Renewable Energy Pushes for Updated Financing Options

Green energy industries like wind and solar cannot compete with fossil fuels without hefty tax breaks intended especially for them. They have been telling Congress this for years, but now they are upping their plea as opposition for renewable energy subsidies are running high among many Republicans. 
    

According to the New York Times, the renewable energy industries are now asking Washington to allow wind and solar companies to qualify for some of the tax advantages that are used by the oil, gas and real estate industries to raise money from investors.

The industries are looking to two investment structures — the master limited partnership and the real estate investment trust — to help make financing easier and cheaper. It is estimated that opening them up to renewable companies could cut the cost of their energy by one third.

As with conventional power plants, the cost of building wind and solar farms can run into the billions of dollars, involving elaborate planning, construction and equipment. 

Wind and other green energy technologies have become cheaper, but the cost of investing has stayed relatively high. And last month, 31 lawmakers, including Senators Lisa Murkowski of Alaska and Jerry Moran of Kansas and Representative Ted Poe of Texas, sent a letter to President Obama urging him to support the changes. All three are Republicans supported by gas and oil interests, according to OpenSecrets.org.

Although White House officials say they see expanding REITs and MLP’s as keeping with their larger clean energy goals, they are more focused on eliminating direct subsidies and loopholes for fossil fuels and establishing a permanent production tax credit for renewables.

Allowing solar and wind firms to use a tax break offered to oil and gas companies fits into the worldview of an "all-of-the-above" energy strategy.

Under current law, the federal government offers renewable energy companies a generous tax credit against their income. But since few of them make enough profit to use the credits, they need to find investors — typically companies seeking to shield nonenergy profit from taxes — to take advantage of the breaks. Because the pool of such prospects is small, the investors that do jump in, like Google, have been able to command high rates of return.

By using a REIT or MLP. for renewable energy projects, the companies could reach a broader range of investors. MLP’s and REITs are similar in that they do not pay corporate income taxes, passing most of their income to their investors, who then pay taxes on it at their own personal rates. Both are also often traded publicly like stock, giving companies access to a much larger pool of investors who are willing to take a lower rate of return, according to tax lawyers and experts.

There are differences in the ways the two investment vehicles work. REITs, which are typically used to bundle groups of apartments or office buildings into tradable investments, cannot take advantage of tax credits. So a solar REIT would not be able to use the 30 percent investment tax credit still available to such projects through 2016. MLP.’s can use tax credits, but the partnerships are more complicated, tax lawyers said, which might keep investors away.