MLP Tax Structure Should Be Expanded to Benefit Renewable Energy

It may come as a surprise to most renewable energy advocates, but there is legislation currently pending in Congress that could benefit projects that develop solar power, wind energy and bioenergy projects – and has virtually NO opposition!

Even the oil industry has gone on record in support of the Master Limited Partnership (MLP) Parity Act.

Introduced in the House and Senate by four Republican lawmakers and four Democrats, the legislation would provide tax advantages to energy project developers. It would expand the definition of projects eligible to form under an MLP to include a range of renewable energy resources and infrastructure projects. Currently, only those projects that involve resources subject to depletion, such as oil and gas, are eligible for MLP tax status, along with transportation and storage of certain fuels.

In other words, it’s a bill that offers the same huge tax benefit to renewable energy firms that fossil fuels companies have enjoyed for decades.

An MLP is a business structure that is taxed as a partnership, but whose ownership interests are traded like corporate stock on a market. Where profits from publicly traded corporations are taxed at both the corporate level and the shareholder level, income from MLPs is taxed only at the shareholder level because it is treated as a partnership for tax purposes.

Because of the existing statutory limitations, MLPs have only been available to investors in energy portfolios for oil, natural gas, coal extraction, and pipeline projects. Expanding the availability of MLPs to renewable energy projects will give those projects access to capital at a lower cost. MLPs are more liquid than traditional financing approaches to energy projects, making them highly effective at attracting private investment.

A report issued last year by researchers at Southern Methodist University says the partnership structure for renewable projects will help reverse a trend in which a large portion of federal tax credits are going to financiers, rather than energy companies. The analysis shows most renewable energy developers have to go the tax equity market to get loans and funding from large investors because they don’t owe enough in taxes to take advantage of the credits.

The SMU team says the partnership structure would make renewable energy firms less reliant on tax equity and could attract capital to the sector, reduce the risk of investments, impose some market discipline on investors, and offer a way to grow a sector of the economy that will be important in meeting America’s future energy needs.

MLPs have proven to be quite effective in encouraging investment in oil and gas infrastructure. They can similarly help, for example, the domestic advanced biofuels industry, bringing investment and jobs to rural America, all while expanding domestic energy production and reducing the nation’s dependence on foreign oil and its vulnerability to oil price shocks.

The legislation levels the playing field to help clean and renewable energy projects compete fairly with traditional energy projects. It’s a market-driven solution that supports the “all-of-the-above” energy strategy touted on both sides of the aisle in Washington. It’s a tax break that encourages and rewards clean energy entrepreneurs who are inventing new technology and cutting energy costs, all while creating jobs.

So, what’s the holdup? It could be held as part of a larger plan in Congress to overhaul the U.S. corporate tax system. As bipartisan as support might be, virtually any tax legislation is likely to stay on a back burner while lawmakers figure out modifications they hope will make the U.S. tax code more equitable and make compliance with the code an easier task.

If the MLP measure is not taken up soon, renewable energy stakeholders need to keep it on their radar screen and be ready to actively support it if and when Congress takes up a larger tax code overhaul. It’s a bill that can offer a huge boost to the development of renewable energy, which, in itself, can improve the economic viability of growing advanced biofuel feedstocks, manufacturing wind turbines, installing solar panels, and a multitude of other manifestations of a clean U.S. energy future.

This entry was posted in Policy and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply