Energy Law Wisconsin Blog

Topic: Natural Gas

New Options for Investing in Renewable Energy and Clean Infrastructure

Tuesday, December 17th, 2013

Note: Although this entry discusses emerging investment opportunities, it is not intended as and should not be misunderstood as investment advice or a recommendation for any particular investment. 

I have been trying for some time to write an ELW blog entry about the rapid emergence of new and varied options for investors, large and small, to invest in renewable energy and other sustainable infrastructure development.  Unfortunately, every time I update my draft, the marketplace advances and I have to edit it again.  To ensure that I actually post something before I retire, I have decided to take a short cut and use this entry to introduce you to several emerging investment models that are becoming available, but I will draw on the work of others, when it is more current than my own.

According to one of the panelists at the recent GTM Solar Market Insight Conference, roughly 25% of U.S rooftops are suitable for standard solar. This leaves the owners of 75% of US roofs unable to host this type of solar energy system. However, the owners of the other 75% could still participate in the solar energy through one or more of the following emerging investment options:

Community Funding and Crowdsourcing. A helpful article on several of the leaders in this area can be found here:  Democratizing Solar Power With Community Funding.  I am familiar with the account interface and statements for one of the companies in the article, Solar Mosaic, who issues solar notes to persons who invest in its solar projects.  The Solar Mosaic system is user friendly and it is about as straightforward and easy to invest in and track an investment made in Solar Mosaic as it is to make an investment in and track the performance of a typical mutual fund. Any prospective investor should be sure to carefully read the prospectus for any project they wish to invest in to adequately understand the risks. Solar Mosaic’s solar notes are available in increments as small as $25.  However, they are currently available only to investors in California and accredited investors elsewhere, but Solar Mosaic has indicated it has plans to expand. 

Hannon Armstrong Sustainable Infrastructure’s REITHannon Armstrong Sustainable Infrastructure Capital, Inc. provides debt and equity financing for what it refers to as “sustainable infrastructure projects”, which include energy efficiency projects, clean energy projects (solar, wind, geothermal, biomass and natural gas projects), and other sustainable infrastructure projects that reduce energy consumption, positively impact the environment or make more efficient use of natural resources.

Hannon Armstrong (NYSE Ticker Symbol HASI) is able to operate as a Real Estate Investment Trust (REIT) because in financing its sustainable infrastructure projects its owns and operates income producing real estate or real estate-related assets.   So long as a REIT complies with applicable Internal Revenue Code requirements, it is able to avoid the double taxation treatment to which publicly traded corporations are subject.  HASI shares went public at $12.50 a share in April of this year and as of the date this entry was posted were trading at close to that price and paying a dividend of approximately 4.5%.

Yield Cos.   A “Yield Co” is a publicly-traded company that is formed to own operating assets that produce cash flow. The cash is distributed to investors as dividends.  The Chabourne & Parke LLP law firm has recently come out with an excellent article profiling several Yield Cos that have already gone public or about to do so, including one that I was preparing to write about.  The article, by attorney Keith Martin, who is a nationally respected authority on renewable energy development and finance, starts on page 7.

Renewable Energy MLPs around the Corner?  For several years, members of the U.S. Congress have proposed legislation that would put renewables on equal footing with oil and gas investments in one important respect, by giving developers of renewables the opportunity to utilize the Master Limited Partnership (MLP).  The MLP is an investment vehicle that offers the tax advantages of a partnership combined with the ease of trading advantages of a publicly traded corporation.  More information about the proposed MLP Parity Act is available from the website of Senator Christopher Coons, who has been a champion of such legislation.  When the MLP was made available for use by the oil & gas industry, it resulted in a tremendous influx of capital into that industry.  The proponents of the MLP Parity Act hope it will have the same effect on the renewables industry.

Finally, a word of caution.  Just because an investment is easy to make, doesn’t mean it is prudent.  All of the investment options discussed in this post involve risk.  Anyone who is interested in exploring them should be just as careful doing their research before invest as they would be (or they ought to be) when investing elsewhere.  This includes, among other things, reading the latest financials and the prospectus that was prepared in connection with the investment offering.


Natural Gas: Why You Should Take an Interest in Recent Developments

Friday, April 27th, 2012

In recent months, natural gas has received more media attention than any time I can remember.  Based upon my own research and my recent participation in the first Wisconsin Natural Gas for Transportation Roundtable, held in Madison, Wisconsin on April 25, 2012, I believe this increased attention  is not only well-deserved, it may actually be insufficient.

Technology innovations have led to a fundamental change in the economics of the production of natural gas from shale deposits.  This change in natural gas economics, in turn is fueling (pardon the pun) accelerating economic, regulatory and infrastructure developments whose effects will be widespread.

Some of the areas that are undergoing drastic change in the evolving world of natural gas production include:
– Natural Gas Pricing

– Renewable Energy Development

– Environmental Quality

– Energy Regulations

– Natural Gas Transport Infrastructure

These very significant changes are too much to cover in a single blog post. I will attempt, through a series of upcoming posts, to address, in bite-sized pieces, some of the critical issues. Today, I will begin with the apparently fundamental change in the in the available supply and price of natural gas in the United States.


Natural Gas Production – Then & Now

If you were to turn the clock back to 2005 and look at the headlines about natural gas production, you would find articles lamenting the natural gas crisis. The prevailing wisdom was that natural gas production in the United States had peaked and was on the decline, leaving the country facing a supply shortage that many claimed to not be going away anytime soon. For example, the Alliance to Save Energy urged Congress to adopt energy efficiency measures to deal with the crisis (See here).

The cry went out to find new sources of natural gas, with potential solutions including increasing offshore drilling in places likely to produce natural gas and importing liquefied natural gas (LNG) from overseas. The importation process would require natural gas from other parts of the world to be cooled to a liquid state, brought to the United States, warmed up and put in domestic natural gas pipelines.

If you turn the clock forward to 2012, however, the headlines broadcast a crisis of another variety – a crisis of oversupply.   For example, a CNBC interview with a commodities expert who ran a hedge fund that specializes in energy-related investments was titled “Who Will Survive the Natural Gas Oversupply?”  The story claimed, in language that echoes the language of 2005, that the current natural gas oversupply conditions in the United States will not go away anytime soon.

Low Cost, High Supply Affects Global Economy

Headlines are one thing, but prices and actual projects under development are another.  Based on the latter, it cannot be denied that the U.S. natural gas supply picture has changed radically in less than ten years. Natural gas futures contracts which reached an historic high at
$15.35/MMBTU in late 2005 are now priced at approximately $2/MMBTU.  As far as projects go, the industry has gone from developing terminals designed to receive imports of LNG to seeking permits for terminals established for the purpose of exporting LNG.

Many people are convinced that the low cost, high supply scenario for natural gas is here to stay at least for many years.  Their optimism is based not only on today’s numbers, but also their confidence that the U.S. is only tapping the tip of the iceberg when it comes to shale gas supply.  Others, including some who have been in the utility industry for decades and have seen ups and downs in the natural gas supply, aren’t so sure. Still others believe one or more of the following factors may throw a monkey wrench into the high supply, low cost natural gas scenario:

– Environmental and liability concerns, including the environmental impact from fracking, climate change impact of higher natural gas use, and even earthquakes claimed to be caused by shale gas exploration.

– High increased demand will drive up price due to wholesale electric generation industry switching away from coal, nuclear and renewables to natural gas.

– Increased demand from China, India and the developing world will drive up the price.

– Infrastructure and transport limitations.

At this point, you may be thinking, “This is all very interesting, but I do not live on the coasts where the LNG terminals will be located, so what does any of this have to do with me?” After attending the Wisconsin Natural Gas for Transport Roundtable, I am convinced that Wisconsin will have a birds’ eye view of watching the birth of a new natural gas infrastructure, particularly for transport, and will have all the opportunities and growing pains associated with such an industry.

I’ll talk more about this and some of the impacts and risks associated with this developing industry in future posts.

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