Governors' Wind Energy Coalition

As tax reform talks head into high gear, House and Senate lawmakers are dusting off bipartisan legislation that would allow clean energy developers to utilize a popular tax mechanism currently limited to fossil fuel projects.

The bill, introduced yesterday in the Senate by Sens. Chris Coons (D-Del.) and Jerry Moran (R-Kan.), and in the House by Reps. Ted Poe (R-Texas) and Mike Thompson (D-Calif.), would allow a wide range of clean energy sources to form master-limited partnerships (MLPs).

MLPs are business structures taxed as partnerships, but whose ownership interests can be traded like corporate stock. While investors are generally subject to taxation at the corporate and individual levels, MLP income is exempt from corporate tax liability. Under current law, MLPs are limited to projects involving oil, natural gas, coal and pipelines.

Renewable energy advocates have urged an expansion of MLPs for years as technology-neutral means to “level the playing field” and encourage investment in a broader range of energy projects. Despite interest by the Obama administration, the measure has stalled in the past three Congresses.

“It is my hope that we are finally at a window of opportunity for tax reform in which this opportunity to modernize the well-established MLP structure in a way that provides financing opportunities for all energy — a level playing field in a sustainable way — can be taken up and passed,” Coons said in an interview yesterday.

According to a release from the bill’s sponsors, newly eligible resources that would qualify include solar, wind, marine, hydrokinetic, fuel cells, combined heat and power, biomass, waste heat to power, renewable fuels, bio-refineries, energy-efficient buildings, and carbon-capture utilization and storage (CCUS).

Currently, some industrial CCUS projects on fossil fuels qualify, but not carbon removal systems on power plants, or on cement, steel or ethanol facilities, said Kurt Waltzer, managing director of the Clean Air Task Force.

“Allowing these CCS projects access to MLPs will help accelerate its deployment and cost reduction, and ultimately its wide-scale commercial use,” Waltzer said.

Coons said the measure should pass muster within the current political climate.

“The goal here is to get something that is good policy and good politics that makes real the Republican agenda of a technology-neutral, don’t pick winners and losers, all energy on the same playing field, in terms of this important financing vehicle,” he said.

One Senate co-sponsor, Energy and Natural Resources Chairwoman Lisa Murkowski (R-Alaska), praised the bill for being “absolutely technology-neutral.”

“For the life of me, I don’t understand why it’s been so difficult to try to advance that one, particularly during the Obama administration, when you would have thought there would have been good, strong support for the alternatives in these tax credits,” she told E&E News.

Also sponsoring the measure are Sens. Debbie Stabenow (D-Mich.), Cory Gardner (R-Colo.), Michael Bennet (D-Colo.), Angus King (I-Maine), Susan Collins (R-Maine) and Martin Heinrich (D-N.M.).

House backers include Reps. Mark Amodei (R-Nev.), Peter Welch (D-Vt.), Jerry McNerney (D-Calif.), Paul Gosar (R-Ariz.) and Earl Blumenauer (D-Ore.).

Dan Reicher, a former Department of Energy official and now executive director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford University, said that “this is the moment everyone has been waiting for” because a big tax package is under discussion after many years.

Reicher started to push for MLP legislation five years ago, when he wrote an opinion piece in The New York Timesstating that “if renewable energy is going to become fully competitive and a significant source of energy in the United States, then further technological innovation must be accompanied by financial innovation.”

The timing is also optimal now because of broad support from both conservatives and Democrats in Congress, and a shift in the renewable industry, which was focused on extensions of tax credits in previous years, according to Reicher.

With those in place, there’s a need for companies to have the same long-term benefits as fossil fuels without having to go through regular reauthorizations from Congress, he said.

Under a 2015 budget deal, the wind production tax credit was extended through January 2020, with incremental phase-downs starting this year. The 30 percent solar tax credit was extended through 2019 before an incremental decline to 10 percent in 2022.

MLPs are “the logical financing tool to put in place for an industry that is seeing its current financing structure ramp down. … Let’s level the playing field for all of these clean energy technologies,” Reicher said.