Energy Dept. promises GAO some tweaks in its wind energy programs

The Government Accountability Office (GAO) recommends that to the extent possible within their statutory authority, the U.S. Department of Energy (DOE) and the U.S. Department of Agriculture (USDA) formally assess and document whether the federal financial support of their initiatives is needed for applicants’ wind projects to be built.

The GAO on March released a 101-page report on federal incentives for wind energy development, which had been requested by the House Committee on Science, Space, and Technology.

Wind energy has been the fastest growing source of U.S. electric power generation in recent years, increasing at about 33% per year since 2001, according to DOE’s Energy Information Administration (EIA). In 2011, wind energy comprised 32% of all new additions to U.S. generating capacity and contributed 3% of the nation’s total electricity generation, the largest share of any non-hydroelectric renewable source.

GAO identified 82 federal wind-related initiatives, with a variety of key characteristics, implemented by nine agencies in fiscal year 2011. Five agencies—the Energy, Interior, Agriculture, Commerce and Treasury departments—collectively implemented 73 of the initiatives. The 82 initiatives incurred about $2.9bn in wind-related obligations and provided estimated wind-related tax subsidies totaling at least $1.1bn in fiscal year 2011, although complete data on wind-related tax subsidies were not available.

“Initiatives supporting deployment of wind facilities, such as those financing their construction or use, constituted the majority of initiatives and accounted for nearly all obligations and estimated tax subsidies related to wind in fiscal year 2011,” GAO noted. “In particular, a tax expenditure and a grant initiative, both administered by Treasury, accounted for nearly all federal financial support for wind energy.”

The 82 wind-related initiatives GAO identified were fragmented across agencies, most had overlapping characteristics, and several that financed deployment of wind facilities provided some level of duplicative financial support. The 82 initiatives were fragmented because they were implemented across nine agencies, and 68 overlapped with at least one other initiative because of shared characteristics, GAO reported.

Report notes some duplicative federal incentive programs

About half of all initiatives reported formal coordination. Coordination can, in principle, reduce the risk of unnecessary duplication and improve the effectiveness of federal efforts. “However, GAO identified 7 initiatives that have provided duplicative support—financial support from multiple initiatives to the same recipient for deployment of a single project,” the report said. “Specifically, wind project developers have in many cases combined the support of more than 1 Treasury initiative and, in some cases, have received additional support from smaller grant or loan guarantee programs at DOE or USDA. GAO also identified 3 other initiatives that did not fund any wind projects in fiscal year 2011 but that could, based on their eligibility criteria, be combined with 1 or more initiatives to provide duplicative support. Of the 10 initiatives, those at Treasury accounted for over 95 percent of the federal financial support for wind in fiscal year 2011. Agencies implementing the 10 initiatives allocate support to projects on the basis of the initiatives’ goals or eligibility criteria, but the extent to which applicant financial need is considered is unclear.”

The report added: “DOE and USDA—which have some discretion over the projects they support through their initiatives—allocate support based on projects’ ability to meet initiative goals such as reducing emissions or benefitting rural communities, as well as other criteria. Both agencies also consider applicant need for the support of some initiatives, according to officials. However, GAO found that neither agency documents assessments of applicant need; therefore the extent to which they use such assessments to determine how much support to provide is unclear. Unlike DOE and USDA, Treasury generally supports projects based on the tax code’s eligibility criteria and does not have discretion to allocate support to projects based on need. While the support of these initiatives may be necessary in many cases for wind projects to be built, because agencies do not document assessments of need, it is unclear, in some cases, if the entire amount of federal support provided was necessary. Federal support in excess of what is needed to induce projects to be built could instead be used to induce other projects to be built or simply withheld, thereby reducing federal expenditures.”

GAO said it provided a draft of this report to the Secretaries of Energy, Agriculture, and the Treasury for review and comment. DOE agreed with GAO’s recommendation. USDA’s Rural Development agency provided comments stating that USDA generally concurred with the information in the report related to its initiatives.

DOE stated in its written comments that it will now formally document its evaluation of applicants’ assertions regarding their inability to finance their projects without a federal loan guarantee, and that it will clarify how it considers the financial need of applicants when determining what amount of support to provide.

“With regard to financing wind projects, DOE noted that Section 1603 grants do not provide capital for developers to use to construct projects, but rather the proceeds from the grants are only available when the related project construction is complete and the project is operational,” GAO wrote. “In contrast, DOE noted that its loan guarantees provide construction and long-term debt financing. As we note in the report, these initiatives may address different needs of wind project developers, including the need for project financing prior to reaching the development stage required to receive tax credits or grants under the Section 1603 program. To emphasize DOE’s point, however, we added language to the report to make it clear that grants do not provide project sponsors with capital to construct their projects.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.