Floating New Ideas to Build Wind and Solar Energy Projects

Ken Silverstein | Nov 18, 2012

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An all-of-the-above energy strategy may mean leveling the tax code. The wind and solar industries may potentially receive favorable tax treatment under a provision of the law that pertains to the fossil fuels or the tax structure could be totally reformed, wiping out all of those breaks in exchange for reduced corporate rates.

An idea getting attention now is giving the renewables sector the right to access “master limited partnerships” -- just like oil, natural gas and coal can now do. Simply, that is a business structure that has limited liability while allowing investors to be taxed at their personal rate on dividends.

Right now, the fossil fuels can set up those partnerships but the green fuels cannot. Such deals are able to attract capital because profits are only taxed once -- when the dividends are distributed, and not at the corporate level. Those investments are liquid and they can be traded, making them a valuable part of building long-term energy infrastructure projects.

Dan Reicher, former director of climate change and energy at Google, raised this issue during an EnergyBiz conference in Washington on Friday. He said that those master limited partnerships could supply “hundreds of millions of dollars” to renewable energy projects by appealing to investors who seek an attractive dividend payment, which could be around 6 percent.

“Because master limited partnerships are so attractive to investors, they have been proven to bring new capital into American energy projects,” says Senator Chris Coons, D-Del., who is sponsoring a bill to apply such business structures equally across all energy types. “This is especially important in the case of renewable energy generation, where it is harder for investors to see as quick a return compared to fossil fuel-based energy generation, for which much of the process and transportation infrastructure was built decades ago.”

Why not? The argument against the move is that some lawmakers say that it would erode the tax base. That is, investments in wind and solar master limited partnerships would become tax havens, as opposed to legitimate mechanisms by which green energy development would occur. 

Compromise in Air

Reicher, now with Stanford University’s Center for Energy Policy, disagrees with that objection. He says that investors would still be paying taxes on the dividends that they receive from the partnership. And if the tax code is properly enforced, it would lead to economically viable wind and solar generation deals that provide jobs and pay taxes.

The idea has broad support: Not only are the environmental and green energy advocates behind it but so are some utilities. Specifically, David Crane, who is chief executive of NRG Energy, calls the proposal “phenomenal.”

“The fact that it doesn’t currently apply to renewables is just a silly inequity in our current law,” says Crane.

What about the production tax credit that gives developers of a break for every unit of energy generated? Reicher presented the master limited partnership as an either/or proposition. And while wind and solar organizations support the tax partnerships, they have given no indication that they would be willing to forego the tax credits that they say are also needed.

Expanding the tax code, however, is now losing favor. “Simplifying” it is the new rage in Washington: Getting rid of the loopholes and special tax breaks in exchange for decreasing the top tax bracket from 35 percent to 25 percent. Such tax reform, of course, would benefit those established entities more than it would help those that are in their growth stage.

Rick Boucher, former Democratic representative from Virginia who sat on the House Energy and Commerce Committee, points specifically to the oil industry that is targeted to lose $4 billion in tax breaks a year. That industry, he said during the EnergyBiz conference, has little support for those benefits. But it will only agree to give them up if the broader corporate tax rates are lowered.

An overhaul of the tax system would be a massive undertaking. Until any such agreements could be reached, Boucher says that the wind industry will likely see its production tax credit re-enacted. That’s because “thousands of jobs” depend on it” and many key Republicans with wind projects in their state are in favor of it.

Conciliation and compromise are the buzzwords in the aftermath of the presidential election. The next few months are critical to finding common ground on a multitude of energy issues, including those involving green fuels. Agreement, though, must come before the two political parties would revert to all-out war.


EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been honored as one of MIN’s Most Intriguing People in Media.

Twitter: @Ken_Silverstein

energybizinsider@energycentral.com


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Comments

Why Not Include MLPs for Renewables?

Logic and parity dictates that renewables should have the same access to captial as fossil fuels.

Kansas Republican Senator Jerry Moran is a co-sponsor of the MLP bill which makes those of us from Kansas proud that a little common sense is being injected into the energy tax incentive discussion.

Its a good move as what can oil and gas say about including the competition

Tax Haven Concerns?

It is strange that one would discuss concern about master limited partnerships becoming tax havens while the renewables industry is fighting for PTCs and enjoy support from so many members of Congress because it brings money to their states.  The reason the wind industry is looking at so many layoffs in the face of the PTC demise is that wind energy is not economically feasible nor is it particularly beneficial in reducing CO2 emissions without still more investment in energy storage.

Why does one think BP and GE among others spend the money on "touchy-feely" television ads touting their involvement in green energy--after all, they are not selling those products directly to the television audience.  They want public support for allowing them to take tax money from individual taxpayers and companies not involved in green energy to pay their tax bills.

Look at the PTC allowed for ethanol.  It does NOTHING SUBSTANTIAL to decrease CO2 emissions per vehicle mile except for the low concentration needed for octane boosting but does a bunch to increase the price of food.

And, some lawmakers are worried about eroding the tax base?

Make Wind & Solar Power Projects Stand Up

Clearly Wind & Solar Power (W&S) is not able to supply power as needed, but only as available. Each W&S project should have to include a gas fired turbine-generator or pumped storage hydro in parallel that is designed to compensate for the lack of dispatchability of their attached W&S systems. By economically packaging the backup system directly to the variable supply system, the economics involved can be clearly seen. Currently the grid is expected to compensate for the highly variable W&S output and this limits the fraction it can handle to the grid spinning reserve of about 15% of load. This forces "others" to run off-peak efficiency, leads to additional fuel cost and equipment damage and repair costs leading to reduced income and poorer company financial performance. Let’s make it very clear by simply adding the backup to match the W&S within a project and then see if it makes economic sense to have W&S as a major supply. Right now W&S is selected as a "feel good" option and true economics of the systems are ignored. Time to be honest with W&S.

Conciliation and Compromise

"Conciliation and compromise are the buzzwords in the aftermath of the presidential election."

Has anyone mentioned this to Barack Obama and Harry Reid? Has the "buzz" reached Lisa Jackson or Kathleen Sebelius? Is Eric Holder onboard?

"Enquiring minds want to know."