up significant new opportunities to raise lower-cost capital at a time when financing options are regressing to the point where renewable-energy financing is increasingly reliant on tapping the relatively small, inadequate market for tax equity financing.
As much as $6 billion in capital that’s currently excluded from renewable-energy projects might be invested in renewable-energy MLPs, according to a study from the Maguire Energy Institute at Southern Methodist University.
As Coons notes, projects put into an MLP portfolio “get access to capital at a lower cost and are more liquid than traditional financing approaches to energy projects, making them highly effective at attracting private investment. Investors in renewable energy projects, however, have been explicitly prevented from forming MLPs, starving a growing portion of America’s domestic energy sector of the capital it needs to build and grow.”
The Right Legislation at the Right Time
In a June 2 New York Times article, Stanford University’s Dan Reicher and Felix Mormann succinctly explained the boost allowing renewable energy companies to form MLPs would provide to the U.S. renewable energy industry:
“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.
“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%, these investment vehicles could substantially reduce the cost of financing renewables.”
If passed, the Coons-Moran MLP Parity Act would allow MLPs to be formed for solar, wind, marine and hydrokinetic, hydropower, combined heat and power, municipal solid waste, geothermal, fuel cells and closed- and open-loop biomass. It also would enable MLPs to be formed for a range of alternative transportation fuels, including cellulosic ethanol, biodiesel and algae fuels.
Renewable energy MLPs, in turn, would offer investors a secure, cost-effective and high-yielding opportunity to contribute to and participate in the success of America’s fast-growing renewable energy markets and companies.
As of this writing, Andrew Burger did not hold a position in any of the aforementioned securities.