Financial innovation called for at ACORE’s policy forum

01 Financial innovation called for at ACOREs policy forum

In a panel discussion at the recent National Renewable Energy Policy Forum put together by ACORE, Stanford Law Professor Dan Reicher argued that energy “policies must move beyond traditional tax credits and enable the sector to tap into much larger sources of private capital.” During his panel,Finance Meets Policy: Beyond Tax Credits’ Reicher and other panelists discussed expanding Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs) in order to be eligible for clean energy projects. The panel also stressed the importance of reducing “soft costs of renewables.

“We’ve made great progress in bringing down the cost of renewable energy technologies like wind turbines and solar panels,” said Reicher, who is executive director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford and who has been pushing for the changes to MLPs and REITs. “Where we haven’t made the necessary progress is on bringing down the cost of financing the projects that use that equipment, so the cost of renewable energy is higher than it needs to be.”

Proponents such as Reicher argue that by using a REIT or MLP for renewable energy projects, the companies could reach a broader range of investors. MLPs 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 financial instruments are traded publicly like company stock, giving clean energy projects and companies access to a much larger pool of investors who are willing to take a lower rate of return.

Recent forecasts estimated that renewable energy industry could raise as much as $6 billion from fiscal 2013 through 2020 by utilizing MLPs, so the tax break would probably run much lower, less than $1 billion over a 10-year period, according to recent estimates.

A recurring theme of the forum focused on the continuing fall in costs of renewables. In recent years, increased private sector investment and new federal and state policies for renewables have helped reduce costs, increase production, generate new jobs throughout the country, and spur innovation, according to ACORE Policy Forum co-chair Kathleen McGinty, senior VP and managing director for strategic growth, Weston Solutions. McGinty is currently on the short list of potential EPA administrators.

“America has an opportunity to capture significant portions of the clean energy marketplace, not only domestically, but throughout the world,” added McGinty. “Creating a clean energy economy is vital to boosting our economy. More renewable energy leverages investment, creates jobs, and helps the environment. It is a win-win for everyone.”

Nancy Pfund, a managing partner at DBL Investors, and Ethan Zindler, head of policy analysis at Bloomberg New Energy Finance argued that while the cleantech investment landscape is certainly changing, surprising, brand-new investment opportunities still abound. As some policy makers and opinion writers continue to claim that renewables simply cost more, the cost per kilowatt hour for renewables including solar and biomass dropped 20 to 30 percent in the last twelve months, Zindler found, which he argues completely changes the energy landscape.

“We’re starting to get to the Promised Land in which this technology can compete on its own, without subsidies,” Zindler said.

There has been more than $500 billion in private sector investment in renewable energy technology in the past two years. At the same time, the cost of solar, wind and other renewable energy sources continues to decline. If anything, renewables are under-subsidized, said Pfund, who co-authored a study by DBL Investors finding that government investment in the critical early years of renewable energy have totaled less than half a billion dollars, compared to $1.8 billion for oil and gas and $3.3 billion for nuclear. Pfund argued that federal support for fossil fuels take many forms, from favorable tax treatment of REITs and MLPs in the oil and gas industries to the Price-Anderson Nuclear Industries Indemnity Act of 1957, which removes insurance costs from nuclear by making the government responsible for payment.

Pfund’s investments at DBL Investors show that she believes that cleantech is still a place to make money. Recent DBL transactions include stakes in SolarCity (SCTY), Tesla Motors (TSLA), Bright Source and FloDesign. DBL also participated in an $11 million round of funding in 2011 for Primus Power, which is developing new grid-scale energy storage technology. The company has received orders from the Bonneville Power Administration, the Department of Defense and the city and county of Modesto, California.


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