renewable energy progressIn what is the second bill introduced recently to reinforce the idea of energy efficiency in the last few weeks, a major financial breakthrough could clear a path towards substantial renewable energy growth in the US.

The Master Limited Partnerships Parity Act, or MLP Parity Act for short, is a simple, 600 word bill that sets out to address Congress for permission to define renewable energy companies in the same way as coal, oil and gas companies from a capital costs perspective.  To understand how being classified as a Master Limited Partnership (MLP) would benefit a company, it’s important to understand how an MLP can be classified, and the advantages that are in play.  Different corporate structures, like sole proprietorships, partnerships, S-corporations, C-corporations, and so forth have different means of personal responsibility, taxation standards, and cash flow generation.

A Master Limited Partnership, for example, is unique because it provides the taxation of a limited partnership with the ability to offer and sell stock publicly, like a corporation.  This is an ideal set of standards for developing companies within an emerging industry that have drawn enough interest to attract considerable public funding, but whose investors want to get the most value for their investment.  The bill would also make finance costs much less expensive for renewable energy companies, upwards of 50% less, in fact, as noted by Fierce Energy.

US Senator Chris Coons (D-DE) released a statement after he reintroduced the bill to the Senate (the original draft in 2012 was denied and reworked).  Rather than paraphrase his explanation of the new bill and its benefits, some excerpts from his statement are bulleted below:

  • An MLP is a business structure that is taxed as a partnership, but whose ownership interests are traded like corporate stock on a market.  Whereas profit from publicly traded C-corporations is 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.
  • The MLP Parity Act simply expands the definition of “qualified” sources to include clean energy resources and infrastructure projects.  Specifically included are those energy technologies…including wind, closed and open loop biomass, geothermal, solar, municipal solid waste, hydropower, marine and hydrokinetic, fuel cells, and combined heat and power.
  • An MLP consists of limited partners (investors) and general partners (managers).  The limited partners – who can number in the thousands – provide capital and receive quarterly required distributions generally equivalent to shareholder dividends in a C-corporation.
  • The National Association of Publicly Traded Partnerships estimates there are more than 100 MLPs currently being traded on major exchanges…[O]f the estimated $445 billion in MLP capital currently in the market, approximately $400 billion has gone into qualifying energy and natural resources.  Of that, just under 80 percent has gone into midstream oil and gas pipeline projects.

Based on the hundreds of billions invested in MLPs that Senator Coons alluded to, there is an opportunity for astronomical levels of capital that could be invested to solidify the foundation of the renewable energy industry.

Bi-partisan support for the MLP Parity Act is widespread, including support from both the Senate and the House of Representatives.  In addition to Senator Coons’ contributions, Senators Jerry Moran (R-KS), Debbie Stabenow (D-MI), and Lisa Murkowski (R-AK), along with Representatives Ted Poe (R-TX), Mike Thompson (D-CA), and Chris Gibson (R-NY) are all original co-sponsors of the bill.  In addition, as an article from points out, 236 unions, private companies, environmental groups, financiers, and other advocates for clean energy across the country also sent their support for the bill in a letter to Congress this week.  The full letter is here, but an excerpt that greatly sums up the argument is included below:

Supplementing successful energy tax credits with access to MLPs for renewables and other clean energy technologies would enhance the sources of capital for the industry and increase investors’ opportunities to take ownership in America’s clean energy future.  It has worked for traditional energy technologies and would work for clean energy.

It’s worth noting that not every renewable energy company will be eligible to qualify for MLP status, even if the bill is ratified.  The primary criterion to qualify is that a company must generate at least 90 percent of its income from “qualifying resources,” as defined by the IRS.  In terms of the current standards within the coal, oil and gas industries, this includes the production, processing, or transportation of their product.  But for the sake of the renewable energy industry as a whole, the benefits still far outweigh the limitations of the bill.

Kristopher Settle