As part of our continuing efforts to provide current, topical information relating to renewable energy projects, RenewableEnergyLawInsider provides a series of posts from  individuals with a wide range of experience and expertise.  Today, two representatives from the Polsinelli Public Policy Group in Washington D.C., Andy Wright and Tracy Hammond, provide an update on the Obama administrations efforts to extend Master Limited Partnerships and Real Estate Investment Trusts to renewable energy projects.  Enjoy!

Earlier this week, President Obama’s top climate and energy advisor Heather Zichal stated that the White House is working with Congress to open up new financing avenues for renewable energy projects that would help put them on more equal footing with their incumbent, fossil fuel counterparts.

Zichal indicated that the White House is reaching out to both Democrats and Republicans in both Chambers of Congress on several energy-related tax measures that could be included in a more comprehensive tax reform effort later this year. Specifically, the Administration is working with Members of Congress to “help get their heads around” two financial structures called Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs) that would allow renewable energy companies to leverage more equity financing for building new infrastructure.

“Because we view the tax code as an important way to actually affect energy policy, we’re doing a lot of groundwork right now to help provide technical assistance to some of the other Members on both sides of the aisle,” Zichal said.

MLPs allow a business to organize a partnership where ownership interests are traded in financial markets like common stock, allowing a broad pool of investors to put up needed capital. A REIT is a security that sells like a stock and invests in real estate property directly.

Currently neither MLPs nor REITs are open to renewable energy projects, forcing developers to partner with tax equity investors that provide financing in exchange for the benefits of the renewable energy tax credits. This arrangement increases financing costs and limits the universe of possible investors to about $3 billion to $5 billion by some estimates. However, the MLP and REIT products open up potential pools of $350 billion and $800 billion of market capitalization, respectively.

Senators Chris Coons (D-DE) and Jerry Moran (R-KS) introduced legislation last Congress that would extend MLPs to renewable projects and Coons has promised to reintroduce his legislation this year. REITs, meanwhile, could be extended to renewable energy through administrative action by the Treasury Department, or Congress could pass new legislation authorizing renewable developers to access the tax structure.

In addition to Zichal’s comments, Ernest Moniz, nominated to be the next Secretary of the Department of Energy (DOE), also spoke out in favor of “Green MLPs” in his confirmation hearing before the Senate Energy Committee on April 9th. DOE has already convened several workshops to explore how it can assist companies that want to organize MLPs or REITs to attract investment. These include ongoing efforts focusing on how to standardize power purchase contracts to make them easier to use as investment vehicles and on continuing DOE’s role as an information clearinghouse for the private sector.

While conservative Members in Congress have been widely critical of the Production Tax Credit (PTC) for renewable electricity generation, MLPs and REITs offer ways to support energy development with little cost to the federal government. Neither is a direct subsidy for the industry. Rather, they are designed to attract additional private investment in renewable projects. These financial vehicles can also help the renewable power sector avoid more boom-and-bust cycles that have plagued the industry’s reliance on tax credits.

In a time of hyper-partisanship inWashington, extending MLPs and REITs to the renewable energy sector offers a rare opportunity to enact meaningful, bipartisan public policy that can both increase domestic energy production and equal the playing field for energy technologies.