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Invest But Reform: Smarter Finance for Cleaner Energy: Open Up Master Limited Partnerships (MLPs) and Real Estate Investment Trusts to Renewable Energy Investment (REITs)

Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs)—both well-established investment structures—should be opened up to renewable energy investment. MLPs and, more recently, REITs have a proven track record for promoting oil, gas, and other traditional energy sources. When extended to renewable energy projects these tools will help promote growth, move renewables closer to subsidy independence, and vastly broaden the base of investors in America’s energy economy.

Allowing renewable energy investment through MLPs and REITs would have a wide range of positive effects:

  • MLPs and REITs would give renewable energy projects access to greater pools of capital. As a result, renewable energy would no longer pay scarcity prices for project capital because capital markets would be able to better align risk with return, based on a project’s actual, long-term revenue
     
  • With current financing charges driving up the cost of a project’s electricity by as much as 50 percent, MLPs and REITs would go a long way in cutting the overall cost of renewable power
     
  • Granting renewable energy the same access to low-cost capital that conventional energy has enjoyed for decades would help level the playing field. Unlike other leveling approaches, including a pending Senate bill to eliminate MLPs and other conventional energy subsidies altogether, allowing MLPs and REITs for renewables would encourage rather than stifle sustainable growth in America’s energy economy and other sectors
     
  • From an international perspective, extending MLPs and REITs to renewables would promote American competitiveness in the global clean energy race. Over time, technological innovation brings down the equipment cost of renewable power projects across the globe. However, financial innovation through the extension of MLPs and REITs to renewables would benefit renewable energy deployment in the United States immediately, thereby strengthening America’s clean energy industry at a critical moment
     
  • MLPs and REITs would also open an attractive secondary market for renewable energy investment by allowing the entry of new investors beyond a project’s initial phase of tax benefits and enhancing liquidity in the renewable power marketplace
     
  • And just as REITs were originally designed to encourage small-scale individual investment in commercial real estate, so would MLPs and REITs enable individual investors to profit from a renewable energy project's returns. With publicly traded shares, MLPs and REITs could allow millions of Americans to invest in the nation's energy future.

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SERIES: Remaking Federalism | Renewing the Economy | Number 6