Master Limited Partnerships and Real Estate Investment …

Master Limited Partnerships and Real Estate Investment Trusts: Opportunities and Potential Complications for Renewable Energy

David Feldman and Edward Settle

NREL is a national laboratory of the U.S. Department of Energy Office of Energy Efficiency & Renewable Energy Operated by the Alliance for Sustainable Energy, LLC This report is available at no cost from the National Renewable Energy Laboratory (NREL) at publications.

Technical Report NREL/TP-6A20-60413 November 2013 Contract No. DE-AC36-08GO28308

Master Limited Partnerships and Real Estate Investment Trusts: Opportunities and Potential Complications for Renewable Energy

David Feldman and Edward Settle

Prepared under Task No. SM13.1030

National Renewable Energy Laboratory 15013 Denver West Parkway Golden, CO 80401 303-275-3000 ?

NREL is a national laboratory of the U.S. Department of Energy Office of Energy Efficiency & Renewable Energy Operated by the Alliance for Sustainable Energy, LLC

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at publications.

Technical Report NREL/TP-6A20-60413 November 2013

Contract No. DE-AC36-08GO28308

NOTICE

This report was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States government or any agency thereof.

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at publications.

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Cover Photos: (left to right) photo by Pat Corkery, NREL 16416, photo from SunEdison, NREL 17423, photo by Pat Corkery, NREL 16560, photo by Dennis Schroeder, NREL 17613, photo by Dean Armstrong, NREL 17436, photo by Pat Corkery, NREL 17721.

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Acknowledgments

NREL is a national laboratory of the U.S. Department of Energy (DOE), Office of Energy Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC, under Contract No. DE-AC36-08GO28308.

The authors would like to thank the following individuals and organizations for their contributions to and review of this work:

? David Arfin, First Energy Finance, LLC ? Ricardo Bracho, NREL ? Donald Chung, NREL ? Jason Coughlin, NREL ? Kelly Kogan, Chadbourne & Parke ? Mary Lyman, National Association of Publicly Traded Partnerships ? Keith Martin, Chadbourne & Parke ? Michael Mendelsohn, NREL ? Lee Peterson, The Reznick Group ? Ammar Qusaibaty, DOE ? Lidija Sekaric, DOE ? Timothy M. Toy, Toy & Brown ? Adam Warren, NREL.

This report is available at no cost from the

National Renewable Energy Laboratory (NREL)

iii

at publications.

Executive Summary

Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs) are two proposed investment vehicles that have the potential to lower the high cost of capital for renewable energy assets--a critical factor in the U.S. Department of Energy's goal for renewable energy to achieve grid-parity with traditional sources of electric generation. Due to current U.S. federal income tax laws, regulations, and administrative interpretations, REITs and MLPs cannot finance a significant portion of the cost of renewable energy assets. Efforts are underway to alter these rules by changing the definition of "real property" (REIT) and "qualified income" (MLP). However, even with rule changes, both investment vehicles have structural challenges to efficiently finance renewable energy assets. Among them are (1) effectively utilizing the U.S. federal income tax incentives; (2) administratively structuring the investments to not be overly onerous or complicated, given the potential for pooling a relatively large amount of small assets; and (3) attracting and retaining a large enough investment community to participate in the funding opportunities. This report summarizes these challenges so that if proposed federal changes are made, stakeholders have an understanding of the possible outcomes.

The first section of this report summarizes current MLP and REIT markets and proposed rule changes. The second and third sections detail challenges to financing renewable energy assets with REITs and MLPs, respectively. Finally, the fourth section discusses possible investor responses to a renewable energy REIT or MLP.

This report is available at no cost from the

National Renewable Energy Laboratory (NREL)

iv

at publications.

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