(Bloomberg News) Wind-power companies want to follow KKR & Co. and Blackstone Group LP in tapping a Reagan-era tax break for oil and gas companies when U.S. renewable energy tax credits start expiring at the end of this year.
Developers of wind farms and solar power plants have begun lobbying for legislation that would let them form master limited partnerships, a financial structure used by pipeline operators, drillers and mine operators, as well as private-equity companies such as KKR and Blackstone. The publicly traded equities, valued at more than $230 billion at the end of last year, pay no corporate taxes, passing tax liability directly to investors.
Eliminating the corporate tax burden increases the potential profit of master limited partnerships and makes them appealing to wealthy investors. The tax vehicles were responsible for building much of the U.S. oil and gas pipeline networks, and investors such as John McKenna say they may deliver the same boost to alternative energy projects.
"It would be a real boon to the renewable energy industry," McKenna, chairman and chief executive officer of Washington-based investment bank Hamilton Clark Securities Co., said in an interview.
McKenna, who helped create the first master limited partnership, or MLP, in 1981, for Apache Petroleum LP, said extending the tax benefit to renewable energy will spur additional development. "It allows developers to find a cost- effective way to monetize assets as they complete them and plow it into new projects," he said.
Resources, Real Estate
Eligibility for the partnerships, now limited mostly to oil and gas companies, has varied. Even the Boston Celtics of the National Basketball Association gained MLP status in 1986, though the team lost it when Congress restricted the break to natural resources and real estate entities the following year. New York-based Blackstone qualified with its initial public offering in 2007.
Expanding the partnerships to renewable energy projects may not be high on the agenda of the Obama administration and lawmakers, who are focused on the debt ceiling, reducing the deficit and debating what tax breaks should be eliminated.
"I've heard the issue raised, but I haven't spent a lot of time on it," Senator Jeff Bingaman, a New Mexico Democrat who is chairman of the Energy and Natural Resources Committee and a member of the Finance Committee, said in an interview.
That will change before long, according to investor Kenneth Locklin.
"As soon as we get past the debt-ceiling crisis I'd expect some action on this," Locklin, managing director of Impax Asset Management LLC, said in an interview. Allowing the use of MLPs for wind and solar projects has bipartisan support and "would provide a stable policy to finance projects beyond current incentives."