This was originally posted on National Journal's Energy Expert's Blog in response to the question "How Can Congress Boost Renewable-Energy Investments?"
Renewables, particularly wind and solar, have made tremendous strides in recent years. Massive cost reductions are enabling them to play an increasingly mainstream role in conventional power markets. These industries now stand ready with the manufacturing capacity necessary to deliver hundreds of gigawatts of clean power plants.
Delivering that kind of scale in electric power requires significant investment. So it is important to note that renewables have already begun earning the trust of private investors. Of the $269B that Bloomberg reports was invested in renewables last year, the largest portion came from conventional project finance sources.
While this demonstrates that renewable projects are now an accepted asset class, it also highlights their disadvantage. Project finance is a considerably more expensive source of capital compared to the kind of low-cost, tax-advantaged financing sources that oil and gas enjoy.
Master Limited Partnerships (MLPs) are a perfect example. They allow oil and gas projects to tap public capital markets in a way that avoids an additional layer of taxation. This gives them access to lower cost capital than wind and solar get from project investors. Restrictions embedded in the MLP code prevent these structures from being used for renewables, thus conferring an arbitrary advantage to fossil resources.
Senator Coons is to be commended for his thoughtful and determined leadership on the MLP Parity Act. If passed, the bill would remove anti-renewable restrictions and enable access to low-cost capital via MLPs. It’s another common sense step we can take towards leveling the playing field and putting renewables on equal footing with fossil fuels.
My only concern with passing the MLP Parity Act is the risk it creates for confusion in Washington. Some may erroneously conclude that expanding MLPs can serve as a substitute for other federal renewable incentives. This would be a big mistake.
Some of this confusion is being sown intentionally by renewable foes. This was highlighted recently when Jack Gerard of the American Petroleum Institute gave renewable MLPs a proverbial “bear hug” by expressing his support for the Act while sniping that it “might help renewables transition off of subsidies sooner.”
It shouldn’t be necessary to point out that oil and gas continue to enjoy numerous subsidies and access to MLPs. A century’s worth of subsidy have helped the fossil fuel sectors to build a massive head start that continues to enhance their market position. It’s only fair to extend the same combination of incentives to renewables.
Bottom line, the Coons bill is a positive step towards giving renewables parity with fossil fuels in one corner of the tax code. But true parity will require a sustained, stable policy environment to sustain positive momentum in our nation¹s development of renewable resources. The benefits should be obvious: economic development and jobs combined with a path to a secure, clean, and affordable energy future.