Investors: Extend Oil, Gas, and Real Estate Benefits to Clean Energy to Spur Investment
Passage of Master Limited Partnerships Parity Act and updated real estate tax terms would boost investment in renewable energy projects, investors say.
WEST SACRAMENTO, CA – Less than a week after President Obama unveiled an ambitious climate change action plan, the California State Teachers’ Retirement System (CalSTRS) and other major U.S. investors are encouraging policymakers to extend benefits available to oil, gas and real estate projects to spur investment in renewable energy developments.
Specifically, investors are calling for the passage of the Master Limited Partnerships (MLP) Parity Act, introduced by Sen. Chris Coons (D-Del.), as well as tax code adjustments that would enable renewable energy projects to be classified as Real Estate Investment Trusts (REITs), an investment vehicle currently used to develop cell phone towers, billboards and many other projects. Investors in Ceres’ Investor Network on Climate Risk (INCR) have released a new fact sheet that spells out the clean energy investment opportunity in MLPs and REITs and why members of the Network are calling for these changes.
“There is no apparent logic to the current exclusion of renewable energy companies from the ability to form publicly traded partnerships,” said Lowell Miller, founder, president and CIO, Miller/Howard Investments Inc. “A large part of the intent in permitting energy companies to become MLPs was to encourage the development of domestic energy resources and infrastructure. To fail to include renewable energy is, in effect, to say that the government and its tax system wants to implicitly encourage carbon-based energy development and to discourage—or not encourage—renewable energy development.”
MLP and REIT parity for renewable energy would help to unlock a large source of capital for renewable energy developments. U.S. pension funds manage more than $16 trillion in assets, roughly 75 percent of which they invest in stocks and bonds in the public capital markets. Unfortunately, this asset allocation limits institutional investment opportunities in renewable power, as clean energy developers generate only a small fraction of their financing from the public markets.
Since MLPs and REITs trade like stocks in the public markets, institutional investors could use them to invest in clean energy projects while also maintaining their preferred asset allocations.
“Master Limited Partnerships and Real Estate Investment Trusts have for decades provided an effective vehicle to enable a wide range of investors to fund America’s infrastructure,” said Jack Ehnes, CEO, California State Teachers Retirement System (CalSTRS). “We should diversify these tools to connect today’s investors to tomorrow’s renewable energy and energy efficiency infrastructure.”
“We’re looking for exposure to clean energy opportunities throughout our $2.9 billion portfolio. The ability to invest in clean energy infrastructure is particularly interesting. However, like many investors, we invest through the capital markets and are thus not in a position to finance individual renewable energy and energy efficiency projects,” said Joe Keefe, president & CEO, Pax World Mutual Funds. “Smart changes, like those proposed for Real Estate Investment Trusts and Master Limited Partnerships, could provide opportunities for investment by firms like Pax as well as individual investors.”
Current Internal Revenue Service rules are unclear on whether solar and wind power projects can qualify as REITs. Clarifying these rules to include renewable energy has gained bipartisan support, along with MLP reform, even in a radically divided Congress. Late last year, a bipartisan group of 29 U.S. lawmakers sent a letter to the President calling for changes to both MLPs and REITs.
“The client demand for renewable energy is abundantly clear and the REIT structure is one that would enable exposure to diverse set of these assets,” said Matt Patsky, CEO, Trillium Asset Management. “For investors avoiding fossil fuels, solar REITs are particularly attractive, as the long-term nature of developer contracts and stable cash flows makes them a strong proxy for utility sector exposure.”
“Common-sense policy fixes related to MLPs and REITs can help to get some institutional capital off the sidelines and into play, but it is important to note that these measures alone will not open the floodgates to renewable energy investment,” said Mindy Lubber, president of Ceres and director of INCR. “The Production Tax Credit and Investment Tax Credit remain essential tools within the renewable energy industry. MLPs and REITs will provide complementary benefits as the industry matures, and most important, the proposed changes will help to level the playing field.”
The California State Teachers’ Retirement System, with a portfolio valued at $166 billion as of May 31, 2013, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. For 100 years, CalSTRS has served California’s public school educators and their families, who today number 862,000 from the state’s 1,600 school districts, county offices of education and community college districts.
The Investor Network on Climate Risk is a network of 100 institutional investors representing more than $11 trillion in assets committed to addressing the risks and seizing the opportunities resulting from climate change and other sustainability challenges. Last month, 22 INCR members signed the Climate Declaration, asserting, “tackling climate change is one of America’s greatest economic opportunities of the 21st century.” For more information on INCR, visit www.incr.com.
Ceres is an advocate for sustainability leadership. Ceres mobilizes a powerful coalition of investors, companies and public interest groups to accelerate and expand the adoption of sustainable business practices and solutions to build a healthy global economy. Ceres also directs the Investor Network on Climate Risk (INCR), a network of 100 institutional investors with collective assets totaling more than $11 trillion. For more information, visit http://www.ceres.org.
CalSTRS Contact: Ricardo Duran, 916-414-1440, email@example.com
Ceres Contact: Brian Bowen, 617-247-0700 x148, firstname.lastname@example.org