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master limited partnerships

New Patent on Investment Vehicle Could Impact Renewable Project Developers

A recently issued patent could make the use of master limited partnerships (MLPs) more difficult in wind projects without a license or reliance on the patent owner to provide software / services to enable transactions.

Entitled “Apparatus and method for combining easements under a master limited partnership,” U.S. Patent No. 8,700,517 (’517 Patent) describes a master limited partnership as follows:

A master limited partnership (MLP) is a business organization governed by a contract between management (e.g., general partners) and investors (e.g., limited partners). A master limited partnership combines the tax benefits of a limited partnership with the liquidity of publicly traded securities. The master limited partnership was originally conceived as an organizational structure to capitalize on mature, low growth, cash generating businesses. Accordingly, master limited partnerships have been used in such industries as oil, gas, real estate, and natural resources.

Presently, this type of investment vehicle is being deliberated by the U.S. Congress as a mechanism to help facilitate the deployment of renewables. The implication would be that a broader base of potential investors that do not require accreditation could become partners / investors in wind farms or solar parks.

We have seen recent trends towards crowd-funding of wind parks in Europe, and some developers here in the U.S. believe MLPs could be a useful tool.

The ’517 Patent describes a business method for using a computer system to store data and information related to property easements secured under the MLP structure:

A computer includes a processor and a memory connected to the processor. The memory stores capital data characterizing capital raised for the purchase of real property easements, operating data characterizing fees collected in connection with the real property easements, and a master limited partnership module with executable instructions executed by the processor to designate master limited partnership income based upon the capital data, the operating data and terms of an easement ma[s]ter limited partnership.

An easement is a property right under common law, and is often sought by a renewable project developer from a landowner so that valuable consideration is provided to the landowner for the use of the property for renewable project construction.

An examination of the breadth of claim 1 of the ’517 Patent shows that the inventors propose a computer system and a means for cataloging and storing information related to easements of specific projects with an MLP structure:

1. A computer, comprising: a processor; and a memory connected to the processor, the memory storing capital data characterizing capital raised for the purchase of real property easements, operating data characterizing fees collected in connection with the real property easements, wherein the fees are from aggregated real property easement rights and associated rental fees from rent generating fixtures, and a master limited partnership module with executable instructions executed by the processor to designate master limited partnership income based upon the capital data, the operating data and terms of an easement ma[s]ter limited partnership.

The implications of this claim breadth would be to make the assignee of the ’517 Patent, American Infrastructure Funds, LLC, the owner of a de-facto standard for many MLP deal structures, even outside of renewables.

The ’517 Patent might be treated similarly to a “standards essential” patent, and compulsory licensing may be required since it would appear that many investment management companies and project developers would utilize computer systems and software which comprise this method.

Interestingly, while many companies may propose to argue against the obviousness of something so broad, the method described would have likely been treated by investment companies and project developers in the past as a company trade secret. Thus, there may be little public domain disclosure of relevant prior art to this method, and their original priority claim from the patent family dates back over 12 years.

It will be interesting to see how enforcement of the ’517 Patent unfolds as renewable projects attempt to get on the MLP bandwagon.

Article by Philip Totaro, Principal at Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search. To find out more, or get in touch please visit www.totaro-associates.com. Article appearing courtesy Green Patent Blog.

April 24, 2014 0 comment

What Else Besides Low Cost is Driving Solar Growth?

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Last year marked a turning point in the renewable energy field. Growth of 36.5 GW in newly installed solar generating capacity exceeded that of wind power, which grew by 35.5 GW. True, wind power has been backsliding a bit, with investment dropping from $73.8 billion in 2012 to $58.5 billion in 2013. This is primarily due to uncertainty around whether Congress would renew the Production Tax Credit (PTC) at the end of the year. They did not, as it turns out, though prospects for a new bill are looking good right now, after a last minute push through the Senate Finance Committee. Financial data shows that wind power has attracted 17 times more private investment than the tax credits were worth, proving that the technology has wings, as long as the government is willing to level the playing field. Still there was a slight overall decline in renewable investment for the year, dropping from $248.7 billion to $247.6 billion for the year.

The decline could certainly not be blamed on solar, which grew from $79.7 billion to $91.3 billion over the year. Costs, which dropped by 20% in 2012, stabilized in 2013 falling a mere 3% for the year. So that was not the main reason for the growth. Prices are already low enough for many people, even reaching grid parity in many areas. In fact, solar module process have fallen so far, that right now, the module price is only around 10% of the overall installation cost. The Solar PTC, which is still in place, is scheduled to expire in 2017, which could slow growth unless market forces become strong enough to carry it forward without help.

Financing has now become the long pole in the tent. This is the area where innovation is needed, and it is already beginning to appear.

Solar City, for example, has pledged to reduce installed cost by 5% per year through 2017, which would, in essence cover the loss of the PRC. Much of that will come from financial innovation.

Panelists at the MIT Energy Conference named three types of innovative financing arrangements that they considered up and coming. These include

Master limited partnerships (MLP) and Real Estate Investment Trusts (REIT)
Crowd-sourcing, and
Securitizing solar assets

MLPs can be traded like stocks, but are taxed at a lower rate. MLPs have long been used for oil and gas investments, but have not been available for renewables to date. The idea to include renewables under this type of tax structure, which would make it more attractive to investors, has some support in Congress in both Houses and on both sides of the aisle. REITs, are similar, though they apply to real estate holdings. A number of REITs however, are already investing in renewables through a mechanism called a TRS, which is short for a taxable REIT subsidiary. Presumably these can be converted to REITs once the law changes, but in the mean time, the assets have already been acquired by the parent company.

Solar City may have been the first to start securitizing solar assets, which is where solar obligations are packaged like mortgages and offered as investment vehicles. This bundling can produce the larger scale and lower risks that are attractive to institutional investors, which bring lot of capital to the table. Solar City raised $54 million in their first round of funding.

Crowd-sourcing, or crowdfunding of solar projects has been taking off, most notably with Mosaic, who claims to have their arms around a $90 billion opportunity, by allowing individuals to invest small amounts into solar installations, thus opening solar investing “to the masses.” They advertise an internal rate of return between 4-6% plus 1% for themselves, resulting in a very attractive 5-7% cost of capital.

Mosaic has recently partnered with RGS Energy to offer solar as a service where a third party retains ownership of the equipment and leases it to the homeowner. This is another funding mechanism that is finding a significant foothold. These are either packaged as leases or Power Purchase Agreements (PPA). The two are quire similar, although with a lease, monthly payments are the same each month, whereas with a PPA, the payments depends on the amount of solar production. Some of these, along with energy-efficiency projects can be financed through the utility bill as on-bill financing or on-bill repayment. Another variation available through the Property Assessed Clean Energy (PACE) program, is to make payments for the work along with property taxes.

RE-volv creates a Solar Seed Fund into which community members can contribute that can be used to fund solar projects. The team estimates that the proceeds from one successful project can finance four additional projects, thus allowing solar power to spread like wildfire.

So far, 2014 has had a strong start for solar investing with some $7 billion raised, compared with $5 billion in Q4 of 2012.

When these financing options are combined with the kind of marketing that has been utilized by folks like SmartPower, it would seem like there will be no stopping it.

Article by RP Siegel of Justmeans, appearing courtesy 3BL Media.

April 10, 2014 0 comment

What Stops Banks From Lending to Energy Efficiency Projects?

written by Walter Wang

Four years after the US credit market crashed, energy efficiency projects continue to struggle to secure financing.

What’s the problem? A slow economy, of course. But when it comes to energy efficiency – and on-site renewable energy – the problem runs deeper.

It’s not lack of interest in green energy. To the

November 12, 2012 0 comment

Leveling the Playing Field for Renewable Energy

written by Walter Wang

Here’s an important white paper that my friend Tim Kingston just sent me, that frankly, I’m unlikely to read.

Say what?

It’s on a financial issue, master limited partnerships (MLPs), that I’ve heard plenty about over the last two meetings of the Renewable Energy Finance Forum,

October 12, 2012 1 comment