Wind Energy: Additional Actions Could Help Ensure Effective Use of Federal Financial Support
Published: 2013-03-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Wind energy has been the fastest growing source of U.S. electric power generation in recent years. The increase in federal funding for wind technologies and involvement of multiple agencies has raised questions about fragmented, overlapping, or duplicative federal support.
In this report, GAO examines federal wind-related initiatives--programs or groups of agency activities that promoted wind energy through a specific emphasis or focus. GAO (1) identifies wind-related initiatives implemented by federal agencies in fiscal year 2011 and their key characteristics; (2) assesses the extent of fragmentation, overlap, and duplication, if any, among these initiatives, and the extent to which they were coordinated; and (3) examines how agencies allocate support to projects through their initiatives and the extent to which they assess applicant need for support. GAO sent a questionnaire to agencies to identify wind-related initiatives and to obtain data on their characteristics; potential for fragmentation, overlap, or duplication; and related coordination. GAO also reviewed studies of the initiatives and interviewed agency officials and financial professionals.
section_title: What GAO Found
paragraphs: GAO identified 82 federal wind-related initiatives, with a variety of key characteristics, implemented by nine agencies in fiscal year 2011. Five agencies--the Departments of Energy (DOE), the Interior, Agriculture (USDA), Commerce, and the Treasury--collectively implemented 73 of the initiatives. The 82 initiatives incurred about $2.9 billion in wind-related obligations and provided estimated wind-related tax subsidies totaling at least $1.1 billion 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. 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 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. About half of all initiatives reported formal coordination. Such 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. 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. 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.
section_title: What GAO Recommends
paragraphs: GAO recommends that to the extent possible within their statutory authority DOE and USDA formally assess and document whether the federal financial support of their initiatives is needed for applicants' wind projects to be built. DOE agreed with the recommendation and USDA generally concurred with the findings related to its initiatives.

section_title: Letter
paragraphs: Americans’ daily lives, as well as the economic productivity of the United  States, depend on the availability of energy, the majority of which comes  from fossil fuels. However, concerns over the nation’s reliance on  imported oil, volatile energy costs, and fossil fuels’ emissions of  greenhouse gases linked to global climate change have increased the  focus on developing renewable energy resources to help meet future  energy needs. One of these resources—wind energy—has been the  fastest growing source of U.S. electric power generation in recent years,  increasing at about 33 percent per year since 2001, according to the  Department of Energy’s (DOE) Energy Information Administration (EIA),  an independent statistical and analytical agency. In 2011, wind energy  comprised 32 percent of all new additions to U.S. electric generating  capacity and contributed 3.0 percent of our nation’s total electricity  generation, the largest share of any nonhydroelectric renewable source.  While helping meet the nation’s energy needs, wind energy may offer  substantial environmental benefits as well, such as a reduction in  greenhouse gas emissions, compared with traditional energy sources.  However, wind energy as a source of electricity also faces numerous  challenges related to its intermittent availability and historically higher  costs compared with traditional energy sources.
In support of efforts to research, develop, and deploy wind energy  technologies, the federal government provided nearly $5 billion in  subsidies in fiscal year 2010—more than 75 percent of federal subsidies  for all renewable sources of electricity, according to EIA estimates. Of  this amount, about $4.9 billion was related to the American Recovery and  Reinvestment Act of 2009 (Recovery Act). By contrast, in fiscal year  2007—the previous year for which EIA analyzed these data—EIA  estimated the federal government provided $476 million to support wind  energy technologies. This funding has helped spur development of wind  energy in the United States, helping to meet goals (e.g., for energy  security) established by federal agencies and policymakers. DOE has a  leading role in committing federal resources and expertise to research,  develop, and deploy wind energy technologies, as part of its mission to  address the nation’s energy and environmental challenges through  science and technology. The Department of the Treasury (Treasury),  meanwhile, provides large tax subsidies for wind energy technologies,  through its administration of provisions in the federal Internal Revenue  Code. Other agencies play a role in supporting wind energy technologies  as well; in February 2012, we reported that 23 federal agencies had  implemented nearly 700 renewable energy initiatives—programs or  groups of agency activities that involved renewable energy through a  specific emphasis or focus—in fiscal year 2010. Many of these initiatives  supported wind energy technologies. In addition, states also play an  important role in encouraging development of wind and other renewable  energy sources through policies and financial incentives. For example,  many states have renewable portfolio standards (RPS) that require public  utilities to generate or buy a percentage of energy from renewable  sources.
In the current fiscally constrained environment, effective allocation of  resources is especially important. The increase in funding for wind energy  technologies and the involvement of multiple agencies have raised  questions that federal efforts to support these technologies may be  fragmented, overlapping, or duplicative. Fragmentation occurs when more  than one federal agency, or more than one organization within an agency,  is involved in furthering the development of wind energy. For purposes of  this report, overlap occurs when multiple initiatives support similar wind  issues, similar technology advancement activities, similar recipients, and  have similar goals. As we have previously reported, fragmentation and  overlap among government programs can potentially lead to unnecessary  duplication. For purposes of this report, duplication occurs when multiple  initiatives provide financial support to the same recipient for a single wind  project. Duplication as we have defined it may be necessary, in some  cases, for specific wind projects to be built. However, in other cases,  duplication may result in ineffective use of federal financial support—that  is, it may result in some amount of support being provided for specific  wind projects that is not needed for them to be built.
In this report, we examine federal initiatives that promoted wind energy,  which we termed “wind-related initiatives.” Our objectives for this report  were to (1) identify wind-related initiatives implemented by federal  agencies in fiscal year 2011 and their key characteristics; (2) assess the  extent of fragmentation, overlap, and duplication, if any, among these  initiatives, and the extent to which they were coordinated; and (3)  examine how agencies allocate support to projects through their initiatives  and the extent to which they assess applicant need for support.
To address these objectives, we collected and analyzed information from  our previous work and conducted new work. Our review focused on those  initiatives that promoted the research and development,  commercialization, or deployment of wind energy technologies in fiscal  year 2011, the most recent year for which data were available. To identify  these initiatives, we relied, in part, on data from our February 2012 report  on renewable energy initiatives, which identified and collected information  from wind- and other renewable energy-related initiatives active in fiscal  year 2010. Using these data, we focused our review on research and  development, commercialization, or deployment initiatives for which wind  energy was eligible for support. In addition, we excluded certain  agencies—such as the Departments of Defense, Homeland Security, and  State—which have initiatives generally focused on development of wind  energy and other technologies for use in a military, border security, or  international aid setting, rather than for use in the domestic commercial  energy market.
For the remaining agencies, we developed a questionnaire to collect  information from their officials regarding whether their fiscal year 2010  initiatives were still active and whether wind energy still received or was  eligible for support under the initiatives in fiscal year 2011. We also asked  agency officials to identify any additional initiatives that were active and  for which wind energy was eligible for support in fiscal year 2011. Using  the responses from this questionnaire, we identified 82 wind-related  initiatives at nine agencies. We then developed a second questionnaire  and administered it to agency officials to collect additional data on the  characteristics of these initiatives; potential fragmentation, overlap, or  duplication among them; and efforts to coordinate the initiatives.  Specifically, we asked questions regarding initiatives’ obligations, or  revenue losses from tax expenditures; year in which the initiatives first  supported wind energy; type of wind issues, technology advancement  activities, and recipients supported; initiative goals; and efforts to  coordinate with other wind-related initiatives. We received survey  responses from all 82 initiatives and therefore had a response rate of 100  percent. (For further information on our objectives, scope, and  methodology, including the use of our questionnaire, see app. I. For a  copy of our questionnaire, see app. IV.) We then analyzed the data  collected from the questionnaire to categorize initiatives’ recipients and  goals, and to determine the extent of potential fragmentation, overlap,  and duplication of wind-related initiatives. For selected initiatives, we  collected information from agency websites on financial support provided  for projects, and we interviewed agency officials for information on their  agencies’ efforts to assess applicants’ need for the support of their  initiatives. We also reviewed studies of the initiatives by DOE’s national  laboratories, the Congressional Research Service, and other experts. We  interviewed financial professionals from several of the major financial  institutions and legal firms active in wind energy project financing in  recent years. To obtain additional information about the types of support  available to wind project developers, we collected and analyzed data from  the Database of State Incentives for Renewables and Efficiency (DSIRE),  a comprehensive source of information on state incentives and policies  that promote renewable energy and energy efficiency, which is funded by  DOE. We interviewed researchers who developed and maintain DSIRE  and determined the data were sufficiently reliable for our purposes. We  also interviewed agency officials and financial professionals for additional  information on state initiatives.
We conducted this performance audit from February 2012 to March 2013  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Wind energy is generated when wind turbines convert the kinetic energy  in the wind into mechanical power, which can be used to generate  electricity or for specific tasks such as grinding grain or pumping water.  Electricity generated from wind can be used for other stand-alone  purposes, such as charging a battery, or can flow to consumers from the  facilities where it is generated through the networks that carry electricity,  including wires, substations, and transformers (i.e., the grid). For utility- scale sources of wind energy, a large number of turbines are usually built  close together to form a wind farm that provides grid power. Stand-alone  or distributed turbines are generally smaller scale turbines used for  purposes such as powering communications equipment or generating  electricity for local use by farmers. Areas with plentiful wind resources are  often distant from consumer markets, and access to transmission is  essential to bring electricity generated from wind to market. In addition,  because of the intermittent availability of wind energy, integrating  increasing amounts of wind energy into the electric grid while maintaining  its reliable operation requires added efforts by federal agencies, electric  grid operators, utilities, and regulators. Another important issue in the  development of wind projects is the siting and permitting process, by  which locations are chosen and permits are issued for wind turbines,  while considering projects’ potential effects on the environment and the  competing uses for the land, airspace, or waterways the projects may  require.
Innovation in wind energy technology takes place across a spectrum of  activities, which we refer to as technology advancement activities, and  which include basic research, applied research, demonstration,  commercialization, and deployment. For purposes of this report, basic  research includes efforts to explore and define scientific or engineering  concepts or to investigate the nature of a subject without targeting any  specific technology; applied research includes efforts to develop new  scientific or engineering knowledge to create new and improved  technologies; demonstration includes efforts to operate new or improved  technologies to collect information on their performance and assess  readiness for widespread use; commercialization includes efforts to  transition technologies to commercial applications by bridging the gap  between research and demonstration activities and venture capital  funding and marketing activities; and deployment includes efforts that  facilitate or achieve widespread use of technologies in the commercial  market.
Wind energy technology advancement activities are financed through  both public and private investment. According to a Congressional Budget  Office report, without public investment, the private sector’s investment  in technology advancement activities is likely to be inefficiently low from  society’s perspective because firms cannot easily capture the “spillover  benefits” that result, particularly at the early stages of developing a  technology. In these stages, technology advancement activities can  create fundamental knowledge leading to numerous benefits for society  as a whole but not necessarily for the firms that invested in the activities.  For example, basic research can create general scientific knowledge that  is not itself subject to commercialization but that can lead to multiple  applications that private companies can produce and sell. As activities get  closer to the commercialization and deployment stages, the private sector  may increase its support because its return on investment is likely to  increase.
Federal investment and policies can have a significant impact on wind  development. For example, a key tax incentive for the construction of  wind projects—the Energy Production Credit (also known as the  Production Tax Credit, or PTC)—has periodically expired and then been  extended. In years following its expiration, new additions of wind energy  capacity fell dramatically, as shown in figure 1 below.
Many states have also enacted policies affecting the development of wind  energy, in part to attract investment within their borders. These policies  include tax credits, grants, loans, and mandates such as RPSs requiring  a portion of the electricity consumed or generated in a state to be from  renewable sources.
Improvements in technology and external market factors also affect the  development of wind energy. According to a report from DOE’s Office of  Energy Efficiency and Renewable Energy (EERE), recent improvements  in the cost and performance of wind energy technologies contributed to  the growth of wind energy in 2011. For example, improvements such as  taller towers and larger rotor diameters in wind turbines have improved  their efficiency. However, according to the EERE report, continued low  natural gas prices and modest growth in electricity demand, among other  factors, may dramatically slow new installations of wind turbines in 2013.  In addition, wind energy must compete in the market with other energy  sources—renewable and nonrenewable—that are also receiving  subsidies. For example, in a 2011 report, EIA estimated that the federal  government provided nearly $6.7 billion in subsidies for coal, natural gas,  petroleum liquids, and nuclear energy in fiscal year 2010.
section_title: Multiple Federal Agencies Promoted Wind Energy in Fiscal Year 2011 through Numerous Initiatives Mainly Supporting Deployment
paragraphs: We identified 82 federal wind-related initiatives, with a variety of key  characteristics, implemented by nine agencies in fiscal year 2011. Five  agencies—DOE, the Department of the Interior (Interior), the Department  of Agriculture (USDA), the Department of Commerce (Commerce), and  Treasury—collectively implemented 73 of these initiatives. In fiscal year  2011, wind-related initiatives incurred about $2.9 billion in obligations for  activities specifically related to wind. In addition to initiatives that obligated  funds, Treasury’s wind-related tax expenditure initiatives provided  estimated tax subsidies of at least $1.1 billion for activities specifically  related to wind, although complete data on wind-related tax subsidies  were not available. The initiatives supported a range of wind issues,  including siting and permitting, offshore wind, and, most commonly, utility- scale and distributed land-based wind. They also supported a range of  technology advancement activities, from basic and applied research to,  most commonly, deployment. The majority of initiatives provided funding  or other direct support for energy providers, developers, or  manufacturers, and less than half of the initiatives supported other types  of recipients such as public and private researchers or individuals.  Initiatives supporting deployment accounted for all tax subsidies and  nearly all obligations related to wind in fiscal year 2011. In particular, a tax  expenditure and a grant initiative, both at Treasury, accounted for nearly  all federal financial support related to wind.
subsections: section_title: Five Agencies Implemented Nearly All Initiatives and Were Responsible for Several Billion Dollars in Federal Support Related to Wind
paragraphs: Of the nine agencies that implemented the 82 federal wind-related  initiatives we identified in fiscal year 2011, five lead agencies—DOE,  Interior, USDA, Commerce, and Treasury—were collectively responsible  for 73 (89 percent) of the initiatives. (See app. II for a full list of the  initiatives.) The remaining four agencies—the Environmental Protection  Agency (EPA), the Federal Energy Regulatory Commission (FERC), the  National Science Foundation (NSF), and the Small Business  Administration (SBA)—each had three or fewer initiatives. Figure 2 shows  the number of initiatives by agency.
Around half of the initiatives—43 of 82—began supporting wind energy in  fiscal year 2008 or before. For instance, the PTC, which provides an  income tax credit based on the amount of energy produced at wind and  other qualified facilities, was first enacted under the Energy Policy Act of  1992. However, several key initiatives began supporting wind energy  more recently as part of the Recovery Act or other recent legislation. For  instance, Section 1603 of the Recovery Act created Treasury’s Payments  for Specific Energy Property in Lieu of Tax Credits initiative (Section 1603  program), which provides cash payments of up to 30 percent of the total  eligible costs of wind and certain other renewable energy facilities, in lieu  of tax credits for energy investment or production. Key initiatives such as  these and the PTC for wind facilities have recently expired or are  scheduled to expire at the end of 2013. (See app. II for a full list of  initiatives, including information on their expiration dates.)
The majority of the wind-related initiatives we identified supported a range  of renewable energy sources in addition to wind, as well as other  activities such as energy efficiency projects or rural development projects.  Specifically, 16 initiatives (20 percent) supported wind energy either  exclusively or primarily, and 51 initiatives (62 percent) supported other  renewable energy sources or other activities either primarily or equally  with wind energy. For instance, initiatives that exclusively or primarily  supported wind energy included several under EERE’s Wind Energy  Program that focused on research, development, and testing to improve  the performance, lower the costs, and accelerate the deployment of wind  technologies, and several at Interior’s Bureau of Ocean Energy  Management, Regulation, and Enforcement (BOEMRE) that focused on  facilitating the development of offshore wind through resource  assessments, environmental impact studies, and granting of leases and  rights-of-way for projects. In contrast, wind-related tax expenditures  such as the PTC, as well as several initiatives enacted or expanded  under the Recovery Act such as Treasury’s Section 1603 program,  supported a range of renewable energy sources and, in some cases,  other sources such as nuclear energy; energy efficiency projects related  to buildings or vehicles; or carbon capture and storage projects involving  coal or other fossil fuel sources.
In responding to our questionnaire, agency officials reported that they  obligated around $2.9 billion through their initiatives in fiscal year 2011 for  activities specifically related to wind. These obligations data represent a  mix of actual obligations and estimates. Officials for 39 initiatives (about  48 percent) reported actual obligations, officials for 13 initiatives (about 16  percent) reported estimated obligations, and officials for 21 initiatives  (about 26 percent) were not able to provide estimated or actual  obligations. Officials who provided estimates or were unable to provide  obligations data noted that the accuracy or the availability of the  obligations data was limited because, for example, isolating the  obligations for activities specifically related to wind can be difficult. In  addition, among the 21 initiatives for which no wind-specific obligations  data were reported, agency officials for several of them reported, for  example, that they recovered their costs from power customers, or they  provided loan guarantees whose costs were offset by fees paid by  lenders. As shown in table 1, Treasury was responsible for nearly 94  percent of the total reported obligations (about $2.7 billion of $2.9 billion),  all of which were due to its Section 1603 program.
In addition, Treasury’s nine other wind-related initiatives were tax  expenditures that provided estimated tax subsidies totaling at least $1.1  billion for activities specifically related to wind, according to available  estimates. This amount is based almost solely on subsidies provided  through the PTC, which was the only one of these nine initiatives for  which complete estimates of wind-specific tax subsidies were available  for 2011. Both Treasury and the Joint Committee on Taxation develop  estimates of tax subsidies provided through these tax expenditure  initiatives; however, the initiatives support a range of renewable and other  energy sources, and wind-specific estimates are not available for most of  them. (See app. III for a list of these tax expenditures and the available  estimates of revenue losses related to wind energy.)
section_title: Initiatives Supported a Range of Wind Issues, Technology Advancement Activities, and Recipients
paragraphs: The 82 initiatives we identified supported a range of issues related to  wind, and most initiatives supported more than one wind issue. The wind  issues most commonly supported were utility-scale land-based wind (49  initiatives) and distributed land-based wind (45 initiatives). See table 2  below for the number and percentage of initiatives supporting each wind  issue.
Individual initiatives tended to support a range of wind issues.  Specifically, 63 initiatives (77 percent) supported more than one wind  issue, and 46 of these (56 percent of all initiatives) supported three or  more wind issues. For instance, USDA’s High Energy Cost Grant  Program provides grants for energy facilities and infrastructure serving  rural communities with average home energy costs exceeding 275  percent of the national average. Officials responding to our questionnaire  reported that these grants can support utility-scale and distributed land- based wind, transmission, and grid integration. Similarly, DOE’s State  Energy Program provides financial and technical assistance to state  governments for a variety of renewable energy-related activities across all  six wind issues, according to agency officials.
The 82 initiatives we identified also supported technology advancement  activities ranging from basic and applied research through deployment,  which was the most commonly supported technology advancement  activity; 58 initiatives (71 percent) included support for deployment. See  table 3 below for the number and percentage of initiatives supporting  each technology advancement activity.
Our analysis showed that 39 (48 percent) of the 82 initiatives supported  only one type of technology advancement activity. Another 39 initiatives  (48 percent) supported more than one type of technology advancement  activity, and of these, 5 initiatives supported all five. For example,  Commerce’s Joint Wind Energy Program: Atmospheric Velocity Gradients  initiative supports a single technology advancement activity—applied  research—through studies focused on improving predictions of wind  energy production from winds at various heights. In contrast, Commerce’s  Green Technology Pilot Program supported all types of technology  advancement activities except basic research. The program supported  investment in wind and other “green” technologies through expedited  reviews of patent applications, allowing for earlier intellectual property  protection.
The majority of initiatives supported recipients, generally in the private  sector, that provide electricity generated from wind to consumers, develop  wind energy generation projects, or manufacture wind-related equipment,  according to agency officials responding to our questionnaire.  Specifically, 57 initiatives (70 percent) provided funding or other direct  support to energy providers, developers, or manufacturers. Fewer than  half of the initiatives provided funding or other direct support to recipients  such as public and private researchers (35 initiatives), states and other  governmental organizations (34 initiatives), and individuals (12 initiatives).  Around half of the initiatives—44 initiatives (54 percent)—supported one  type of recipient, while the remaining 38 initiatives supported multiple  types of recipients.
section_title: Initiatives Supporting Deployment Accounted for Most Obligations and Tax Subsidies Related to Wind
paragraphs: In terms of federal financial support, deployment was the primary focus of  federal efforts to promote wind energy. Of the reported $2.9 billion in  actual and estimated obligations for wind-related activities in fiscal year  2011, $2.86 billion (99 percent) was obligated by the 58 initiatives that  included support for deployment. As previously noted, approximately 94  percent of total wind-related obligations—just over $2.7 billion—was  obligated by Treasury’s Section 1603 program for the deployment of  projects. Other initiatives that supported deployment activities obligated  $147 million. In addition to obligations, all nine of Treasury’s wind-related  tax expenditures—with estimated tax subsidies of at least $1.1 billion for  activities specifically related to wind—included support for deployment.  These tax subsidies were primarily provided through the PTC, which, in  2011, provided an income tax credit of 2.2 cents per kilowatt hour for  energy produced from wind and certain other renewable energy  sources. In addition, deployment was the most commonly supported  technology advancement activity at the five lead agencies. See figure 3  below for the number of initiatives supporting each technology  advancement activity at these agencies.
In addition to initiatives that support deployment of wind energy  technologies by directly funding or providing tax subsidies for the  construction or operation of wind facilities, some initiatives that we  identified supported the deployment of these technologies indirectly. This  indirect support includes facilitating the buying and selling of wind  technologies or wind energy, or encouraging deployment through policies  and regulations. Examples include the following:
Commerce’s International Trade Administration implements an  International Buyer Program, which supports U.S. companies at trade  shows—including several major shows focused on renewable  energy—by recruiting and escorting foreign buyer delegations to meet  with U.S. companies.
EPA’s Green Power Partnership supports deployment of wind and  other renewable energy technologies by encouraging organizations  and individuals to purchase renewable energy through outreach,  education, and technical support.
DOE’s Division of Permitting, Siting, and Analysis implements an  initiative providing technical and financial assistance to state and  regional entities, such as public utility commissions and state  legislatures, to help develop renewable energy policies and portfolio  standards, among other things.
section_title: Initiatives Were Fragmented and Had Overlapping Characteristics with Half Reporting Coordination, but Several Provided Some Duplicative Financial Support for Deployment
paragraphs: The 82 wind-related initiatives we identified were fragmented across  agencies, most had overlapping characteristics and, though half reported  formally coordinating, several financing deployment of wind facilities have  provided some duplicative financial support. The initiatives were  fragmented because they were implemented across nine agencies and  were involved in the same broad area of national need. Most initiatives  overlapped to some degree with at least one other initiative because they  had at least one wind issue, technology advancement activity, type of  recipient, and type of goal in common, but such overlap did not  necessarily lead to duplication of efforts because initiatives sometimes  differed in meaningful ways. In addition, officials from about half of all  initiatives reported formally coordinating with other wind-related initiatives.  Such coordination can, in principle, reduce the risk of unnecessary  duplication and improve the effectiveness of federal efforts. However, we  identified seven initiatives that have provided duplicative support— financial support from multiple initiatives to the same recipient for  deployment of a single project. Specifically, wind project developers have,  in many cases, combined the support of more than one Treasury initiative  and, in some cases, have received additional support from smaller grant  or loan guarantee programs at DOE or USDA. We also identified three  other initiatives that did not fund any wind projects in fiscal year 2011 but  that could, on the basis of the initiatives’ eligibility criteria, be combined  with one 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.
subsections: section_title: Initiatives Were Fragmented and Most Had Broadly Overlapping Characteristics
paragraphs: The 82 wind-related initiatives we identified were fragmented because  they were implemented across nine agencies and were involved in the  same broad area of national need: promoting or enabling the  development of wind energy. We found that initiatives supporting  deployment in particular were spread about evenly across the five lead  agencies—each had between 10 and 13 initiatives that supported  deployment. In March 2011, we reported that fragmentation has the  potential to result in duplication of resources. However, such  fragmentation is, by itself, not an indication that unnecessary duplication  of efforts or activities exists. For example, in our March 2011 report, we  stated that there can be advantages to having multiple federal agencies  involved in a broad area of national need—agencies can tailor initiatives  to suit their specific missions and needs, among other things.
Across all initiatives, we found that 68 (83 percent) overlapped to some  degree with at least one other initiative because they supported similar  wind issues, technology advancement activities, and recipients, and had  similar goals. The following are several examples of overlapping  initiatives:
Deployment of utility-scale land-based wind facilities by the energy  industry. Seventeen initiatives provided financial support for the  construction or use of utility-scale land-based wind facilities to energy  companies. For instance, USDA’s Direct and Guaranteed Electric  Loan Program provides loans and loan guarantees to establish and  improve electric service in rural areas, including through utility-scale  on-grid wind and other renewable energy systems. Similarly, the  SBA’s Certified Development Company/Section 504 Loans initiative  guarantees SBA loans to businesses for, among other things, energy  efficiency and renewable energy projects, including utility-scale land- based wind projects.
Applied research to facilitate the integration of wind energy into the  electric power grid. Five initiatives provided funding or support to  public or private researchers to conduct applied research related to  the integration of wind energy into the electric grid. For instance,  DOE’s Grid-Scale Rampable Intermittent Dispatchable Storage  program funds efforts to develop new technologies that enable  widespread use of cost-effective grid-scale energy storage,  particularly technologies that mitigate variability in energy generated  from renewable sources such as wind and solar. Similarly, the  National Science Foundation’s Emerging Frontiers in Research and  Innovation initiative provides grants for interdisciplinary engineering  research with the potential to create a significant impact in meeting  national needs. Specifically, in fiscal year 2011, the initiative funded  research on compressed air technology for storing excess energy  from offshore wind turbines to alleviate power supply and demand  imbalances on the electric grid during the day.
Deployment of offshore wind technologies by state, local, and other  governmental organizations. Five initiatives helped address policy and  regulatory barriers to deployment of offshore wind through support for  state, local, and other governmental organizations. For instance,  under Interior’s Renewable Energy Program there is a Development  and Implementation initiative through which BOEMRE worked to  authorize orderly, safe, and environmentally responsible renewable  energy development on the outer continental shelf, while  complementing ongoing state and local renewable energy efforts.  BOEMRE’s efforts include assisting states in meeting goals  established in RPSs through studies of potential development of  particular states’ offshore areas, as well as coordination and  information exchange with states and regional organizations.  Similarly, Commerce’s MarineCadastre.gov initiative supports wind  energy development and other uses of the outer continental shelf by  providing mapping information for project planning and siting, which is  intended to help developers identify and avoid potentially conflicting  uses before creating development plans. Commerce’s efforts under  this initiative in fiscal year 2011 included developing maps for a  federal-state task force to facilitate decisions on wind energy  development in federal waters.
In addition, we identified several types of state initiatives that encourage  development of wind and other renewable energy sources and share key  characteristics with federal wind-related initiatives. Along with federal  agencies, state governments implement initiatives that help energy  companies finance deployment of utility-scale land-based wind facilities.  These initiatives include state tax incentives such as production and  investment tax credits. They also include state grant and loan programs,  some of which were federally funded, according to DSIRE data. See  figure 4 below for examples of these state and federal initiatives available  in fiscal year 2011.
States have also enacted a number of rules, regulations, or policies that  encourage deployment of wind and other renewable energy sources,  most notably RPSs. Such standards do not provide direct financial  support to particular wind projects; however, by requiring or encouraging  that a percentage of the electricity consumed in a state be generated from  renewable sources, they are designed to create market demand for  electricity from sources such as wind. Recent economic studies we  reviewed suggest that certain RPSs have increased development of  renewable energy. Several financial professionals and agency officials  with whom we spoke cited RPSs as strongly influencing wind energy  development. They said that by creating demand for wind and other  renewable energy, RPSs complement federal initiatives such as the PTC,  which reduce the price of this energy. Currently, 37 states have RPSs  that include wind. For instance in California—which led the nation in  new wind capacity added in 2011—state law requires electric utilities in  the state to have 33 percent of their retail sales derived from eligible  renewable energy resources, including wind, by 2020. In Texas—which  led the nation in total installed wind capacity in 2011—state law requires  5,880 megawatts of total installed renewable energy capacity by 2015,  including up to 5,380 megawatts of wind energy capacity.
Overlap among initiatives does not necessarily lead to duplication  because initiatives sometimes differ in meaningful ways. For instance,  certain of Treasury’s tax expenditures that support deployment of utility- scale land-based wind facilities by the energy industry differ in the type of  organization eligible for their support. Treasury’s Credit for Holding New  Clean Renewable Energy Bonds, for example, helps tax-exempt entities  such as not-for-profit electric utilities or cooperative electric companies  finance capital expenditures for wind and other renewable energy  facilities by providing tax credits to holders of bonds issued by those  entities. In contrast, the majority of Treasury’s other wind-related tax  expenditures that support the deployment of utility-scale land-based wind  facilities do so by providing taxable organizations with tax credits or other  tax incentives for such projects. In addition, certain overlapping initiatives  may provide a cumulative benefit for the deployment of wind projects but  do not meet our definition of duplication because they do not provide  financial support to the same recipient for a single wind project. For  instance, Treasury officials noted that the Qualifying Advanced Energy  Project Credit and the Section 1603 program could provide support  across multiple stages of wind energy deployment if, for example, a  manufacturing plant that produces wind turbines receives the credit and a  wind facility that uses those turbines receives a Section 1603 grant.  However, for purposes of our report, these initiatives do not provide  duplicative support because they have different direct recipients.
section_title: About Half the Initiatives Reported Formally Coordinating, in Some Cases Employing Key Practices for Enhancing and Sustaining Agency Collaboration
paragraphs: Officials from 43 (52 percent) of the 82 initiatives reported coordinating  formally with other federal wind-related initiatives. Coordination was  most prevalent among initiatives that reported having wind-specific  goals—such as reducing the cost of wind technologies or facilitating the  siting, leasing, and construction of new offshore wind projects.  Specifically, of the 25 initiatives that reported having such goals, officials  from 20 initiatives (80 percent) reported coordinating with other wind- related initiatives. In contrast, of the 57 initiatives that did not report  having wind-specific goals, officials from 23 initiatives (40 percent)  reported such coordination. Most of the initiatives for which officials  reported coordinating—36 of 43—included coordination efforts with wind- related initiatives in other federal departments and independent agencies.  For example, officials from several agencies reported coordinating  through the Interagency Rapid Response Team for Transmission, which  was based on a 2009 joint memorandum of understanding between nine  federal agencies. This team aims to improve coordination of federal  permitting and reviews of transmission infrastructure projects that will help  integrate wind and other renewable energy sources into the electric grid.  Officials from 22 initiatives also reported coordinating their wind-related  initiatives with state governments.
As we have previously reported, coordination may reduce the risk of  unnecessary duplication, and a lack of coordination can waste scarce  funds and limit the overall effectiveness of the federal effort. We have  also previously reported that while agencies face a range of barriers when  they attempt to collaborate with other agencies—such as differing  missions and incompatible processes—certain key practices can help  agencies enhance and sustain federal collaboration. Several lead  agencies implementing wind-related initiatives have formally coordinated  overlapping initiatives, in some cases in a manner consistent with key  practices, such as in the following examples:  Identifying and addressing needs by leveraging resources: Agency  officials reported leveraging resources such as the knowledge and  expertise of other agencies in developing and implementing their own  wind energy initiatives. For example, DOE has drawn on Treasury’s  expertise through required consultations regarding the terms and  conditions of loan guarantees DOE provides to applicants. In  addition, USDA officials consulted with Treasury regarding the  potential impact of tax laws on new provisions USDA was drafting for  awarding certain grants. For some initiatives, agency officials reported  leveraging the financial resources of other agencies to help ensure  prudent use of funds, particularly in the case of loan guarantee  programs. For example, according to an official for DOE’s loan  guarantee programs, if a project qualifies for a Treasury Section 1603  grant, it is typical for DOE to require that a portion of the grant  proceeds be used to repay the DOE-guaranteed debt. In addition, a  USDA official for the Business and Industry Guaranteed Loan  Program—which provides guaranteed loans to rural borrowers for  projects that improve the economic and environmental climate in rural  communities—said that the program provides information to  applicants regarding other sources of funding available for wind  projects, such as SBA loans or grants, or state-level sources of  funding.
Developing mechanisms to monitor, evaluate, and report on results:  Agencies also engaged in collaborative efforts to create the means to  monitor and evaluate their wind-related initiatives and report on their  activities. For example, USDA reported coordinating programs that  provide loans, grants, and loan guarantees for projects in rural  communities both internally and with other agencies such as  Commerce, DOE, and EPA through USDA’s Energy Council  Coordinating Committee. Agency officials participating in this council  share general information on energy-related programs, which helps  support common performance reporting and budgeting processes. In  addition, USDA data on its grants, loans, and other awards are  available to other agencies and the general public through a web- based mapping tool that shows agencies and potential recipients  where USDA is supporting renewable energy projects.
section_title: Several Initiatives That Financed Deployment of Wind Facilities Have Provided Some Duplicative Financial Support
paragraphs: We identified examples of utility-scale land-based wind projects that  received duplicative support—financial support from multiple initiatives to  the same recipient for a single project—from initiatives supporting  deployment of wind facilities. Specifically, we identified 10 initiatives that  have provided or could provide duplicative support, as follows:
Seven initiatives provided some duplicative support for wind projects,  including three tax expenditures and a grant program implemented by  Treasury, a loan guarantee program implemented by DOE, and two  programs that provide grants, loans, and loan guarantees  implemented by USDA. Although all seven of these initiatives cannot  be combined to support the same project, each of them has been  combined with one or more of the others, with some limitations, to  support a single project.
Three other initiatives did not actually fund any wind projects in fiscal  year 2011 but could provide duplicative support for wind projects  going forward, based on the types of projects eligible for their support.  These three initiatives were DOE’s Section 1703 Loan Guarantee  Program (Section 1703 program) and USDA’s Business and Industry  Guaranteed Loan Program and High Energy Cost Grant Program.
Some of these 10 initiatives have recently expired, such as Treasury’s  Section 1603 program and DOE’s Section 1705 Loan Guarantee Program  (Section 1705 program), and several others are scheduled to expire for  wind projects at the end of 2013, such as Treasury’s tax credits.  However, the types of mechanisms these initiatives employ—tax  expenditures, grants, and loan guarantees—are employed by other of the  initiatives that are not expiring and may be considered by policymakers as  a means for supporting wind energy through future initiatives. In addition,  duplication of financial support among these initiatives may not be limited  to wind projects because all of these initiatives supported a range of  renewable energy projects. Of the 10 initiatives, Treasury’s 4 initiatives  accounted for over 95 percent of the total federal financial support for  wind in fiscal year 2011. See table 4 for brief descriptions of these  initiatives. (For more detailed descriptions of these initiatives, including  information on their expiration dates, see app. II.)
According to interviews with agency officials and financial professionals  and information from agency websites, wind project developers have  used various combinations of these initiatives to help finance specific  wind projects. For instance, in many cases, developers combined the  support of more than one Treasury initiative and, in some cases, they  received additional support from smaller DOE or USDA grant or loan  guarantee programs. Among Treasury initiatives, although the PTC,  Energy Investment Credit (also known as the Energy Investment Tax  Credit, or ITC), and Section 1603 program cannot be combined for a  specific project, they all support wind projects for which developers also  typically claim Accelerated Depreciation Recovery Periods for Specific  Energy Property (accelerated depreciation), according to financial  professionals and a Treasury official. In addition, DOE’s Section 1705  program has provided loan guarantees for four utility-scale wind  generation projects, all of which have received grants under Treasury’s  Section 1603 program, and all of which are eligible to claim accelerated  depreciation. Similarly, USDA’s grant and loan programs have  supported projects that also received support under other initiatives. For  example, USDA’s Direct and Guaranteed Electric Loan Program provided  a loan guarantee for a $204 million loan for a wind project that was also  awarded an $88 million grant under the Section 1603 program. In  addition, USDA’s Rural Energy for America Program (REAP) provides  grants and loan guarantees for renewable energy projects. A 2006 report  by DOE’s Lawrence Berkeley National Laboratory (LBNL) found that  nearly all wind projects with a capacity of over 100 kilowatts that received  REAP grants from 2003 through 2005 also intended to claim tax credits  under the PTC.
Although these initiatives have, in some cases, provided duplicative  support, their support may address different needs of wind project  developers or the communities they serve, according to agency officials  and financial professionals with whom we spoke, and analyses by DOE’s  national laboratories. For example, unlike the PTC and ITC, the Section  1603 program allows wind project developers to directly claim a cash  grant regardless of their tax liability, thus avoiding the potential need to  partner with financial institutions or other investors who provide tax  equity. The Section 1603 program was created in part to address a  perceived lack of tax equity following the recent financial crisis, according  to Treasury guidance and financial professionals. Furthermore, by  providing a cash grant, the program allows developers to receive the full  amount of the government subsidy rather than sharing this subsidy with  tax equity investors. DOE’s Section 1705 program, meanwhile, provided  financing in many cases for innovative projects that were seen as too  risky to obtain affordable financing from private lenders, according to  DOE officials who administered the program. In addition, as with the  Section 1703 program, Section 1705 loan guarantees can address  projects’ needs for construction and long-term debt financing, while grants  under the Section 1603 program and support from Treasury’s tax  expenditures are available only when the related project has been  constructed and is operational. Therefore, the loan guarantees helped  support many projects that might not otherwise have reached the  development stage—such as being placed in service or beginning to  generate electricity—required to receive tax credits or Section 1603  grants. In addition, USDA’s grant, loan, and loan guarantee initiatives are  designed to encourage projects that serve the needs of rural  communities, including by providing reliable, affordable electricity, and  more generally stimulating rural economic development.
Moreover, although these initiatives can be used together in various  combinations to help finance the same wind project, several include  provisions—often referred to as antidouble-dipping provisions—that limit  the amount of financial support provided to a wind project when combined  with another initiative. For instance, the PTC includes a provision  requiring that the amount of the credit be reduced for federal or state  grants, tax-exempt bond financing, subsidized energy financing, or other  federal tax credits received for use in connection with the project.  LBNL’s financial modeling of wind projects for its 2006 report suggests  that large wind projects receiving REAP grants and claiming the PTC  would have seen the value of the PTC reduced by from 11 to 46 percent  of the grant’s face value, depending on the project’s capital cost and  capacity factor. Similarly, antidouble-dipping provisions reduce the value  of the ITC and Section 1603 grants—through reductions to the portion of  project costs on which they are calculated—for projects that also receive  government grants that are not taxed as income, including, in some  cases, REAP or other federal and state grants for wind projects. Grants  not taxed as income also reduce a project’s depreciable basis, or the  dollar amount that can be depreciated for tax purposes. In addition to  limitations on combining Treasury’s tax expenditures with other sources  of financial support, officials from USDA and DOE told us that their  agencies consider some other sources of federal support a wind project  has received or will receive in determining whether or how much to award  under their grant, loan, and loan guarantee programs. The officials for  some of these programs said that they limit the value of support they  provide, while officials from other programs, by law, must deny support  altogether when applicants are receiving funding from other federal  sources. For instance, the appropriations laws applicable to the Section  1703 program prohibit the issuance of loan guarantees for projects that  are expected to receive certain other sources of federal support. Such  sources of support include grants from certain USDA initiatives and  federal “off-take arrangements,” whereby federal agencies agree to  purchase power from the projects. Similarly, USDA officials said that,  under REAP, the total amount of grants provided for projects from REAP  and other federal sources generally cannot exceed 25 percent of project  costs. However, this limit does not apply to grants provided under  Treasury’s Section 1603 program, according to USDA officials.
In addition to these 10 federal initiatives, the state tax credits, grant  programs, and loan programs previously discussed can be used, in some  cases, to provide financial support for deployment of a wind project in  combination with one or more federal initiatives. For instance, it is  possible for a single wind project to receive federal support from a  Section 1603 grant, accelerated depreciation, and a DOE loan guarantee,  along with state support from tax incentives and indirect subsidies due to  a state RPS. Furthermore, DSIRE staff and a financial professional with  whom we spoke said that states may often structure their initiatives so  that recipients can fully leverage sources of federal support, such as by  designing the initiatives to avoid triggering federal antidouble-dipping  provisions. In addition, under Treasury’s published guidance on the PTC  provision reducing the amount of the credit for certain other sources of  federal or state support, state or local tax credits do not trigger a  reduction in the value of the PTC.
Even with antidouble-dipping provisions and other limitations on  combining financial support from multiple initiatives for the same project,  federal initiatives have provided cumulative financial support worth about  half of project costs for many wind projects according to financial  professionals. For instance, financial professionals we spoke with  estimated that the PTC and accelerated depreciation together provide  nearly half of the capital costs required for a typical wind farm. Of this  amount, 30 percent or more of the total capital costs is due to the PTC,  according to financial professionals’ estimates. For projects receiving  support from other federal grant or loan initiatives in addition to the PTC  and accelerated depreciation, the value of federal financial support would  comprise a larger portion of project costs. Also, as noted earlier, wind  projects may receive financial support from state initiatives. For instance,  according to a briefing memorandum from White House staff, the total  estimated federal and state financial support for a large wind project in  Oregon—including a Section 1705 loan guarantee, a Section 1603 grant,  accelerated depreciation at the federal and state level, state tax credits,  and an estimated premium paid for power due to a state RPS—are worth  65 percent or more of the project’s capital costs. In another example,  estimates developed by management consultants for the energy industry  and other clients suggest that federal financial support for a New  Hampshire wind farm—including a Section 1603 grant, a Section 1705  loan guarantee, and accelerated depreciation—in combination with  financial support from state initiatives is worth over half of the project’s  capital costs.
section_title: Agencies Support Projects on the Basis of Initiatives’ Goals or Eligibility Criteria, but the Extent to Which Agencies Assess Applicant Need Is Unclear
paragraphs: Agencies implementing the 10 initiatives that have provided or could  provide duplicative support allocate support to projects on the basis of the  initiatives’ goals or eligibility criteria, but the extent to which agencies  assess applicant need for the support is unclear because we found they  do not document assessments. DOE and USDA—which have  discretion, to the extent allowed by their statutory authority, over the  projects they support through 6 of the 10 initiatives—allocate support to  projects based on the projects’ ability to meet initiative goals such as  reducing emissions or benefitting rural communities, as well as other  criteria such as financial and technological feasibility. Treasury,  meanwhile, provides support to projects through the remaining 4  initiatives based on the eligibility criteria in the tax code. DOE and USDA  consider applicant need for the financial support of some initiatives,  according to officials. However, we found that neither agency documents  assessments of applicant need for any of their initiatives; therefore, the  extent to which they use such assessments to determine how much  support to provide is unclear. Treasury does not generally have discretion  in allocating support to projects and, as such, does not assess need for  the support of its initiatives. While the support of these initiatives may be  necessary, in many cases, for wind projects to be built, because the  agencies do not document assessments of need, it is unclear, in some  cases, whether the entire amount of federal support provided was  necessary to build wind projects. In the event that some wind projects  receive more federal funding than is required to induce them to be built,  this additional funding could potentially be used to induce additional  projects to be built or simply withheld, thereby reducing federal  expenditures.
subsections: section_title: DOE and USDA Allocate Support to Projects Based on Initiative Goals and Other Criteria while Treasury Supports Projects Based on Eligibility under the Tax Code
paragraphs: Through their six initiatives, DOE and USDA allocate support to projects  based on projects’ ability to meet initiative goals, along with other criteria  such as financial and technological feasibility. For instance, DOE’s loan  guarantee solicitation for its Section 1703 program set forth initial  screening criteria for projects including that they employ new or  significantly improved technology compared to commercially available  technologies, and that they be ready to proceed through the loan  approval process (i.e. equity has been committed to the project,  construction and other contracts have been negotiated, and permits have  been secured). For evaluating and scoring projects that meet the initial  screening criteria, DOE’s solicitation also set forth two equally weighted  criteria related to the program’s goals: a project’s expected reduction or  avoidance of greenhouse gas emissions relative to its cost, and a  project’s support for clean energy jobs and manufacturing. In line with  program goals, USDA allocates the support of its four initiatives to  projects based on their expected benefits for rural and other eligible  communities, along with other factors such as technological feasibility and  expected performance. For instance, under its High Energy Cost Grant  Program, USDA evaluates which projects to support based on their  abilities to address community needs such as those related to economic  hardships, their technological design and feasibility, their expected  performance measures including the amount of renewable energy they  will produce, and other factors. Similarly, USDA evaluates applications for  REAP grants or loan guarantees based on factors such as projects’  support for small agricultural producers or businesses, expected energy  production, and technical merit. As with DOE’s Section 1703 program,  USDA’s loan guarantee programs also allocate support to projects based  on their ability to repay their debt. Unlike DOE and USDA, Treasury  generally does not have any discretion regarding which projects receive  the support of its initiatives. Taxpayers who are eligible for support  under the Internal Revenue Code are generally entitled to that support.
section_title: It Is Unclear to What Extent Agencies Assess Applicant Need for the Financial Support of Their Initiatives Because We Found Such Assessments Are Not Documented
paragraphs: According to agency officials and program guidance, DOE and USDA  consider applicant need for the financial support of some of their  initiatives. For instance, the solicitation for loan guarantee applications  under DOE’s Section 1703 program states that DOE will view unfavorably  applications for projects that could be fully financed on a long-term basis  by commercial banks or others without a federal loan guarantee. DOE  officials told us they require applicants to provide a letter stating whether  their projects can be financed without a federal loan guarantee, although  this self-certification by applicants does not require they document any  efforts to obtain private financing. In addition to these letters, DOE  officials said their conversations with wind project developers, along with  their broader understanding of the lending community and project risks,  allow them to determine whether projects would likely be able to obtain  private financing without a loan guarantee. USDA also considers  applicants’ need for support from some of its initiatives according to  agency officials. For example, application guidance for USDA’s High  Energy Cost Grant Program states that the program assesses project  information including other sources of funding expected for the project to  determine its financial viability, the level of community support for the  project, and the community’s need for funds. Similarly, officials from the  Direct and Guaranteed Electric Loan Program said that prior to loan  approval they assess projects’ financial information to determine their  financial feasibility and to avoid lending more than is necessary for project  completion. However, unlike DOE’s Section 1703 program, we did not  identify program documents for USDA’s initiatives—such as guidance for  applicants or criteria for evaluating projects—stating that applicant need is  a factor in allocating support. Treasury generally does not have any  discretion in allocating support to projects and, as such, does not assess  applicant need for the support of its initiatives.
Even with these DOE and USDA efforts, it is unclear to what extent DOE  and USDA assess applicant need for the financial support of their  initiatives because we found they do not document such assessments.  The federal standards for internal control include control activities—such  as documentation of significant transactions—which are essential for  proper stewardship and accountability for government resources.  Because, as we found, the agencies do not document these  assessments, it is unclear to outside parties how they considered the  financial need of applicants when determining what amount of support to  provide. Moreover, it is unclear if the incremental support some initiatives  provided was always necessary to build projects. In the event that some  wind projects receive more federal funding than is required to induce  them to be built, this additional funding could potentially be used to induce  additional projects to be built or simply withheld, thereby reducing federal  expenditures. The following are examples where it was unclear whether  initiatives’ incremental support was needed for projects to be built:
According to the White House briefing memorandum noted above,  because of the tax subsidies and other federal and state support for  the Oregon wind project, the return on the private equity invested in  the project was estimated to be relatively high—around 30 percent.
The memorandum further stated that this estimated return suggests  the project would “likely move without the  loan  guarantee,” and “the alternative of private financing would not make  the project non-viable.” It is unclear from our review whether the loan  guarantee was needed for the project to be built because we found  DOE made no documented assessment of need. In addition, a  separate analysis of the same wind project by DOE suggested that  officials concluded, given the amount of the project’s debt, it would  have sufficient cash flow to repay its guaranteed loan without the  incremental support of a Section 1603 grant, which it later received.  Specifically, DOE approved a loan guarantee for the project in part  based on its credit analysis, which was made under the assumption  that the project would not need to make use of a Section 1603 grant  to repay debt, and that neither DOE nor lenders for the project would  have any claim on the grant. However, it is unclear whether the  Section 1603 grant was needed for the project to be built because we  found no documented assessment of need was made. Though the  analyses from the White House memorandum and DOE question the  project’s need for the combined support of the Section 1705 loan  guarantee and Section 1603 grant, neither analysis questioned  whether the project would have been built without either source of  support.
In another example, a developer of a wind project in Maine provided  documentation in 2011 that it had sufficient funds to complete  construction of the project without any additional source of capital,  though it subsequently received a Section 1603 grant and a Section  1705 loan guarantee and was eligible for accelerated depreciation.  Specifically, the developer provided this information to document its  financial capacity in support of its permit application to the Maine  Department of Environmental Protection, which later approved the  permit for the project. However, because we found no documented  assessments of need were made for the federal support this project  received, it is unclear whether it could have been built with less  support.
Nonetheless, the incremental support agencies’ initiatives provide may be  necessary for wind projects to be built, according to agency officials and  financial professionals. For instance, concerning DOE’s initiatives, its loan  guarantees allow developers to leverage federal resources to attract  sources of equity and debt that would otherwise not be invested,  according to DOE. Officials from the loan guarantee programs said that,  without loan guarantees, wind project developers can have difficulty  obtaining private loans due to the relatively long term of the fixed rate  loans they use to finance their projects. Title XVII of the Energy Policy Act  of 2005 allows DOE to provide guarantees for loans with terms of up to  30 years. According to DOE officials, there are constraints on the supply  of private financing for large projects, and private lenders may consider  such long-term loans to have greater risks and may be less likely to lend  to such projects in the amounts required to fully finance the transactions.  In addition, in commenting on a draft of this report, DOE officials said that  long-term financing is necessary in order for debt payments to align with  projects’ proceeds from agreements to sell their power over the long term,  and is also necessary to avoid risks associated with changing interest  rates and other risks that can arise from using shorter-term financing. For  instance, they said that the Maine wind project developer’s filings with the  state did not address any long-term financing needs for the project  beyond its construction phase.
With respect to USDA’s initiatives, USDA officials for some initiatives told  us that their incremental support may be necessary for wind projects to  be built, and for the projects to fully benefit rural communities. For  instance, officials noted that, although well-qualified projects can  generally find the financing they need in the private market, the cost of  private financing would be higher than the cost of financing available  through USDA’s loan and loan guarantee programs, which would likely  impact electric utility rates for rural ratepayers. They also said that  projects receiving support from the High Energy Cost Grant Program may  not be built without its support, as it tends to serve isolated communities  where available funding for such projects may be limited.
Regarding the PTC and other Treasury initiatives, several financial  professionals with whom we spoke said that the initiatives provide  financial support for many projects that would likely not be built otherwise.  For instance, they said that the PTC is necessary in order for many wind  projects to be financially viable. Furthermore, although it was extended in  2013, prior to this extension, the financial professionals said the PTC’s  scheduled expiration at the end of 2012 had caused developers and  investors to suspend plans for future construction of or investment in wind  projects. This expected slowdown in deployment of new wind projects is  in line with historical evidence of prior PTC expirations being followed by  decreases in new wind energy capacity additions. Treasury’s Section  1603 program has also been shown to support wind projects that would  otherwise likely not have been built. According to an LBNL analysis, the  program supported projects that would likely not have been built using the  PTC if the grant were not available—projects that added as much as  2,400 megawatts of wind energy capacity in 2009.
More broadly, according to financial professionals, wind project  developers and investors evaluate the returns they could make on a  range of potential projects. If the expected returns for wind projects are  lower due to a decrease in federal support, developers and investors are  more likely to pursue other types of projects—including solar or other  renewable energy projects, as well as nonenergy projects—that benefit  from federal subsidies and could provide higher returns.
section_title: Conclusions
paragraphs: Faced with concerns about the nation’s reliance on imported oil, as well  as fossil fuels’ contribution to global climate change, among other things,  federal policymakers have increased the federal focus on and support for  development of renewable energy sources, especially wind energy.
At the same time, states have created demand for energy from renewable  sources through initiatives such as RPSs, supplementing support  provided by federal agencies.
In fiscal year 2011, wind-related initiatives implemented by federal  agencies were fragmented and, in many cases, overlapping. Further, we  identified 10 initiatives that have provided or could provide duplicative  support to deploy wind facilities. Though some of the 10 initiatives have  recently expired or are scheduled to expire, other initiatives employing  similar mechanisms such as tax expenditures, grants, and loan  guarantees remain in place, and similar initiatives may be considered in  the future as a means for supporting wind and other renewable energy  sources.
In the current fiscally constrained environment, it is especially important to  allocate scarce resources where they can be most effective. In this  context, it is important that agencies with discretion in implementing  initiatives that have provided or could provide duplicative support—DOE  and USDA—ensure that they allocate support through these initiatives to  projects that would not be built otherwise. However, these agencies do  not make documented assessments of whether or how much of their  initiatives’ financial support is needed for projects to be built and, as a  result, it is unclear to what extent they assess need in order to determine  what amount of support to provide. Moreover, it is unclear whether the  incremental support some initiatives provided was always necessary for  wind projects to be built.
section_title: Recommendation for Executive Action
paragraphs: To support federal agencies’ efforts to effectively allocate resources  among wind projects, we recommend that the Secretaries of Energy and  Agriculture, to the extent possible within their statutory authority, formally  assess and document whether the incremental financial support of their  initiatives is needed in order for applicants’ projects to be built and take  this information into account in determining whether, or how much,  support to provide. Such assessments could include, for example,  information on the investors’ and developers’ projected rates of return on  these projects, or documentation of applicants’ inability to secure private  financing for projects. In addition, such assessments should consider the  financial support available or provided to projects from other federal  sources including tax expenditures and, to the extent practical, from state  sources. In the event agencies lack discretion to consider this information  in determining what financial support to provide, they may want to report  this limitation to Congress.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretaries of Energy,  Agriculture, and the Treasury for review and comment. DOE provided  written comments, in which it agreed with our recommendation; these  comments are summarized below and reprinted in appendix V. USDA’s  Rural Development provided comments by e-mail on February 11, 2013,  stating that USDA generally concurred with the information in our report  related to its initiatives. In addition, DOE, USDA, and Treasury provided  technical and clarifying comments, which we incorporated as appropriate.
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 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. 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.
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If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on   the last page of this report. GAO staff who made key contributions to this  report are listed in appendix VI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) identify wind-related initiatives implemented by  federal agencies in fiscal year 2011 and their key characteristics; (2)  assess the extent of fragmentation, overlap, and duplication, if any,  among these initiatives, and the extent to which they were coordinated;  and (3) examine how agencies allocate support to projects through their  initiatives and the extent to which they assess applicant need for support.
To inform our objectives, we reviewed our February 2012 report that  identified federal agencies’ renewable energy initiatives and examined the  federal roles the agencies’ initiatives supported in fiscal year 2010. That  report identified nearly 700 initiatives that were implemented across the  federal government, of which 296 initiatives supported wind energy. For  purposes of this report, we generally only included those wind-related  initiatives categorized under the research and development or  commercialization and deployment federal roles in our February 2012  report. However, we included some initiatives categorized under the  regulation, permitting, and compliance federal role if they had a clear  focus on deployment of wind energy, such as through streamlining  regulatory processes or fast-tracking permitting or other processes for  wind projects. From this list of initiatives, we excluded those at certain  agencies—such as the Departments of Defense, Homeland Security, and  State—whose initiatives generally focused on development of wind  energy and other technologies for use in a military, border security, or  international aid setting, rather than for use in the domestic commercial  energy market.
For the remaining agencies and initiatives, we developed an initial  questionnaire to collect information from officials regarding whether the  fiscal year 2010 initiatives were still active and whether wind energy still  received or was eligible for support under the initiatives in fiscal year  2011. We also asked officials to identify any additional initiatives that  were active and for which wind energy was eligible for support in fiscal  year 2011. If officials wanted to remove an initiative from our list, we  asked for additional information to support the removal. Using the  responses from this questionnaire, we identified 82 wind-related initiatives  at nine agencies.
To identify and describe the key characteristics of wind-related initiatives  implemented by federal agencies, we developed a second questionnaire  to collect information from officials responsible for the 82 initiatives. The  questionnaire was prepopulated with information that was obtained from  the agencies for GAO’s report on fiscal year 2010 renewable energy  initiatives, including the initiative name, description, recipient type, and  expiration or sunset date. We asked officials to confirm or modify this  information as appropriate for fiscal year 2011. We requested additional  information on the initiatives including their obligations, or revenue losses  from tax expenditures for activities specifically related to wind; year in  which they first supported wind energy; type of wind issues and  technology advancement activities supported; initiative-wide and wind- specific goals; and efforts to coordinate with other wind-related initiatives.  For a copy of our questionnaire, see appendix IV. We conducted pretests  with officials from 12 initiatives across three agencies to ensure that  respondents interpreted our questions in the way we intended (e.g., the  questions were clear and unambiguous and terminology was used  correctly), that the questionnaire was comprehensive and unbiased, and  that respondents had the necessary information and ability to respond to  the questions. An independent GAO reviewer also reviewed a draft of the  questionnaire prior to its administration. On the basis of feedback from  these pretests and independent review, we revised the questionnaire in  order to improve its clarity. After completing the pretests, we sent the  finalized questionnaires to the appropriate agency liaisons, who in turn  sent the questionnaires to the appropriate officials. We received  questionnaire responses for each of the 82 initiatives, resulting in a  response rate of 100 percent. After reviewing the responses, we  conducted follow-up e-mail exchanges or telephone discussions with  agency officials when responses were unclear or conflicting. When  necessary, we used the clarifying information provided by agency officials  to update answers to questions to improve the accuracy and  completeness of the data. To assess the reliability of obligations data, our  questionnaire included questions on the data systems used to generate  that data and any methodologies agencies used to develop estimates of  obligations for their initiatives. In addition, to assess the reliability of data  on tax subsidies provided by wind-related tax expenditures, we  interviewed officials from the Department of the Treasury regarding the  how the data were developed, and compared the data between the two  publicly available sources from the Joint Committee on Taxation and the  Office of Management and Budget. We determined that the obligations  and tax subsidy data used in this report were of sufficient quality for our  purposes. Because this effort was not a sample survey, it has no  sampling errors. However, the practical difficulties of conducting any  survey may introduce errors, commonly referred to as nonsampling  errors. For example, difficulties in interpreting a particular question,  sources of information available to respondents, or entering data into a  database or analyzing them can introduce unwanted variability into the  survey results. However, we took steps to minimize such nonsampling  errors in developing the questionnaire—including using a social science  survey specialist to help design and pretest the questionnaire. We also  minimized the nonsampling errors when analyzing the data, including  using a computer program for analysis, and using an independent analyst  to review the computer program. Finally, we verified the accuracy of a  small sample of keypunched records by comparing them with their  corresponding questionnaires, and we corrected the errors we found.  Less than 0.5 percent of the data items we checked had random  keypunch errors that would not have been corrected during data  processing.
To assess the extent of fragmentation, overlap, and duplication of wind- related initiatives, we first defined these terms based on definitions  established in our prior reports. Specifically, for purposes of this report,  fragmentation, overlap, and duplication, were defined as follows:
Fragmentation occurs when more than one federal agency, or more  than one organization within an agency, is involved in the same broad  area of national need.
Overlap occurs when multiple initiatives support similar wind issues,  similar technology advancement activities, and similar recipients, as  well as having similar goals.
Duplication occurs when multiple initiatives provide financial support  to the same recipient for a single wind project. Duplication as we  have defined it may be necessary in some cases for specific wind  projects to be built. However, in other cases, duplication may result in  ineffective use of federal financial support—that is, it may result in  some amount of support being provided for specific wind projects that  is not needed for them to be built.
To determine the extent of fragmentation, we used agencies’  questionnaire responses to confirm the number of federal agencies that  supported wind-related initiatives. To determine the extent of overlap, we  first analyzed the questionnaire responses to categorize initiatives’  recipient types into four categories, as follows:
Energy providers, developers, and manufacturers. This category  includes organizations in the energy industry that provide electricity  produced by wind energy, develop wind energy generation projects,  or manufacture equipment associated with wind turbines or other  wind-related technologies.
Public and private researchers. This category includes researchers  employed by or associated with federal, state, or other governmental  entities (such as national laboratories), academic institutions,  nonprofit organizations, or private companies.
State, local, tribal, and other governmental organizations. This  category includes nonfederal governmental organizations, such as  state and local governments and quasi-governmental entities, and  federally recognized American Indian tribes.
Individuals. This category includes members of the general public who  produce, develop, or use wind energy, and who receive support  independently of their affiliation with a private, governmental or other  organization.
We then analyzed information on the initiatives’ descriptions and goals  provided in the questionnaire responses and categorized initiatives into all  applicable categories that we developed for types of goals. These  categories included initiatives that facilitated the assessment of wind  resources; initiatives that fostered technological improvements or cost- reduction in wind technologies; initiatives that financed the construction or  use of wind facilities; and initiatives that addressed policy and regulatory  barriers to wind energy development. Once these categories were  defined, two staff independently read through each initiative’s description  and goals and identified all categories that likely applied to the initiative.  They then discussed the categorizations about which they disagreed and  came to agreement about whether or not the category applied to the  initiative. Using agency-provided data on wind issues and technology  advancement activities supported, and our categorizations of the  initiatives’ recipients and types of goals, we identified overlapping  initiatives as those sharing at least one common wind issue, technology  advancement activity, recipient type, and type of goal.
To identify duplication of federal support, we focused our review on those  initiatives with the largest estimated obligations or revenue losses in 2011  for activities specifically related to wind. Specifically, we first focused our  analysis on the five lead agencies, which implemented 89 percent of  initiatives comprising 99.9 percent of estimated obligations and all  estimated revenue losses in 2011—the Departments of Energy (DOE),  the Interior, Agriculture (USDA), Commerce, and the Treasury. Second,  we focused our analysis on initiatives that included support for  deployment, which were responsible for 99 percent of obligations and all  estimated revenue losses in 2011. Third, because of the relatively large  number of and variety in the initiatives that supported deployment, we  further focused our analysis on those deployment initiatives that provided  financial support for construction or operation of wind facilities. Fourth, we  narrowed our focus to initiatives that included a focus on utility-scale land- based wind—the most commonly supported wind issue—and fifth, we  narrowed our focus to initiatives with recipients that included energy  providers, developers, or manufacturers—the most commonly support  recipient type. Applying all of these criteria resulted in a list of 15  initiatives, which represented 96 percent of estimated obligations and all  revenue losses, according to best available estimates. From this list of 15  initiatives, we reviewed agencies’ questionnaire responses, agency  documents, and laws and regulations related to the initiatives, and spoke  with agency officials and outside experts about them. Based on this  review, we determined that there was only a small potential that  duplicative support was provided by the four Treasury initiatives because  eligibility for their support was explicitly limited to tax-exempt entities,  which were generally not supported by other initiatives such as Treasury’s  other tax expenditures. In addition, on the basis of our review of  documents and discussions with agency officials and others, we  determined that there was only a small potential for duplication of another  initiative on our list—Treasury’s Qualifying Advanced Energy Project  Credit—because its eligibility criteria limit its support to manufacturing  facilities, rather than the energy generation facilities that are generally  supported by the other initiatives we identified that have provided or could  provide duplicative support. In addition, all available credits under the  initiative were allocated by the end of 2010.
For initiatives we identified that have provided or could provide duplicative  support, we collected information from agency websites on financial  support provided for projects, and we interviewed agency officials and  reviewed program guidance and regulations for information on how  agencies allocate support to projects through the initiatives, and efforts by  the agencies to assess applicant need for the support of their initiatives.  We also reviewed studies of the initiatives by DOE’s national laboratories,  the Congressional Research Service, and other experts. In addition, we  interviewed six financial professionals from several of the major financial  institutions and legal firms active in wind energy project financing in  recent years regarding the support for wind projects provided by the  initiatives. We identified these individuals based on their presentations at  the annual national wind industry conference held by the American Wind  Energy Association and through reviews of industry reports, newsletters,  and other publications. To obtain additional information about the types of  support available to wind project developers from state governments, we  collected and analyzed data from the Database of State Incentives for  Renewables and Efficiency (DSIRE), a comprehensive source of  information on state incentives and policies that promote renewable  energy and energy efficiency, which is funded by DOE. We interviewed  researchers who developed and maintain DSIRE regarding their  methodology for collecting and summarizing information on state  incentives and policies and their processes for ensuring the data are  accurate and up-to-date, and we determined the data were sufficiently  reliable for our purposes. We also interviewed agency officials and  financial professionals for additional information on state initiatives.
We conducted this performance audit from February 2012 to March 2013  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Federal Wind-Related Initiatives
paragraphs: Tables 5 through 13 below provide descriptions, by agency, of the 82  federal wind-related initiatives we identified. The tables also provide  information reported by agencies on initiatives that will or have expired, in  full or in part, due to an expiration of legislative authority, depletion of  available appropriations, or some other expiration under the law as of fall  of 2012.
section_title: Appendix III: Estimated Revenue Losses for Treasury’s Wind-Related Tax Expenditures
paragraphs: Table 14 below reflects the fiscal year 2011 revenue loss estimates for  Treasury’s wind-related tax expenditures—both their total estimated  revenue losses and their estimated revenue losses for activities  specifically related to wind.
section_title: Appendix IV: GAO’s Questionnaire for Federal Agencies with Wind-Related Initiatives
section_title: Appendix V: Comments from the Department of Energy
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Dan Haas, Assistant Director;  Krista Anderson; Keya Chateauneuf; Cindy Gilbert; Miles Ingram; Cynthia  Norris; Jerome Sandau; MaryLynn Sergent; Maria Stattel; Anne Stevens;  Barbara Timmerman; and Jack Wang made key contributions to this  report.