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Jim DeNaut (WCAS '84)

Joint International Head of Investment Banking and Head of Investment Banking, Americas

Joint International Head of Investment Banking and Head of Investment Banking, Americas

Nomura Securities

Financing a Clean Energy Future

James DeNaut knows financing. He got his start in the early 1980s at Goldman Sachs, later working at Morgan Stanley and Deutsche Bank before taking on his current role at Nomura Securities. He is a Northwestern trustee and a member of ISEN’s Executive Council.

DeNaut has spent the majority of his career covering energy companies and financing energy projects around the world. “The energy sector and the economy are inextricably linked,” DeNaut says. “The debate surrounding economic growth versus sustainability centers on the efficiencies and externalities of different energy sources.”

While public policy encourages certain sources of energy over others, the private sector also plays a crucial role in energy production. With that in mind, DeNaut discusses some of his ideas for financing a clean energy future.

Master Limited Partnerships

Energy-oriented master limited partnerships have recently garnered a lot of attention from investors. Energy MLPs are publicly traded partnerships that own operating assets that generate revenue from the production of natural resources or from associated activities.

Energy-oriented master limited partnerships (MLPs) have garnered a lot of attention from investors in recent years. MLPs are a type of publicly traded business organization that owns operating assets such as natural gas pipelines, transmission infrastructure, and gas storage. They distribute their excess cash flow to shareholders in the form of dividends and are particularly attractive because of their tax advantage: as partnerships, they generally avoid corporate income tax at both state and federal levels.

The problem? To qualify for these tax benefits, an MLP must earn at least 90 percent of its income from “qualified sources” as defined by the Internal Revenue Service. And that definition is currently fairly limited, focusing primarily on projects such as fossil fuel and biodiesel products, storage, and pipelines. Expanding the government’s definition to include more renewable energy projects could have a big impact on investment.

Credit Enhancement

To date, the US Government has supported renewable energy deployment primarily through tax policies, which tend to include production tax credits, investment tax credits, and accelerated depreciation benefits. Other governments have taken a different approach with notable success.

Take, for example, Germany’s Renewable Energy Sources Act (EGG), adopted in 2000. In contrast to a tax incentive system, the EGG established a distributed energy generation model that offered a fixed price of power for various types of renewable energy generators and guaranteed generators access to the electric grid. Such access and fixed prices, updated every three years, have created a new biogas market in which farms throughout Germany can now build electric generators that use biogas and then sell that electricity back into the grid on a guaranteed basis.

The policy has led to the construction of more than 9,000 biogas facilities throughout the country, according to the European Biomass Association, making Germany a world leader. Supporting the credit vehicle to encourage renewables and energy production may hold important lessons for the United States and other countries.


As time passes, technology tends to become more efficient and cheaper to produce. That rule holds true for costs associated with the development, installation, and maintenance of nearly all renewable energy technologies. In addition to the hardware costs, renewable energy projects accrue “soft costs,” including legal, permitting, and financing.

For solar energy installations, soft costs now account for as much as 64 percent of the total cost of a new solar system according to US Department of Energy estimates. Lack of standardized contracts, interconnection agreements, and other relevant documentation across state lines not only increase costs, but they also limit access to financing mechanisms, such as the ability to packaged projects into asset-backed securities (ABS). An ABS is a bond or note backed by financial assets, such as home-equity loans, credit-card receivables, auto loans, and student loans. Working to standardize contracts, risk assessments, and energy policies across states could greatly benefit the financing and construction of renewable energy projects nationwide.

* Editor's Note, November 2022: Jim DeNaut is now Managing Partner at Thurston Opportunities Fund.