Master Limited Partnerships for clean renewable energy

An organizational structure called Master Limited Partnerships has the potential to increase private-sector investment in clean energy. Master Limited Partnerships, or MLPs, benefit from a tax structure under which investors are taxed as partners but can trade their ownership stakes on securities exchanges much like corporate stock. Newly proposed federal legislation could extend this treatment to clean energy technologies.

MLPs offer their investors an attractive combination of tax advantages and liquidity. Profit from most publicly traded corporations is taxed twice, at both the corporate level and the shareholder level. By contrast, income from MLPs is taxed only at the shareholder level because it is treated as a partnership for tax purposes. Like Real Estate Investment Trusts or REITs, MLPs thus combine the tax benefits of a limited partnership with the liquidity of publicly traded securities.

Under federal law, MLP treatment is limited to enterprises generating at least 90 percent of their income from qualifying sources. These generally involve the use of natural resources, such as the production, processing or transportation of petroleum, natural gas, coal, timber, and other minerals. Since 1981, the use of the MLP structure has grown; estimates suggest that over 100 MLPs are currently being traded on major exchanges, with a total market valuation of about $445 billion.

Yesterday Congress introduced proposed bipartisan legislation that would extend this tax structure to clean energy technologies. The Master Limited Partnerships Parity Act, formally known as S.795: A bill to amend the Internal Revenue Code of 1986 to extend the publicly traded partnership ownership structure to energy power generation projects and transportation fuels, and for other purposes, is sponsored by Sen. Chris Coons, D-Del., along with co-sponsors Sens. Jerry Moran; R-Kan., Debbie Stabenow, D-Mich.; and Lisa Murkowski, R-Alaska. It has been referred to the Senate Committee on Finance.

The Master Limited Partnerships Parity Act would significantly broaden the scope of projects eligible for MLP treatment to include clean energy resources and infrastructure projects. These projects would include any energy technologies that qualify for the federal production tax credit or investment tax credit, such as wind, closed and open loop biomass, geothermal, solar, municipal solid waste, hydropower, marine and hydrokinetic, fuel cells, and combined heat and power. The bill would also open the MLP structure to advanced transportation fuels such as cellulosic, ethanol, biodiesel, and algae-based fuels, as well as energy-efficient buildings, electricity storage, carbon capture and storage, renewable chemicals, and waste-heat-to-power technologies.

Proponents hope that the act would stimulate investment in clean energy projects much as it has worked for other extractive natural resource infrastructure. At the same time, concern over the federal budget calls for serious consideration of measures that would reduce federal tax revenues. So far, the bill seems to have broad support and little outspoken opposition. If enacted, it could lead to an influx of investment capital into renewable and clean energy technologies.

Demand response, customer-provided grid support

This summer, the electric grid has largely weathered the increased demand for power during heat waves.  Grid operators have a variety of tools to ensure sufficient energy supply to meet peak demands.  In recent years, the smart-grid star in the grid's toolkit has been demand response: programs that allow customers to respond to signals about the scarcity of electricity by temporarily reducing their consumption from the grid.  This summer, customer-provided demand response has not only kept the lights on, but has also reduced society’s energy costs by reducing the need for the most expensive marginal peaking generation units.

Last March, the Federal Energy Regulatory Commission issued a landmark ruling that demand response should be compensated fairly.  In this ruling – Order No. 745 – FERC held that demand resources should be paid at market-based prices when two criteria are met: capability and cost-effectiveness.  When demand resources can displace the need for bringing additional generation online, and when doing so lowers our grid costs, Order No. 745 requires organized wholesale energy market operators to pay demand response resources for the full value they provide to the grid.

Now, some regional grid operators are proposing major changes to their demand response programs.  While some of these changes are designed to comply with Order No. 745, other changes seek to place new limits on who can participate in demand response.  For example, northeastern grid operator ISO New England has asked FERC to approve its proposal to eliminate the demand response value provided by consumers capable of using existing on-site generation to produce power to support the grid during times of crisis.

Decades of federal and state policy have supported investment in distributed generation projects, ranging from micro-combined heat and power (micro-CHP) and cogeneration to small and medium-sized wind, rooftop solar photovoltaic systems and even fuel cells.  Distributed generation has a strong history of policy support, but if FERC accepts ISO New England’s proposal to limit behind-the-meter generation’s ability to provide demand response, the region will need other resources to keep the lights on during times of peak demand – new generating units, transmission lines, and substations.

FERC has docketed ISO New England’s request as Docket No. ER11-4336-000, and is accepting public comment through 5:00 pm Eastern time on Friday, September 09, 2011.

July 6, 2010 - biomass after the Manomet biomass study

A recent report by the Manomet Center for Conservation Sciences has been widely reported as casting doubt on whether biomass-generated power is truly climate-friendly. However, another set of sources are critiquing the mass-media coverage as misleading. (For example, see this Morning Sentinel editorial expressing support for biomass, including wood pellets.)

So what did Manomet really study? The Executive Summary provides a 4-page overview, and the whole report is available here. The Manomet work addresses three policy questions that are being asked as Massachusetts develops its policies on the use of forest biomass:

1. What are the atmospheric greenhouse gas implications of shifting energy production from fossil fuel sources to forest biomass?
2. How much wood is available from forests to support biomass energy development in Massachusetts?
3. What are the potential ecological impacts of increased biomass harvests on forests in the Commonwealth, and what if any policies are needed to ensure these harvests are sustainable?

Manomet's study divides the carbon impacts of biomass combustion into two phases: carbon debt and carbon dividend. Manomet uses "carbon debt" to describe the excess of emissions from forest biomass burning over fossil fuels. However, over time, forest re-growth removes this carbon from the atmosphere, and can reduce this carbon debt to zero. Over even longer times, after the carbon debt is paid off, biomass yields "carbon dividends" -- atmospheric greenhouse gas levels below the levels that would have resulted from making the same amount of energy by using fossil fuels.

Manomet concludes that the carbon debt from burning biomass in combined heat-and-power is lower than the debt created from utility-scale stand-alone biomass plants -- not a surprising result for anyone familiar with CHP. Manomet also notes that how quickly a biomass project "breaks even" over its carbon debt depends on what resources the biomass replaces. Replacing oil provides carbon dividends within 5 years, while Manomet found that replacing natural gas electric generation with biomass may not break even after 90 years.

Manomet also found that within Massachusetts, there wasn't that much more biomass available -- although if biomass prices rise (probably due to energy prices rising), it would be economical to harvest more wood within the Commonwealth.

So when we hear the "Manomet report" described as dooming the biomass industry, I recommend a closer reading of the report itself, to see its true impacts on biomass energy.

Also in Maine editorials: the Lewiston Sun Journal supporting wind power, including former Governor Angus King's proposed 128 MW wind farm in Highland Plantation. The editorial notes that former Green Independent Party candidate Jonathan Carter (who lives 3.5 miles from the Highland site) publicly opposes wind in Maine. The editorial observes that some of Carter's concerns are valid -- like impacts from roadbuilding, or scenic impacts -- but that on the whole, as a policy matter, these downsides are worth facing in order to reap the upside. Whether or not you agree with the Sun Journal's editorial board, they did a great job laying out the policy considerations. The mere existence of a downside does not make bad policy. No real-world solution is flawless; all have their downsides. But if society feels those downsides are worth the upside, then that choice can make sense.

How many Maine energy-related editorials can there be in one week? At least one more, with the Bangor Daily News expressing support for wind energy.

Meanwhile, breaking news: Maine Earth First is blocking access to the Kibby Mountain site, where TransCanada is adding 22 more towers to its existing 22 tower array. About 350 Earth Firsters are attending Earth First's annual weeklong international gathering nearby.

And way out there on the R&D level: researchers at Washington State University have created a never-been-seen-before form of ultra-high density xenon difluoride (XeF2). Nifty stuff, especially so since it could theoretically be used to store radical amounts of energy. In essence, as you compress XeF2, the molecules change shape: the massive amount of mechanical compression energy is converted into chemical energy, resulting in a whole lot of juice stored in a little box. This is all way too new to be commercial yet, but keep your eyes on the horizon for this technology.