Guiding us through the alphabet soup of stuff that matters to clean energy: Richard Caperton talks MLPs vs. the PTC and the ITC

Posted By mikec on June 7th, 2013

We recently posted the first installment in a series of articles from our conversation with nationally recognized energy finance expert Richard Caperton. It’s part of our Scaling Green Communicating Energy lecture. We first focused on Caperton’s introduction to Master Limted Partnerships (MLPs) and the huge impact they could have on clean energy scaling. MLPs are the advantageous tax structure that only the oil and gas industries currently get to use. You know, the guys who really need a government handout.

Some cleantech deniers in Congress have floated the idea that clean energy access to MLPs should only be granted if clean energy accepts the idea that we need to end smart public policy support for these critical, popular forms of sustainable energy. Of course, there’s no conversation about when oil, coal, gas and nukes are going to “get off” welfare, which they’ve been on for decades. Putting these highly profitable, mature energy sectors on their own two feet would be…well, not picking them as the winners any more. It would be so.. free market.

The fossil fuel industry would have people believe that the only way we can level the playing field for MLP access is to end solar’s Investment Tax Credit or wind’s Production Tax Credit (PTC), both of which have these industries concerned. That makes no sense, as Caperton explains, for several reasons:

First is that they’re just a different scale of value. The PTC is much more valuable to the wind industry than MLP treatment would be, and that’s why we can’t get rid of the PTC. Second is that they operate differently, they’re treated differently, they work very differently, so they’re not immediately interchangeable. But that’s a much more complicated point.  I think the biggest thing to keep in mind is 2.2 cents a kilowatt hour from the PTC is extremely valuable.

The PTC and ITC are much more valuable than MLP treatment will be for the industry as a whole. There may be one or two companies that are subsets that would feel differently, but in general we should definitely support the PTC and ITC as fundamental drivers of investment that have been extremely successful, and we shouldn’t do anything to get rid of those.

No doubt, the PTC and ITC are extremely valuable, and should not be replaced by MLPs. But let’s not underplay the advantages of MLPs. MLPs are permanent, whereas clean energy tax credits have traditionally been limited to sunset dates and the instability of a dysfunctional Congress. This has left project financiers guessing and clean energy industries continuously fighting for renewals of basic policy support.

MLPs do not have a sunset date. That’s a permanent thing.  And that’s a lot of the benefit...that the PTC will go away at some point unless we’re successful, as we have been every time it expired. But we have to keep fighting that fight, whereas the MLP is permanent; and that has some value – same with the ITC.

In the end, all of these measures – the PTC, ITC and MLPs – are highly valuable, and should be part of the mix of policies encouraging renewable energy in the United States. It’s also crucially important that we provide a fair, consistent policy basis for clean energy development in the United States.  To date, fossil fuels have been consistently – and generously – subsidized, while clean energy has received inconsistent, relatively meager support. It’s long past time for that situation to change. If we want to cut government, let’s start with the wasteful stuff – like welfare checks to ExxonMobil, or to the Keystone XL tar sands pipeline.

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