1 Huge Reason to Finally Invest in Renewableshttp://www.fool.com/investing/general/2012/12/28/1-huge-reason-to-finally-invest-in-renewables.aspx Justin Loiseau
December 28, 2012
In just over 200 words, Congress could rejuvenate the rush to renewables. Led by Vermont Senator Chris Coons, a political power squad is well on its way to leveling the energy playing field for investors. With some common sense and a little luck, energies like solar, wind, and hydro could soon receive a tax break that's benefited oil and mining companies for over 30 years. Here's the latest dirty on clean energy.
Have your cake and eat it, too
MLPs were first created to push capital into otherwise risky or potentially underperforming energy investments, and have proven extremely effective over the years. Legislation in the 1980's limited MLPs to oil and gas extraction and transportation companies that generate 90% of their income from specific sources like mining and natural resources. In 2008, the definition was expanded to include ethanol, biodiesel, and other fuels, but fell short of an all-inclusive renewables approach.
Currently, approximately $290 billion of market capital is invested in energy MLPs, with about 80% of those investments in midstream oil and gas pipeline projects.
Now, nearly 32 years after their creation, all that might be about to change.
The act doesn't affect any currently qualifying companies, and serves as an addendum and definition more than a stand-alone law unto itself.
Coons has pulled together cross-sector support for the act, from corporate executives to academics to environmental organizations. Most importantly, the Senator has political sponsorship from both sides of the House and Senate, with Republican Sen. Jerry Moran of Kansas leading the bipartisan push.
Winners and losers
To add insult to injury, the promise of cost-competitive renewables has remained largely elusive. The solar bubble arguably popped in early 2012, and wind's production tax credit expiration threatens its fragile financial viability.
The MLP Parity Act might be just what these companies need to attract the sort of sustainable investment that stays with a corporation through the thick of research and development and capital expenditures. As China cuts its own subsidies and companies like Trina Solar (NYSE: TSL), LDK Solar (NYSE: LDK), JinkoSolar (NYSE: JKS), Suntech Power (NYSE: STP), and Yingli Energy (NYSE: YGE) feel the squeeze, solar investors are on the lookout for new opportunities.
Utilities with a focus on renewables will be first in line for MLP treatment. Corporations like Exelon (NYSE: EXC), NextEra Energy (NYSE: NEE), and Duke Energy (NYSE: DUK) could get an extra bump from their recent focus on wind, solar, and/or hydropower generation sources. All three utilities have made commitments to renewable energies, and are currently in the process of diversifying their portfolios to increase their renewable capacity.
But the MLP Parity