President Obama gave renewable energy investors a very nice gift
this week...
As a part of his new budget proposal, the president is seeking a
7.2% increase in funding for "clean energy." As well, he is asking
for a permanent extension for the solar investment tax credit
(ITC) and the wind energy production tax credit (PTC).
The solar ITC is set to expire at the end of 2016, and the wind
energy PTC has already expired.
I can pretty much guarantee that a permanent extension of these
tax credits is not going to happen. However, because so many red
states generate an enormous amount of tax revenue and jobs from
solar and wind, it is likely that both sectors will be thrown some
sort of bone - particularly solar, as the industry now supports
nearly 174,000 jobs
That data does not fall on deaf ears, despite the dog-and-pony
show some lawmakers will put on during election season.
No, solar is the real deal. The market is booming, and cost
reductions continue to make it more and more affordable for
homeowners and businesses.
Which is why I hope you've been taking some of my advice over the
past couple of months and taken a position in some of the more
impressive solar names, like SunEdison (NYSE: SUNE), SunPower (NASDAQ: SPWR),
and Canadian Solar (NASDAQ: CSIQ).
Canadian Solar absolutely crushed it yesterday after announcing
its acquisition of Sharp Corporation's Recurrent Energy. Check it
out...
Recurrent has a massive utility-scale project pipeline that's
scheduled to be built before the planned date of the solar ITC
expiration. This is a huge win for Canadian Solar, representing an
estimated 2.3 billion in revenue.
Going forward, I remain bullish on these major solar stocks, as
well as the alternative energy yieldcos.
YEAR OF THE YIELDCO
Back in November, I wrote in my yearly alternative energy
predictions report that 2015 will be the year of the yieldco.
Yieldcos essentially allow retail investors to buy into multiple
alternative energy assets that produce steady cash flow. For those
who are not particularly keen on risk but still want exposure to
the burgeoning alternative energy space, this is a great way to do
it. Some of the bigger names include:
* Hannon Armstrong Sustainable Infrastructure (NYSE: HASI)
* Brookfield Renewable Energy (NYSE:BEP)
* NRG Yield (NYSE: NYLD)
* TerraForm Power (NASDAQ: TERP)
* NextEra Energy Partners (NYSE: NEP)
* Pattern Energy Group (NASDAQ: PEGI)
And next week, we'll be adding a new one to this list: Sol-Wind
(NYSE: SLWD).
MLP FOR YOU AND ME
As we wrote to our "Green Chip" readers earlier in the
year, Sol-Wind will be the eighth yieldco to debut since 2013.
However, this one is a bit different in that it seeks to utilize a
master limited partnership (MLP) structure, so it'll actually be
taxed differently from other yieldcos.
Now, because federal law does not currently permit MLPs for
renewable energy companies (although oil and gas companies are
permitted), Sol-Wind must utilize an exemption that allows certain
publicly traded master limited partnerships to be taxed as
partnerships instead of corporations.
It's a tricky arrangement that's often used by private equity and
hedge funds to avoid taxation. A blocker corporation is set up to
absorb the 35% corporate tax that would otherwise be applied to
the partnership's assets. However, the corporation makes nothing,
and any income made by the MLP is taxed only at shareholder level.
Back in 2012 and 2013, several bills known as the MLP Parity Act
(MLPPA) were submitted to Congress, seeking to amend the tax code
for publicly traded partnerships to treat all income from
renewable and alternative fuels as "qualifying income." The Senate
bills and House resolutions known as the MLP Parity Act died in
committee.
However, if an MLP Parity Act is enacted, the company could then
be able to use a normal MLP structure, thereby allowing it to
dodge extra corporate-level tax.
Long story short, Sol-Wind found a way to utilize an MLP
structure despite the fact that renewable energy is still
technically not invited to the MLP party.
400 MILLION
Sol-Wind management describes the company as a growth-oriented
limited partnership formed to own, acquire, invest in, and manage
operating solar and wind power generation assets that generate
power for retail, municipal, utility, and commercial customers
under long-term power purchase agreements.
Following the completion of the IPO, Sol-Wind will acquire from
its general partner equity and debt interests in an initial
portfolio that represents 184.6 MW of nameplate capacity solar and
wind power generation assets in the United States, Puerto Rico,
and Canada.
Currently, the company is planning to issue 8.7 million shares at
between 19 and 21 a share. At the high end, this would give it a
fully diluted market value of 401 million.
Although it's still yet to be seen how Sol-Wind will compare to
other alternative energy yieldcos, it'll be interesting for
investors to see how the MLP model performs in this particular
case.
Definitely keep a close eye on this one.
To a new way of life and a new generation of wealth...
Jeff Siegel is managing editor of
Energy and Capital, where this article was first published.
He is also contributing analyst for the Energy Investor,
an independent investment research service focusing primarily on
stocks in the oil & gas, modern energy and infrastructure
markets. He has been a featured guest on Fox, CNBC, and
Bloomberg Asia, and is the author of the best-selling book, Investing
in Renewable Energy: Making Money on Green Chip Stocks ."
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