Richard Caperton: Master Limited Partnerships Could Have “Huge Impact” on Clean Energy in US

Posted By mikec on May 31st, 2013

As part of our ongoing Communicating Energy lecture series, we recently spoke with Richard W. Caperton of the Center for American Progress, an expert on energy finance. Caperton has led the effort among companies and NGOs to get clean energy companies the access to the investment tools known as “Master Limited Partnerships” (MLPs) – financing vehicles that oil and gas companies have benefited from for decades.

MLPs are possibly the most important financing tool you’ve never heard of – one that could cut the cost of capital for rooftop solar and other clean energy technologies.

A bit of context on solar power costs:  Solar PV costs have come down a lot – 99% since 1977, from $76.67/watt then to $0.74/watt now. And they continue downward – 80% since 2008, including a 20% drop in 2012 alone.

But the “soft costs” (labor rates, customer acquisition costs, permitting costs, taxes, financing, etc.) haven’t come down sharply, at least not in the United States.  This article explains “why a residential German solar system goes for $3.00/watt and a residential U.S. solar system goes for $6.19/watt.”

As Tony Clifford of Standard Solar told us, lowering soft costs is crucial to reach solar’s tipping point of competitiveness. And one of the most important soft costs to get at is financing.  Enter MLPs (as explained by Richard Caperton):

A Master Limited Partnership is a business structure, it’s not really a policy. When you organize a business you can choose to be any number of things. You can be a c-corporation, an s-corporation, an LLC or an LLP or any number of dozens of things. In this case, they all have different implications in how you’re taxed and how you can raise money.

A Master Limited Partnership has certain benefits. It’s not taxed at the corporate level so it’s only one level of taxation, and second it can raise money on public markets. So that’s a huge advantage for the people who can use it.  Right now, only the fossil fuel industry can use this structure, that’s in the law. And what we want to do is just make it so renewable energy and energy efficiency can share in those same benefits.

But here’s the problem: In the Alice-in-Wonderland world of energy subsidization, it’s only highly profitable, highly unprofitable oil and gas companies (not clean energy) that get to use MLPs. You know, the guys who fund all the “don’t pick winners and losers” yammering from front groups that say clean energy only can exist with subsidies?

Fortunately, there is legislation to level the playing field, that would have taxpayers no longer picking “winners and losers” on MLP access. How valuable is that? As Richard Caperton explains:

What I do know is that some very back-of-the-envelope calculations on renewable energy say that lowering the cost of capital by 100 basis points (say from 6% to 5%) would reduce the cost of rooftop solar by 40 cents a watt. That is a dramatic cost reduction, and you can see where MLPs, if they lower it by three or four hundred basis points, could have a huge impact.

MLPs are an arcane, obscure financing vehicle that matter a lot. They could be one of the keys to unlocking a solar power revolution in the United States. And all it really requires is legislation that opens them up to the forms of energy that Americans actually support.

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