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Could MLP’s be Embraced by the Renewable Energy Sector

By James Stafford | Fri, 26 April 2013 17:38 | 0

MLPs may be the answer to clean energy’s investment woes; the ripple effects of the EU’s carbon trading shenanigans spread; bad news for hybrids as car owners sue Ford for false fuel efficiency claims; and Syria—yes, Syria—has offshore potential that is highly prospective and entirely unexplored…

Could the master-limited partnership (MLP) be the next thing embraced by the renewable energy sector? Very possibly. The oil and gas industry appears to be supporting the idea of allowing renewable energy companies to organized as MLPs as a way of detoxing them from federal subsidies. What this would do essentially is give renewable energy companies access to a $350+ billion tax financing structure. It eases some of the pain of a post-subsidy environment. MLPs are set up to allow companies to raise funds in the same way as a corporation does, and to pay taxes as a partnership. The market value of MLPs in the US is more than $350 billion.

Right now, these MLP-organized tax breaks are the privilege of the fossil fuels and pipeline sectors. Earlier this week, the American Petroleum Institute came out in support of an expansion of the program to include companies dealing in wind and solar, for instance. Not only is the oil and gas industry supporting the idea, but it also enjoys pretty solid bipartisan support in Washington. This could be the extra incentive new investors will need to revive clean energy capital. A draft proposal is already in the works, so watch this development closely … It couldn’t come at a better time, with investment in clean energy at its lowest point since 2009.

Renewable energy proponents should be optimistic, and this news could balance out the negative news on the carbon-trading scene. Since the European Union rejected a backloading proposal last week that would have withheld carbon permits to balance out the market glut and raise carbon prices, the ripple effects are both direct and indirect. The carbon market has plunged to its lowest level ever, and carbon traders extraordinaire are already eyeing alternative opportunities. Earlier this week, the long-time head of carbon trading for London-based Barclays bank reportedly resigned in what analysts describe as a signal to European leaders that they’d better sort out the ailing market or lose it entirely. At the same time, the benefactor in all of this will be dirty coal. Without a strong carbon trading market, utilities will find it cheaper to burn greater amounts of coal.

More bad times are in store for hybrid vehicles, as car owners in Pennsylvania prepare to sue Ford Motor Co (NYSE: F), claiming that two of its models—the 2013 Fusion Hybrid and the C-Max Hybrid—aren’t as fuel efficient as marketed. According to the car owners, the cars are advertised as getting 47 miles per gallon, but in reality they underperform in terms of fuel efficiency. In the end, the plaintiffs say, they are paying higher fuel costs and are demanding that Ford pay for its false advertising. Through March this year, Ford’s Fusion was the sixth best-selling Ford model in the US, outselling Toyota’s Camry and Honda’s Accord. The advertising campaign promised double the fuel economy and all the luxury of a Mercedes. If the Pennsylvania pending lawsuit indicates an emerging trend, the future of hybrids will be in big trouble.

If you haven’t already signed up for our premium newsletter, this is the week to do so, with the latest stock pick from trader extraordinaire Dan Dicker; a deeper look at Syria’s offshore potential at a time when all eyes are on the prolific Mediterranean (beware the serious geopolitical baggage); and much more.

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In today’s special report we thought we’d let you know what is going on in the mind of our expert trader and see which companies he is picking for big growth in the Gulf of Mexico – see below.

I hope you enjoy today’s report and have a great weekend.

Best regards,

James Stafford
Editor, Oilprice.com

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About the author

Contributor
James Stafford
Company: Oilprice.com
Position: Editor

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