Big Renewable Energy IPO Coming; First REIT

An important clean energy IPO is coming up.

Besides being the biggest in several years (which doesn’t take much), it is the first REIT for efficiency and clean energy projects, considered a key way to level the playing field with fossil fuels.

Hannon Armstrong Sustainable Infrastructure Capital Inc. filed to list on the NY Stock Exchange, under the ticker HASI.

The Maryland-based company is a structured REIT that provides debt and equity financing for sustainable infrastructure projects – energy efficiency, renewable energy, and projects that positively impact the environment and make more efficient use of natural resources.

Income from project financing would pass through to shareholders, the first company to get approval from the IRS to do so.

"Working primarily with Global 1000 companies, our team can structure and arrange financing to meet the unique needs of any client," they say, and they are the largest financier of energy efficiency projects for the U.S. federal government. 

Since 2000, they’ve provided or arranged over $3.9 billion of financing for about 450 projects. Last year, they booked $17 million in sales. 

Hannon Armstrong originally planned to raise $100 million, but has now more than doubled that to $250 million. Shares will be priced in the range of $14-$16, giving it a market value of $227
million. 

Minor tweaks to the tax code would open a floodgate of financing for efficiency and renewables through REITS and MLPs. This is now a top priority for the clean energy industry.

Last month, President Obama’s Council of Advisors on Science and Technology, after being asked how he could best address climate change, said:

"Conventional energy projects have better access to low-cost capital than renewable energy projects, and that can be fixed through changes to the tax code. All that’s necessary is to allow renewable energy projects to be financed through REITs and Master Limited Partnerships (MLPs), just as conventional energy projects are.  

REITS, which are commonly used to finance real estate development, could similarly be used to finance renewable energy infrastructure. Everyone would then be able to invest and get a direct stake in solar, wind and other projects. 

Currently, the IRS limits REITs to specific types of real estate assets, so the tax code would have to be broadened as well as clarified to allow proceeds from power purchase agreements to qualify as revenue. Either the IRS could directly rule on this or Congress could amend the tax code through legislation. 

Read the NY Times editorial on Renewable Energy REITs.

The Power REIT (AMEX:PW) has been trying to fill the hole until the rule changes are made. 

In December, The Master Limited Partnerships Parity Act was introduced as legislation that would allow renewable energy projects to be structured as "master limited partnerships" (MLPs).

Last month, Greencoat went public in the UK, with a similar business model. The biggest renewable energy IPO to date, it raised $395 million to buy operating projects from utilities and pass dividends to shareholders.