By Robert S. Winner and Michael Rosenthal

Renewable energy projects, such as wind and solar power, suffer from an inability to get affordable and sustainable financing. 

Currently, these projects rely on tax subsidies in the form of production and  investment credits, which are far from ideal due to numerous factors that allow only limited types of investors to benefit from such subsidies.  The subsidies are also subject to sunset provisions in the Internal Revenue Code, leaving much uncertainty as to whether future projects will be entitled to them.

In recent months, there has been increased discussion about using other tax-efficient financing vehicles for renewable energy projects.  In particular, many experts in the industry have been advocating using a real estate investment trust (a “REIT”) to invest in renewable energy infrastructure.  REITs are entities that are treated as corporations for tax purposes, but are generally exempt from the corporate-level income tax, provided at least 90% of its REIT taxable income distributed annually to its shareholders (and certain other technical requirements are met).  Among the benefits to using a REIT is the ability for a wider range of investors – including smaller individual investors – to invest in clean energy projects.  Using a REIT to finance these projects would also lower the costs, as investors in public REITs typically demand a smaller return than currently available forms of financing.

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