There is an investment vehicle available to oil and natural gas development that is not available to renewable energy resource projects. There is a current effort in Congress to change that situation.
Most political leaders today claim they support an “all of the above” energy strategy. Yet solar and other renewable energy resources are currently restricted by the lack of access to master limited partnerships (MLPs). MLPs are business structures that are taxed as a partnership, but whose ownership interests are traded like corporate stock on a market. MLPs have the advantage of avoiding double taxation. Projects done through MLPs are more liquid and able to be conducted at a lower cost, which helps attract private investors. So far, however, investors have only been able to form oil and natural gas partnerships, because section 613 of the federal tax code states MLPs can only generate income through “depletable” resources.
In an effort to level the energy playing field, Senators Chris Coons and Lisa Murkowski introduced the Master Limited Partnership Parity Act. This legislation would expand the list of qualified sources in the tax code that MLPs can use to generate income to include renewable energy resources. The MLP Parity Act has bipartisan support and a credible chance to be passed. However, there have been concerns that passing the Act would come with drawbacks that defeat its intended purpose.
There is some concern that MLPs will become yet another opportunity for large energy companies to dominate the market and prevent smaller, community-owned projects from succeeding. Another concern among renewable energy advocates is that MLPs will be used as a bargaining chip for ending the production tax credit or investment tax credit, as many members of Congress have advocated.
Would extending MLPs to include renewable energy drive the market forward or would the potential drawbacks hurt progress? Are there other challenges associated with expanding the list of qualified energy sources that MLPs can use?