Wind Energy: Additional Actions Could Help Ensure Effective Use of Federal Financial Support
Released: 2013-03-28T00:00:00

Letter

Background

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.

Multiple Federal Agencies Promoted Wind Energy in Fiscal Year 2011 through Numerous Initiatives Mainly Supporting Deployment

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.

Five Agencies Implemented Nearly All Initiatives and Were Responsible for Several Billion Dollars in Federal Support Related to Wind

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.)

Initiatives Supported a Range of Wind Issues, Technology Advancement Activities, and Recipients

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.

Initiatives Supporting Deployment Accounted for Most Obligations and Tax Subsidies Related to Wind

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.

Initiatives Were Fragmented and Had Overlapping Characteristics with Half Reporting Coordination, but Several Provided Some Duplicative Financial Support for Deployment

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.

Initiatives Were Fragmented and Most Had Broadly Overlapping Characteristics

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.

About Half the Initiatives Reported Formally Coordinating, in Some Cases Employing Key Practices for Enhancing and Sustaining Agency Collaboration

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.

Several Initiatives That Financed Deployment of Wind Facilities Have Provided Some Duplicative Financial Support

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.

Agencies Support Projects on the Basis of Initiatives’ Goals or Eligibility Criteria, but the Extent to Which Agencies Assess Applicant Need Is Unclear

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.

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

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.

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

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.

Conclusions

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.

Recommendation for Executive Action

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.

Agency Comments and Our Evaluation

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.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretaries of Energy, Agriculture, and the Treasury; the appropriate congressional committees; and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

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.

Appendix I: Objectives, Scope, and Methodology

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.

Appendix II: Federal Wind-Related Initiatives

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.

Appendix III: Estimated Revenue Losses for Treasury’s Wind-Related Tax Expenditures

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.

Appendix IV: GAO’s Questionnaire for Federal Agencies with Wind-Related Initiatives

Appendix V: Comments from the Department of Energy

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

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.