Solar, Clean Energy ETFs Rally on MLP Parity Act
April 24th at 1:55pm by John Spence
Guggenheim Solar ETF (NYSEArca: TAN) and Market Vectors Solar Energy (NYSEArca: KWT) were up more than 2% on Wednesday after a group of U.S. senators reintroduced the Master Limited Partnerships Parity Act.
The bill is designed to “level the energy playing field by giving investors in renewable energy projects access to a decades-old corporate structure whose tax advantage is available now only to investors in fossil fuel-based energy projects,” U.S. Senators Chris Coons (D-Del.), Jerry Moran (R-Kan.), Debbie Stabenow (D-Mich.) and Lisa Murkowski (R-Alaska) said in a statement.
“Recall, an earlier version of this bill quietly languished in committee in the last (112th) Congress, and with the new session having started in January, it is being revived in both chambers,” said Raymond James analyst Pavel Molchanov in a StreetInsider.com report. “The incoming Secretary of Energy also endorsed renewable MLPs at his recent confirmation hearing.”
The analyst said the bill could reduce the cost of capital by up to 50%.
However, it’s not clear whether the bill will pass.
Molchanov notes that while renewable energy generally has bipartisan support, “in the context of the current political climate in Washington, this issue simply isn’t high enough on the congressional agenda to make it out of committee and onto the floor for actual votes,” according to the StreetInsider report. He doesn’t think a bill would realistically come to a vote on a stand-alone basis but could be attached to a “grand bargain”-esque package of comprehensive tax reform.
“The bill would allow renewable energy structures to form as MLPs, which are taxed as a partnership, but have ownership interests — usually known as units — that are traded like corporate stock on a market,” Platts reports.
“Forming a renewable project under such a structure would stop profits from being taxed at both the corporate and shareholder level since it would be treated as a partnership for tax purposes,” it adds. “Oil and gas projects can currently be structured as MLPs, which they have been doing since the 1980s, but renewables projects cannot.”
Clean energy ETFs such as PowerShares WilderHill Clean Energy Portfolio (NYSEArca: PBW) also rallied Wednesday. [Alternative Energy ETFs]
Existing MLPs are focused on the transportation, processing and storage of energy and gas. [Master Limited Partnership ETF: Attractive Yields with Risks]
Exchange traded products focused on the sector include ALPS Alerian MLP ETF (NYSEArca: AMLP) and JP Morgan Alerian MLP Index ETN (NYSEArca: AMJ).
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.