Renewable Energy:

Wind Power's Contribution to Electric Power Generation and Impact on Farms and Rural Communities

GAO-04-756: Published: Sep 3, 2004. Publicly Released: Sep 29, 2004.

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Wind-generated electricity--wind power--has the potential to provide electricity to homes and businesses without causing air pollution or depleting nonrenewable resources, unlike electricity generated by fossil fuels (coal, natural gas, and oil). Furthermore, because wind power has no fuel costs--wind power depends on the energy of the wind--its operating costs are lower than the costs for power produced from fossil fuels, although its capital costs are greater. Wind power relies on frequent, strong winds to turn the blades of power-generating turbines. In the United States, a wind turbine with generating capacity of 2 megawatts (MW), placed on a tower situated on a farm, ranch, or other rural land, can generate enough electricity in a year--about 6 million kilowatt hours (kWh)--to serve the needs of 500 to 600 average U.S. households. In addition to environmental benefits, wind power has the potential to contribute significantly to America's growing energy needs while providing economic benefits to farms and communities in rural America. In this connection, the Department of Energy's (DOE) "Wind Powering America" program has set a goal of producing 5 percent of the nation's electricity from wind by 2020. DOE estimates that achieving this goal would add $60 billion in capital investment in rural America, provide $1.2 billion in new income for farmers and rural landowners, and create 80,000 new jobs by that year. Congress asked us to report on (1) the amount of wind power generation in relation to all U.S. electricity generation and the prospects for wind power's growth, (2) the contribution of wind power generation to farmers' income and to the economic well-being of rural communities in the 10 states with the highest wind power generation capacity, (3) the advantages and disadvantages for farmers of owning a wind power project versus leasing their land to a commercial wind power developer, and (4) the efforts of USDA to promote the development of wind power on farms and in rural communities.

Nationwide, wind power accounted for only about one-tenth of 1 percent of total electric power generation capacity in 2003, and an even smaller percentage of electric power actually generated. However, U.S. wind power generating capacity quadrupled between 1990 and 2003--to 6,374 MW--and DOE has projected continued growth for this renewable power source through 2025. On a percentage basis, wind power capacity has been growing at a much higher rate than other sources of electric power generation--an average annual growth rate of 28 percent during the period 1999 through 2003. In addition, according to DOE, the U.S. Midwest theoretically has enough wind power potential to meet a significant portion of the nation's electricity needs; however, this potential remains largely untapped. Wind power does not currently contribute significantly to total farm income in the 10 states with the highest installed wind power capacity, but some individual farmers and rural communities have benefited considerably from this energy source. In these 10 states, net farm income was about $14 billion in 2002, but total direct income to farmers from wind power ranged from only $10 million to $45 million, representing a fraction of 1 percent of net farm income. However, wind projects located on farms have increased some individual farmers' income by tens of thousands of dollars annually. Farmers generally find leasing their land for wind power projects to be easier than owning projects. Leasing is easier because, unlike farmers, energy companies have the financial resources and legal and technical expertise to address the costs, complexity, tax advantages, and risks of wind power development. However, ownership may be more profitable than leasing. USDA has not fully utilized all of the farm bill's renewable energy provisions to promote wind power development on farms and in rural communities. For the Renewable Energy Systems and Energy Efficiency Improvements Program (Renewable Energy Program)--the key program for supporting wind power and other renewable energy initiatives--USDA offered grants totaling $7.4 million for 35 wind power projects in eight states in fiscal year 2003, the program's first year, but it has not implemented the loan and loan-guarantee components of the program. Without the latter, USDA has not fully fulfilled farm bill provisions and limits the ability of the program to promote renewable energy sources.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: According to Rural Business-Cooperative Service (RBS) officials, RBS has worked closely with other USDA offices, including General Counsel and Budget and Program Analysis, to expedite the review and clearance of the proposed and final rules containing the regulation for the Renewable Energy Systems and Energy Efficiency Improvements Grant, Guaranteed Loan, and Direct Loan Program (the program). For example, during the clearance process, some offices, including General Counsel, did concurrent reviews. General Counsel also dedicated an attorney for about a month to review the draft final regulation and preamble. During this time, RBS worked closely with this attorney to address the attorney's comments. In addition, RBS met several times with Office of Management and Budget (OMB) officials to discuss the content of the draft final regulation before and after sending it to OMB for its official review. In another example, RBS issued the proposed rule (Oct. 2004) with a 30-day comment period, rather than usual 60-day period. RBS explained that 30 days was sufficient because, in part, (1) stakeholders were already familiar with the grant portion of the program from prior notices of funds availability for grants in fiscal years 2003 and 2004 and (2) the guaranteed loan portion of the program is similar to RBS' existing Business & Industry Loan Program. (RBS subsequently extended the comment period by 30 days in response to numerous requests from the public for additional time to comment.) In addition, RBS waived the 30-day waiting period between publication of the final rule (July 2005) and its effective date. RBS explained that waiving this period will provide the maximum application time prior to the end of the fiscal year to ensure the greatest level of investment possible. RBS also said the final rule makes only minor changes to the proposed rule. (Note: The final rule promulgates regulations for grants and guaranteed loans, but not the direct loans. RBS explained that it is still evaluating the resources necessary for implementing direct loans.)

    Recommendation: To ensure USDA's timely and effective implementation of the farm bill's Renewable Energy Systems and Energy Efficiency Improvements Program, the Secretary of Agriculture should direct the Rural Business-Cooperative Service to work with other USDA offices, such as the Office of General Counsel and the Office of Budget and Program Analysis, to identify possible ways to accelerate the development of the program regulation to ensure that all of the funding mechanisms required by the farm bill, including loans and loan guarantees, be made available as expeditiously as possible.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: USDA's Rural Business-Cooperative Service (RBS) implemented an Interagency Acquisition Agreement with the U.S. Environmental Protection Agency's (EPA) Office of Air and Radiation in December 2004. This agreement allows RBS to obtain, on a reimbursable basis, EPA's assistance, including resources, consultation, and expertise, in implementing the Renewable Energy Systems and Energy Efficiency Improvements Grant, Guaranteed Loan, and Direct Loan Program (the program). To date, EPA's assistance activities under the agreement include technical reviews of program applications and outreach activities through EPA's AgStar Program, with an emphasis on anaerobic digester technology, applications analysis, and economics. (AgStar encourages the use of anaerobic digesters in order to recover methane, or biogas, at concentrated animal feeding operations that manage manure as liquids or slurry. This methane can then be used to create energy.) The Interagency Agreement also is structured to allow funding of support to specific activities if needed in other areas. For example, as of July 2005, RBS was working on amendment to the Interagency Agreement to obtain EPA assistance in helping program applicants find buyers and negotiate power purchase agreements for the electricity the applicants will produce. USDA obligated $60,000 for the Interagency Agreement through Sept. 30, 2005. The agreement remains in effect through Sept. 30, 2008, with an estimated total cost of $240,000.

    Recommendation: To ensure USDA's timely and effective implementation of the farm bill's Renewable Energy Systems and Energy Efficiency Improvements Program, the Secretary of Agriculture should direct the Rural Business-Cooperative Service to work with EPA to identify other EPA offices, such as the Office of Air and Radiation, which may be able to offer information, resources, and expertise to assist USDA in its implementation of this program.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Implemented

    Comments: USDA's Rural Business-Cooperative Service (RBS) issued a proposed rule on Oct. 5, 2004, for the Renewable Energy Systems and Energy Efficiency Improvements Grant, Guaranteed Loan, and Direct Loan Program (the program). In this proposed rule, RBS specifically requested comments on ways to improve, streamline, or simplify the application process for the program. RBS stated that it was particularly interested in the views of program applicants and other interested stakeholders. RBS issued a final rule on July 18, 2005, for the program. In the final rule, RBS discusses the comments it received on ways to improve, streamline, or simplify the application process, and the changes that the agency has made in response to these comments. For example, under the final rule, for grants and direct loans, projects with total eligible project costs of $200,000 or less are eligible to submit simplified applications. The simplified application procedure requires significantly less effort on the part of the applicant by requiring less detailed Technical Reports. In addition, for guaranteed loans, the final rule adopts the "short form" (Form RD 4279-1A) used in the Business and Industry Guaranteed Loan Program. This form can be used by lenders for projects with total eligible project costs equal to or less than $600,000.

    Recommendation: To ensure USDA's timely and effective implementation of the farm bill's Renewable Energy Systems and Energy Efficiency Improvements Program, the Secretary of Agriculture should direct the Rural Business-Cooperative Service to continue to examine ways to simplify, improve, and streamline the application process for the program, and as part of that effort, consider the views of program applicants, the agency's rural energy coordinators, and other interested stakeholders.

    Agency Affected: Department of Agriculture

 

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