But given the current political environment, the likelihood that these renewable energy tax breaks will be extended beyond their current expiration dates is uncertain.Īs unregulated utilities have historically had significant federal tax liabilities, it shouldn’t be surprising that many of the largest portfolios of renewable energy projects are owned by unregulated utilities desiring tax breaks. In order to subsidize the development of renewable energy projects without committing political suicide, American politicians have opted to rely on temporary renewable energy tax-reduction incentives, such as tax credits that reduce the tax liability of renewable energy investors, rather than direct cash payments to businesses that produce or rely on renewable energy or heavy taxes on fossil fuel users. Just as market conditions have driven political considerations on renewable energy programs, political considerations have affected the market for renewable energy capital. Thus, if the government wants to increase consumer reliance on renewable energy, it must find a way to subsidize that reliance. Put simply, consumers are eager to go green until it costs them too much green, at which point they are more than happy to burn fossil fuels. Indeed, the political discussion around renewable energy starts with a simple market truth: Although most people would prefer to obtain their energy from renewable sources rather than burn fossil fuels, the upfront capital costs of renewable energy projects often make these projects unfeasible from an economic perspective. In analyzing the sources of capital for renewable energy projects, it is difficult to evaluate political developments without also considering market conditions, and vice versa, because the two are so intertwined. Current Political and Market Developments These three vehicles have important similarities and differences, and they can play a helpful role in satisfying the current and future capital needs of unregulated utilities. As unregulated utilities search for capital, they are increasingly considering the use of tax-efficient public capital vehicles such as real estate investment trusts (REIT), master limited partnerships (MLP), and umbrella partnership C corporations (Up-Cs). Over the last several years, a confluence of political and market developments have made capital for renewable energy projects harder to come by, which has affected the ability of unregulated affiliates of public utilities (unregulated utilities) to finance or refinance new and existing renewable energy projects.
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