Renewable Energy: Wind Power's Contribution to Electric Power	 
Generation and Impact on Farms and Rural Communities (03-SEP-04, 
GAO-04-756).							 
                                                                 
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. 				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-756 					        
    ACCNO:   A12235						        
  TITLE:     Renewable Energy: Wind Power's Contribution to Electric  
Power Generation and Impact on Farms and Rural Communities	 
     DATE:   09/03/2004 
  SUBJECT:   Comparative analysis				 
	     Electric energy					 
	     Electric power generation				 
	     Federal funds					 
	     Grants						 
	     Loans						 
	     Rural economic development 			 
	     Wind energy					 
	     Farmers						 
	     Farmland						 
	     DOE Renewable Energy Program			 

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GAO-04-756

                 United States Government Accountability Office

     GAO	Report to the Ranking Democratic Member, Committee on Agriculture,
                      Nutrition, and Forestry, U.S. Senate

September 2004

RENEWABLE ENERGY

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

                                       a

GAO-04-756

Highlights of GAO-04-756, a report to the Ranking Democratic Member,
Committee on Agriculture, Nutrition, and Forestry, U.S. Senate

Wind power provides electricity without polluting the air or depleting
nonrenewable resources. Wind power relies on steady winds to turn the
blades of powergenerating turbines. Because these turbines generally are
located on rural lands, wind power could also provide economic benefits to
farmers and rural communities. The 2002 farm bill created a renewable
energy program and authorized $115 million for the U.S. Department of
Agriculture (USDA) to provide assistance for renewable energy projects,
including wind power. GAO was asked to examine (1) the amount of
electricity generated by U.S. wind power and prospects for its growth, (2)
the contribution of wind power to farmers' income and rural communities,
(3) the advantages and disadvantages for farmers of owning a wind power
project versus leasing land for a project, and (4) USDA's efforts to
promote wind power in rural communities.

To ensure USDA's timely and full implementation of its renewable energy
program, USDA should (1) identify ways to accelerate its development of
the program regulation, (2) work with the Environmental Protection Agency
(EPA) to determine what assistance that agency can provide, and (3)
continue to examine ways to streamline the program application process.
USDA agreed with GAO's recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-756.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Lawrence J. Dyckman at (202)
512-3841 or [email protected].

September 2004

RENEWABLE ENERGY

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

Wind power accounted for only about one-tenth of 1 percent of total U.S.
electric power generation capacity in 2003, but wind power capacity
quadrupled between 1990 and 2003, and the Department of Energy has
projected continued growth through 2025. However, most of the nation's
wind potential remains untapped. Wind power's growth will depend largely
on the continued availability of federal and state financial incentives,
including tax credits, and expected increases in prices for fossil fuels.

Although wind power does not contribute significantly to total farm income
in the 10 states with the highest installed wind power capacity, it has
considerably benefited some farmers and rural communities. For example, a
farmer who leases land for a wind project can expect to receive $2,000 to
$5,000 per turbine per year in lease payments. In addition, large wind
power projects in some of the nation's poorest rural counties have added
much needed tax revenues and employment opportunities.

Farmers generally find leasing their land for wind power projects to be
easier than owning projects. Less than 1 percent of wind power capacity
installed nationwide is owned by farmers. Leasing is easier because energy
companies can better address the costs, technical issues, tax advantages,
and risks of wind projects. However, ownership of a turbine may double or
triple the farmer's expected income over leasing.

USDA has not fully utilized all of the farm bill's renewable energy
provisions to promote wind power. In particular, although it offers grants
under its renewable energy program, USDA has not issued a regulation to
offer loans and loan guarantees as well. A higher program level could be
achieved by using these funding mechanisms. Loans also may be a more
cost-effective way to provide federal assistance than grants. USDA also is
missing opportunities to obtain EPA's assistance in implementing the
program. For example, EPA's Office of Air and Radiation has extensive
contacts with utilities interested in purchasing power from renewable
sources. Finally, applicants and others have raised concerns about the
complexity of the application process and short time frame for completing
applications.

Areas with Strong Wind Resource Potential

Contents

                     Appendix I: Appendix II: Appendix III:
Letter                                                                   1 
                                  Results in Brief                          5 
                                     Background                             9 
           Wind Power Is a Small but Growing Part of the Nation's Electric 
                             Power Generation Capacity                     13 
             Wind Power Does Not Contribute Significantly to Total Farm    
                  Income, but Some Individual Farmers and Communities Have 
                                     Benefited                             34 
           Leasing Land for Wind Power Projects Is Easier Than Owning, and 
                     Most Farmers Do Not Qualify for Tax Credit            38 
                       USDA Can Do More to Promote Wind Power              45 
          Farm Bill Provisions Promote Renewable Energy Systems, Including 
                Wind Power, but USDA Has Not Made Full Use of These        
                                     Provisions                            45 
                                    Conclusions                            61 
                                  Recommendations                          61 
                                  Agency Comments                          62 

Appendixes

Appendix IV:

                                       Appendix V: Appendix VI: Appendix VII:

Objectives, Scope, and Methodology 64

Sources for Information on Wind Power Generation 69

Results of NREL Modeling on Potential Economic Impacts of
Wind Power on Rural Communities 73

Summary of Visits to Wind Power Projects in Five States 84 Projects in
California 84 Projects in Colorado 88 Projects in Iowa 90 Projects in
Minnesota 94 Projects in Texas 100

The Wind Project Development Process 102

Comments from the U.S. Department of Agriculture 104

GAO Contacts and Staff Acknowledgments 106 GAO Contacts 106 Staff
Acknowledgments 106

                            Related GAO Products 107

                                    Contents

Tables Table 1:

Table 2: Table 3:

Table 4: Table 5:

Table 6:

Table 7: Table 8:

Table 9:

Major Steps in the Wind Power Project Development
Process
Four Types of Lease Payment Options
Minnesota Initiatives That Promote Small
Landowner-Owned Wind Projects
Farm Bill Provisions to Further Wind Power's Growth
Status of USDA's Implementation of Farm Bill Provisions
That Support Wind Power's Growth
USDA Grant Assistance for Renewable Energy and Energy
Efficiency Projects in 2003
Counties Included in NREL's Economic Analysis
Economic Impacts during Construction Period of 150 MW
Wind Power Project Owned by Out-of-Area Energy
Company
Economic Impacts during Construction Period of 40 MW
Wind Power Project Owned by Out-of-Area Energy
Company

                                     39 40

                                     44 46

                                       47

                                     50 74

                                       79

                                       80

                                       81

                                       82

                                       83

Table 10: Economic Impacts during Operations Period of 150 MW Wind Power
Project Owned by Out-of-Area Energy Company

Table 11: Economic Impacts during Operations Period of 40 MW Wind Power
Project Owned by Out-of-Area Energy Company

Table 12: Economic Impacts during Operations Period of 20 Locally Owned
Wind Power Projects, Each with a 2 MW Capacity

Figures	Figure 1: Figure 2: Figure 3:

Figure 4:

Figure 5:

Figure 6:

Figure 7: Wind Farm in Lake Benton, Minnesota 2 Horizontal and Vertical
Axis Wind Turbines 10 U.S.-Installed Wind Power Generating Capacity, 1981
through 2003, in MW 15 Installed Wind Power Generating Capacity by State,
as of December 2003, in MW 16 Areas with the Highest Wind Potential in the
United States 18 LeadingStates'Installed Wind Power CapacityCompared with
Wind Potential 19 Renewable Portfolio Standards for 17 States, as of
August 2004 25

Contents

Figure 8: Fluctuations in the Installation of New Wind Power

Capacity Related to the Changing Availability of the

Production Tax Credit (PTC) 32 Figure 9: Horizontal Axis Wind Turbines,
Altamont Pass,

California 84 Figure 10: Vertical Axis Wind Turbines, Altamont Pass,
California 85 Figure 11: Wind Turbines, Solano County, California 86
Figure 12: Wind Turbines, Weld County, Colorado 88 Figure 13: Wind
Turbine, Dickinson County, Iowa 90 Figure 14: Wind Turbines, Buena Vista
County, Iowa 92 Figure 15: Wind Turbines, Pipestone County, Minnesota 94
Figure 16: Wind Turbine, Rock County, Minnesota 96 Figure 17: Wind
Turbines, Pipestone County, Minnesota 98 Figure 18: Wind Turbines, Pecos
County, Texas 100

Abbreviations

AWEA American Wind Energy Association
BSE bovine spongiform encephalopathy
DOE Department of Energy
EIA Energy Information Administration
EPA Environmental Protection Agency
kW kilowatt
kWh kilowatt hour
MW Megawatt
MWh Megawatt hour
NOFA Notice of Funds Availability
NREL National Renewable Energy Laboratory
OMB Office of Management and Budget
PTC production tax credit
RBS Rural Business-Cooperative Service
USDA United States Department of Agriculture

This is a work of the U.S. government and is not subject to copyright
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separately.

A

United States Government Accountability Office Washington, D.C. 20548

September 3, 2004

The Honorable Tom Harkin Ranking Democratic Member Committee on
Agriculture, Nutrition, and Forestry United States Senate

Dear Senator Harkin:

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,1
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),2 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) 3-to serve the needs of 500 to 600 average U.S. households. Figure 1
shows part of a wind power project, also referred to as a wind farm, in
Lake Benton, Minnesota.

1Wind power is fueled by the kinetic energy of the wind, which is
continually replenished through atmospheric processes. The power available
in the wind is proportional to the cube of its speed: doubling the wind
speed increases the potential available power by a factor of eight.

2A watt is the basic unit used to measure electric power. A kilowatt (kW)
equals 1,000 watts and an MW equals 1,000 kW or 1 million watts.

3Electricity production and consumption are measured in kilowatt-hours,
while generating capacity is measured in kilowatts or megawatts. If a
power plant that has 1 MW of capacity operates nonstop during all 8,760
hours in the year, it will produce 8,760,000 kWh. An average U.S.
household consumes roughly 10,000 kWh a year. However, on average, wind
power turbines typically operate the equivalent of less than 40 percent of
the peak (full load) hours in the year due to the intermittency of wind.

1: Wind FFi arm in Lake Bentgure on, Minnesota

Source: HDR Inc.

Note: The farm depicted has 143 turbines producing enough electricity
annually to serve about 33,000 typical U.S. homes.

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.4 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

4Wind power also can contribute to the nation's energy diversity and
security. The administration's National Energy Policy states that sound
energy policy should encourage a diverse portfolio of domestic energy
supplies and that renewable energy can be a reliable source of energy at a
stable price. Furthermore, with regard to national energy security, while
the nation's transmission grid and central power plants remain vulnerable
to terrorist attack, renewable sources are geographically dispersed and
contain no volatile or radioactive fuel stocks.

income for farmers and rural landowners, and create 80,000 new jobs by
that year.

About 90 percent of wind power generation now occurs in 10 predominately
midwestern and western states-California, Colorado, Iowa, Minnesota, New
Mexico, Oklahoma, Oregon, Texas, Washington, and Wyoming-that generally
have extensive open spaces with frequent, strong winds. Areas considered
favorable for wind power generation have average annual wind speeds of
about 16 miles per hour or more.

The Farm Security and Rural Investment Act of 2002 (farm bill) authorized
$115 million through fiscal year 2007 for farm-based renewable energy
initiatives,5 part of which will go to wind power projects. The U.S.
Department of Agriculture (USDA) is responsible for implementing the farm
bill's provisions in consultation with DOE. While many people could
benefit indirectly from the clean air and economic growth brought about by
wind power development, farmers and other rural landowners, such as
ranchers (hereafter referred to as farmers) can benefit directly. They can
receive lease payments from commercial developers for the turbines placed
on their land or own projects outright, selling electricity to a local
utility. Furthermore, even large wind turbines use only about a
quarter-acre of land each, including access roads, so farmers can continue
to plant crops and graze livestock up to the base of the turbines.

Wind power's developers have relied on the federal production tax credit,
which provides a credit for electricity generated by renewable energy
sources such as wind turbines-about 1.8 cents per kWh during 2003.
Recipients of the tax credit receive it for up to 10 years from the
project's initial operation. This credit has helped to offset the
significantly higher capital costs per unit of generating capacity needed
to start up wind power projects compared with projects for fossil fuel
power generation, according to government and industry experts. Experts
also expect that future improvements in wind power technology and
forecasts for higher

5Pub. L. No. 107-171, S: 9006, 116 Stat. 134, 482 (2002). Specifically,
section 9006 of the farm bill provides that the Secretary of Agriculture
shall make available $23 million from the funds of the Commodity Credit
Corporation each fiscal year-for fiscal years 2003 through 2007-for
renewable energy systems and energy efficiency projects. These funds are
to be used to make loans, loan guarantees, and grants to farmers,
ranchers, and rural small businesses. Grants are to be made based on
demonstrated financial need. Grant amounts must not exceed 25 percent of
the cost of the activity funded, and the combined amount of the grant or
loan made or guaranteed must not exceed 50 percent of the activity's cost.

fossil fuel prices will help wind power compete with other sources of
electric power generation without reliance on the tax credit.

You 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.

To conduct this work, we interviewed officials or reviewed documentation
from DOE's Energy Information Administration (EIA), Office of Energy
Efficiency and Renewable Energy, and National Renewable Energy Laboratory
(NREL); USDA's Economic Research Service, Office of Energy Policy and New
Uses, Farm Service Agency, National Agricultural Statistics Service, and
Rural Business-Cooperative Service; the Environmental Protection Agency
(EPA); the Federal Energy Regulatory Commission; commodity groups such as
the National Corn Growers Association; the Union of Concerned Scientists;
the American Wind Energy Association (AWEA); the Edison Electric
Institute; the Electric Power Research Institute; and Windustry (a
rural-based, wind stakeholder organization). We also visited nine wind
power projects in five states with substantial installed wind power
generating capacity: California, Colorado, Iowa, Minnesota, and Texas. At
these locations, we generally met with landowners, project investors and
owners, state and local taxing authorities, community leaders, and
electric utility officials. To some extent, our work was limited because
we did not have access to some proprietary cost and income data. We
focused on utility-scale wind power projects-projects that generate at
least 1 MW of electric power annually for sale to a local utility.
Utility-scale projects account for most U.S. wind power generation. In
addition, we reviewed our own past work, relevant publications of the
Congressional Budget Office and the Congressional Research Service, and
applicable laws, regulations, and executive orders. We conducted our
review from February 2003 through August 2004 in accordance with generally
accepted government auditing standards. We did not independently verify
the data obtained from any of these sources. However, as appropriate, we
discussed with these sources the measures they take to ensure the accuracy
of these data. These measures seemed reasonable. Appendix I provides
additional information on our scope and

methodology. Appendix II provides further information on the sources used
in our work.

Results in Brief	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: Many of the states with the greatest wind potential,
such as North Dakota and South Dakota, have seen little investment in wind
power projects. Several factors constrain growth in these states, such as
the lack of (1) nearby significant population centers with the large
electric power demand needed to justify substantial investments in wind
power and (2) adequate transmission capacity to carry electricity produced
from wind power in sparsely populated rural areas to distant cities.

Other factors, however, promote growth, such as state financial and tax
incentives and environmental and energy security concerns. For example,
state incentives have promoted wind power projects in California, Texas,
and Minnesota-the leading states in installed wind power projects. In
addition, wind power does not create the pollution or greenhouse gas
emissions associated with fossil fuel power generation, and expanded use
of renewable energy sources such as wind power can help reduce the
nation's dependence on imported fossil fuels. Still, according to DOE and
industry sources, the principal factor encouraging investment in wind
power projects will be the continued availability of the federal
production tax credit. If this credit is available for projects initiated
through 2010, DOE estimates that wind power generation capacity could
increase to 48,000 MW or more by 2025, enough to power about 13 million
U.S. homes, based on current usage rates; without it, this generation
capacity is likely to increase to 11,000 MW. As with any federal tax
credit, there are impacts on the nation's budget. For example, the
Congressional Joint Committee on Taxation estimates that if the
authorization for the production tax credit were extended through 2006,
its cost to the Treasury for the 10-year period ending in 2013 would be $3
billion, or about $300 million annually.

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. For example, a farmer who leases land to a
wind project developer can generally expect to obtain $2,000 to $5,000 per
turbine per year in lease payments, depending on factors such as the size
of the project, the capacity of the turbines, and the amount of
electricity produced. In addition, lease arrangements generally assure
farmers that they will have a relatively stable income from wind power
generation for the life of the lease, which may exceed 20 years.
Furthermore, large wind power projects have been established in some of
the nation's poorest rural counties. In general, these rural communities
have little industry, but have benefited from the tax revenues and
employment opportunities associated with these wind projects. For example,
in 2002, the school districts in Pecos County, Texas, received about $5
million in property tax revenues from wind power projects. These projects
also created about 30 to 35 full-time permanent jobs to operate and
maintain the projects.

Farmers generally find leasing their land for wind power projects to be
easier than owning projects. Wind power projects owned or partly owned by
farmers account for less than 1 percent of utility-scale wind power
capacity installed nationwide. 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. For example, whereas lease payments for a single turbine may
provide several thousand dollars a year to a landowner, a farmer's
ownership of the turbine may double or triple that income. On the other
hand, a farmer-owner may be able to afford the installation of only one or
two turbines, but leasing land to an energy company could result in the
installation of a dozen or more turbines. In the latter case, although the
farmer's income per turbine would be less, the total income received by
the farmer would be substantially greater. Although the federal renewable
energy production tax credit is usually considered crucial for wind power
development, individual farmers generally cannot use this credit because
they lack sufficient tax liability. One state-Minnesota-provides a
financial incentive to overcome this obstacle. Specifically, Minnesota
offers

a renewable energy cash incentive-1.5 cents per kWh of electricity
produced-for wind projects up to 2 MW, regardless of income. In addition,
some Minnesota farmers have entered into equity partnerships with other
investors to benefit from the production tax credit indirectly. In these
cases, the investor generally owns a majority interest in the project for
the first 10 years, receiving most of the project income and the benefits
of the credit. After this 10-year period, the majority ownership is
transferred to the farmer, who will receive most of the associated income.

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. For example, USDA
budget documents indicate that the addition of loans and loan guarantees
would increase the program level to about $200 million annually. Direct
loans would be made from funds borrowed from the U.S. Treasury. Guaranteed
loans would be made from funds loaned by banks and other private lending
institutions. Loans also may be a more costeffective way to provide
federal assistance than outright grants. USDA has not offered loans and
loan guarantees because it has yet to issue a regulation for the program.
It had planned to issue the proposed and final regulations in the Federal
Register during fiscal year 2004. However, the agency was unable to hold
to this schedule and, as a result, announced only the availability of
grants again in fiscal year 2004. USDA officials cited several factors as
delaying the agency's completion of the program regulation, including the
notice and comment provisions of the Administrative Procedure Act, delays
in hiring a contractor to help develop the regulation, and the newness and
uniqueness of the program.

In addition, USDA may be missing opportunities to leverage information,
resources, and expertise available from EPA to implement the Renewable
Energy Program. It also may have further opportunities to simplify the
application process for the program. USDA invited only one EPA office to
participate in USDA's Rural Energy Working Group. This office promotes
energy generation from the anaerobic digestion of biomass. However, other
EPA offices may be able to assist the program's implementation as well,

including providing specific assistance for wind power. For example,
officials in EPA's Office of Air and Radiation, which works with electric
power utilities interested in purchasing electricity from renewable
sources, said they could assist wind power applicants in locating
potential buyers for the electricity to be produced. Regarding the
application process, applicants and other stakeholders have expressed
concerns about the complexity and time constraints of completing required
feasibility studies, negotiating tentative agreements with an electricity
buyer, preparing the required financial information to demonstrate need
under the program, and compiling information needed for environmental
assessments. Although USDA acknowledges these concerns and made changes to
its implementation of the program in fiscal year 2004 based on these
concerns, there may be further opportunities to simplify and streamline
the application process.

In light of these issues, we are recommending that USDA identify ways to
accelerate the development of the regulation for the Renewable Energy
Program in order to make loans and loan guarantees available to program
applicants expeditiously. In addition, we are recommending that USDA work
with EPA to identify other EPA offices that may be able to assist USDA in
implementing the program and that USDA continue to examine ways to
simplify the application process for the program based on input from
applicants and other stakeholders.

In commenting on a draft of this report, USDA agreed with the
recommendations and stated the agency would take every opportunity to
expedite the rule making process, increase coordination with EPA, and
examine ways to simplify the grant application process. USDA's comments
are reprinted in appendix VI. USDA also provided us with suggested
technical corrections, which we incorporated into this report as
appropriate.

We also provided a draft of this report to DOE and EPA for review and
comment. Their clarifying comments were incorporated into this report, as
appropriate.

Background

Description of Wind Power	Wind power is one of several renewable energy
options. Other renewable sources include sunlight (photovoltaics), heat
from the sun (solar thermal), naturally occurring underground steam and
heat (geothermal), plant and animal waste (biomass), and water
(hydropower). Unlike fossil fuels,6 renewable energy sources are
continuously replenished.

Wind turbines can be used by themselves or be connected to a utility power
grid. Stand-alone turbines can be used for pumping water-for example, to
irrigate fields. However, homeowners and farmers in windy areas can also
use stand-alone turbines to generate electricity for their own personal or
on-farm use. For utility-scale sources of wind power, a number of turbines
are usually built close together to form a wind farm. Currently, more than
50 electric power utilities use wind farms to produce part of the
electricity supplied to their customers.

In general, wind turbines are divided into two major categories:
horizontal axis turbines, which resemble a windmill, and vertical axis
turbines, which resemble an eggbeater. Figure 2 depicts each type of
turbine.

6Most U.S. electricity generation is made with fossil fuel and nuclear
technologies-coal (52 percent), nuclear (20 percent), natural gas (16
percent) and oil (3 percent). There are about 5,000 major power plants in
the United States, with a generating capacity of about 800,000 MW.

Figure 2: Horizontal and Vertical Axis Wind Turbines

Source: Izaak Walton League of America.

The horizontal axis turbine is the most commonly used, constituting nearly
all utility-scale turbines in the United States. To generate electricity,
this type of turbine captures the wind's energy with two or three
propellerlike blades that are mounted on a rotor. These rotors sit atop
towers, taking advantage of the stronger and less turbulent wind at 100
feet (30 meters) or more above ground. The turbine blades generally are
constructed of fiberglass, may be up to 20 meters in length, and may weigh
several thousand pounds each. A horizontal axis turbine typically has a
mechanism to keep the rotor headed into the wind, while a vertical axis
turbine can accept wind from any direction.

Federal Role in Promoting the Use of Wind Power

The federal government represents the largest institutional user of energy
in the world, and thus it is potentially a large market for wind and other
renewable energy sources.7 Specifically, through its purchasing decisions,
the federal government has the opportunity to affirm its energy and
environmental policies and goals, including its goals for promoting the
use of renewable sources such as wind power. In this regard, Executive
Order 13123, issued in 1999, requires federal agencies to increase their
use of renewable energy to a percentage determined by the Secretary of
Energy. In 2000, the Secretary directed that federal agencies obtain the
equivalent of 2.5 percent of their electricity from renewable sources by
2005.8 As of March 2003, federal agencies were using about 663 million kWh
of renewable energy, or about 48 percent of the goal established by the
Secretary. For example, according to Department of Defense officials, 15
military bases, including Edwards Air Force Base in California, Shriever
Air Force Base in Colorado, and Ellsworth Air Force Base in South Dakota,
use wind power to varying degrees. In addition, one of these bases, Dyess
Air Force Base in Texas, bought 78 million kWh of wind power-produced
energy in 2003, meeting the base's entire electricity needs for that year.
In addition, other federal agencies, including DOE, EPA, and USDA, are
using wind power for part of their energy needs. For example, USDA's
Animal and Plant Health Inspection Service purchases 25 percent of the
electricity used at its National Wildlife Research Center in Colorado from
windgenerated sources.

The federal government is also the nation's largest landholder,
controlling nearly 700 million acres of land.9 Much of this land is in the
western United States and includes some areas of the country with the
highest wind potential.10 Thus, according to federal and industry
officials, areas on these federal lands could be leased to wind power or
other renewable energy

7With approximately 3.3 billion square feet of facility space and over
500,000 vehicles, the federal government is the largest single energy
consumer in the nation.

8Solar, wind, biomass, and geothermal systems installed after 1990 qualify
as renewable resources under the executive order.

9The federal government's share of the nation's total surface area is
about 29 percent. Four agencies-the National Park Service, the Fish and
Wildlife Service, and the Bureau of Land Management within the Department
of the Interior, and the Forest Service within the Department of
Agriculture-manage about 655 million acres, or 96 percent of all federal
lands.

10Most federal lands in the 48 contiguous states are located in 11 western
states.

developers, with the federal government collecting substantial land rental
payments. For example, the Department of the Interior's Bureau of Land
Management (Bureau) has rented some of the land that it manages in
California and Wyoming for wind projects. Overall, these projects include
more than 1,300 turbines with a total production capacity of nearly 900
MW, and the associated rental payments provide more than $800,000 in
income to the Bureau annually.11 The administration's National Energy
Policy also recognizes this potential.12 For example, the policy
recommends that the Secretaries of the Interior and of Energy re-evaluate
access limitations to federal lands in order to increase renewable energy
production, such as biomass, wind, geothermal, and solar, on these
lands.13 Although the establishment of renewable energy production on
federal lands would result in some environmental impacts, some federal and
industry officials note these impacts would be far less than the mining,
drilling, and hauling associated with fossil fuel extraction.

In addition, through various programs, the federal government has helped
to promote the use of wind power by municipal electric utilities; rural
electric cooperatives; state, local, and tribal governments; businesses;
and consumers. For example, DOE, in conjunction with wind stakeholders
across the country, launched the Wind Powering America program in 1999 to
increase the use of wind energy in the United States in order to promote
rural economic development, protect the environment, and increase the
nation's energy security.14 The program's original goals included (1)
providing 5 percent of the nation's electricity from wind by 2020, with
nearterm goals of 5,000 MW by 2005 and 10,000 MW by 2010; (2) increasing
the number of states with at least 20 MW of installed wind capacity to 16
by

11In addition, the Bureau of Land Management tentatively plans to rent
other land it manages for wind power projects. Specifically, the Bureau
anticipates renting land for about 3 gigawatts of wind power development
between 2005 and 2025 in 11 western states. In this regard, the Bureau
plans to publish an environmental impact statement in the Federal Register
in September 2004 seeking comments on this proposal.

12National Energy Policy: Report of the National Energy Policy Development
Group, Office of the Vice President, May 2001.

13See Department of Energy and Department of the Interior, White House
Report in Response to National Energy Policy Recommendations to Increase
Renewable Energy Production on Federal Lands (Washington, D.C.: Aug. 20,
2002).

14See www.windpoweringamerica.gov.

2005 and 24 states by 2010;15 and (3) increasing the federal government's
use of wind power to 5 percent of its annual consumption of electricity by
2010. The program's work is organized under four themes: state-based
activities, rural economic development, greening federal electricity
consumption, and utility partnerships. Among other things, the program
encourages partnerships between government and industry; educates, equips,
and supports state wind working groups; and develops innovative pilot
projects, such as identifying rural ownership options for small wind
systems.

In another case, EPA promotes the use of wind power and other renewable
sources of electricity-collectively known as green power-through its Green
Power Partnership Program. Specifically, EPA provides technical assistance
and public recognition to companies and organizations that make a
commitment to using green power for a portion of their electricity needs.
More than 200 companies, including a number of major corporations,
participate in this program. In addition, the Department of Housing and
Urban Development's community development block grants have been used to
assist municipal-owned utilities to purchase wind turbines. For example,
in Iowa, three cities received community development block grant funds in
either fiscal year 2002 or fiscal year 2003 to erect wind turbines for
energy generation; these grants totaled about $1 million. Furthermore, as
discussed later in this report, USDA has several programs that can be used
to provide financial assistance for renewable energy projects on farms or
other rural lands.

Wind Power Is a Small but Growing Part of the Nation's Electric Power
Generation Capacity

Although wind power accounted for about one-tenth of 1 percent of total
U.S. electric power generation capacity in 2002, it had quadrupled in
generating capacity between 1990 and 2003, and has been growing at a much
higher rate than other sources of electric power generation. Nevertheless,
wind power's potential remains largely untapped. A number of factors,
including limited transmission capacity and the higher capital start-up
costs of wind power compared with fossil fuels in some markets, hamper
wind power's expansion, although other factors, such as federal and state
financial incentives, have helped spur expansion. According to DOE
estimates, the nation's wind power generation capacity will continue

15In August 2004, DOE officials indicated that this second goal had been
revised to increase the number of states with at least 20 MW of installed
wind capacity to 32 by 2005 and with at least 100 MW of installed wind
capacity to 30 states by 2010.

to grow through 2025, but higher levels of production depend on the
continued availability of federal and state financial incentives,
particularly the federal production tax credit, expected price increases
for fossil fuels, and continued research and development leading to
further improvements in wind turbine technology.

Wind Power Accounts for Less Than 1 Percent of Total U.S. Capacity, but
Has Quadrupled Since 1990

As of December 2003, wind power capacity accounted for about one-tenth of
1 percent of total U.S. generating capacity16-about 6,370 MW-up from 1,525
MW in 1990. This growth exceeds the goal established by DOE's Wind
Powering America program for wind energy generation of at least 5,000 MW
nationwide by 2005. This rate also makes wind power the fastest growing
source of electric power generation, on a percentage basis, in the United
States in recent years.17 For example, from 1999 through 2003, the average
annual growth rate of wind power was 28 percent, and in 2003 alone, enough
new wind turbines were erected to provide electricity to 400,000 to
500,000 U.S. homes.18 Figure 3 shows the growth in U.S. wind power
generating capacity from 1981 through 2003.

16While wind power's share of total electric power generating capacity is
small, its share of actual electric power generation is smaller. Wind
power turbines are "on-line"-that is, they are actually generating
electricity-only when wind speeds are sufficiently strong (i.e., at least
9 to 10 miles per hour) to turn the turbine blades. In contrast, power
plants that use coal, natural gas, or nuclear fuel generally operate
without interruption, except when idled by equipment problems or for
maintenance.

17Worldwide, installed wind power capacity increased by about 500 percent
between 1997 and 2003. As of December 2003, this capacity was estimated at
37,220 MW; Europe accounts for about 73 percent of this capacity. Germany
(14,000 MW) has the most capacity; the United States (6,374 MW) is second.
Other leading countries include Spain (5,780 MW), Denmark (3,094 MW), and
India (1,900 MW).

18An average U.S. household uses about 10,000 kWh of electricity each
year. One MW of wind power capacity can generate between 2.4 million and 3
million kWh annually. Therefore, one MW of wind generates about as much
electricity as 240 to 300 households use each year. The level of U.S. wind
power capacity as of December 31, 2003-6,374 MW- provides as much
electricity as is used by 1.5 million to 1.9 million households annually.

Figure 3: U.S.-Installed Wind Power Generating Capacity, 1981 through
2003, in MW

Number of megawatts 7,000

6,000

5,000

4,000

3,000

2,000

1,000

Year

Source: AWEA.

As of the end of 2003, about 90 percent of wind power generation occurred
in 10 predominantly midwestern and western states-California, Colorado,
Iowa, Minnesota, New Mexico, Oklahoma, Oregon, Texas, Washington, and
Wyoming. Two of these states-California and Texas-accounted for about
one-half of the nation's 6,374 MW of installed wind generation capacity,
as of the end of 2003. Figure 4 shows installed wind power generating
capacity in these 10 states and other states with at least 0.1 MW of
installed capacity, as of December 2003.

1981

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
                         1998 1999 2000 2001 2002 2003

untapped.19 According to a DOE study, the Midwest, including the Great
Plains, theoretically has more than enough potential wind energy to
fulfill the entire nation's electricity needs. Specifically, just three
wind-rich states-North Dakota, Texas, and Kansas-could accomplish this.
Figure 5 shows areas of the United States with the highest wind
potential.20

19According to DOE, 37 states have wind resources that would support
utility-scale wind power projects.

20Wind power developers also are evaluating the potential for offshore
wind energy production on the U.S. outer continental shelf.

A Number of Factors Act to As a comparison of figures 4 and 5 shows,
states with the greatest installed Either Constrain or Promote wind power
capacity are not necessarily the states with the greatest wind Wind
Power's Growth potential. In addition, figure 6 shows this discrepancy for
the leading states

in each category.

Figure 6: Leading States' Installed Wind Power Capacity Compared with Wind
Potential

California is number 1 in installed capacity and number 17 in wind power
potential.

North Dakota is number 1 in wind power potential and number 13 in
installed capacity.

Source: GAO analysis of AWEA information.

Note: The top 18 states for wind resource potential, as measured by annual
energy potential in billions of kWh, factoring in environmental and land
use exclusions for wind class 3 and higher.

This discrepancy occurs, in part, because of factors that constrain
growth, such as access to transmission lines, as well as factors that
encourage development, such as state incentives. The following factors
constrain the growth of wind power:

o 	The cost of wind power production in relationship to fossil fuels.
According to AWEA, the cost of electricity from utility-scale wind power
projects was as high as 30 cents per kWh in the 1980s, far greater than
the cost of electricity from alternative technologies using fossil fuels
to generate power.21 Various state and federal incentives helped overcome
wind power's cost disadvantage in many locations, as did dramatic cost
reductions due to improvements in wind turbine technology. At present, DOE
estimates the cost of generating electricity from wind power ranges from 3
to 6 cents per kWh. Cost reductions also occurred in fossil-fuel power
generation technologies, but recent increases in natural gas fuel costs
may result in further market penetration by wind power. For example, if
natural gas prices continue to be substantially higher than average levels
in the 1990s, wind power is likely to be competitive in parts of the
country with good wind resources and transmission access. However, wind
power will continue to be too expensive to compete with fossil-fuel
generation in parts of the country with poor wind resources. Although cost
reductions due to technological improvements affect all segments of the
electric industry, they tend to be particularly important for newer power
generation technologies such as wind power in comparison to fossil-fuel
generation technologies. Furthermore, continued federal and state actions
that promote renewable energy power generation or raise the cost of
emissions from fossil-fuel technologies could also play a significant role
in improving the competitiveness of wind power.

o 	Connection to the power transmission grid. In general, frequent, strong
winds tend to be found in sparsely populated areas, which may be far from
transmission lines or lines with adequate capacity to bring power to
consumers. For example, renewable energy generators in the windrich areas
of the Upper Midwest, such as North Dakota, may want to transmit
electricity to heavily populated areas in other states. However, as with
any remotely located power source, a renewable energy generator can incur
transmission pricing mechanisms that charge according to the distance
covered or according to the number of utility territories crossed. In
addition, transmission capacity is limited in many areas of the nation for
all electric power sources. According to AWEA

21The cost of electricity from a particular power generation technology
depends on the capital costs of the associated equipment, the projected
lifetime of the equipment, the amount of energy produced each year, and
the cost of borrowing money to construct the power generation plant.
Simply stated, the cost of energy is the sum of various costs (e.g.,
capital and operations and maintenance) divided by the annual energy
generation.

and industry sources, transmission congestion policies generally allocate
limited capacity on a "first-come, first-served" basis and discriminate
against recent market entrants. Moreover, interconnection policies are
often controlled by utilities that make it difficult for new entrants,
such as wind power projects, to have timely interconnection at reasonable
rates. The Federal Energy Regulatory Commission, which is responsible for
approving rates for the transmission of electricity-and overseeing the
sale of electricity-in competitive wholesale markets, is currently
developing market standards for new entrants, such as wind and other
renewable sources, to connect to the transmission grid. DOE is also
conducting research to develop efficient, lower-speed wind turbines for
deployment in less windy areas of the nation; such turbines would enhance
the ability of industry to bring cost-effective wind power closer to
population centers and avoid already congested long-distance transmission
lines.

o 	Intermittency of wind power. Renewable energy sources such as wind
power have unique technical characteristics that can constrain their use
in an existing transmission system that was built to accommodate large
central-station power plants located near population centers. This system
relies on precisely predicting and controlling power plant output to avoid
blackouts and other disruptions. As a result, with this system, the value
of electricity is determined in part by the time of day at which the
electricity is delivered to the grid and also by the probability that it
will be available when needed. In general, fossil fuel and nuclear power
generation plants can be run without interruption and are consistently
available when called upon, except when idled by equipment problems or for
maintenance. However, wind power is an intermittent source in that wind
speed and availability can vary from day to day, and thus the amount of
electricity produced varies. On average, wind power turbines operate the
equivalent of less than 40 percent of the peak hours in a year due to the
intermittency of wind. While penalties may apply whenever energy
deliveries vary from scheduled amounts, the possibility of penalties is of
particular concern for intermittent sources. As a result, utilities that
derive part of their electricity generation from wind power may have to
develop or purchase costly reserve capacity in case wind power is not
available on demand. However, some federal and wind industry officials
downplayed the importance of this factor, noting that if wind power
constitutes less than 20 percent of a utility's generating capacity, the
remaining capacity may be sufficient to meet demand during periods of low
winds. Furthermore, according to DOE, recent studies show that in cases
where wind power constitutes up to 10

percent to 20 percent of a utility's generating capacity, the additional
operating cost of integrating wind power is only up to 0.5 cents per kWh.
Specifically, this amount represents the ancillary cost due to the
variability of wind.22

o 	Barriers to marketplace entry. As emerging technologies, renewable
energy sources such as wind power face market entry barriers. For example,
developing new renewable facilities requires high up-front costs to build
the necessary infrastructure, such as construction costs to connect power
lines to the transmission grid. According to DOE, the average cost of
building new power lines to connect wind turbines to the transmission grid
could be $100,000 or more per mile, depending on such factors as the size
of the wind project, terrain, and the transmission line rating. In
addition, manufacturers produce renewable energy components on assembly
lines, where mass production can reduce costs. As long as relatively few
units are produced, prices will remain high. Economies of scale would
likely lead to cost reductions for wind and other renewable technologies.
Furthermore, small renewable energy projects have high transaction and
other costs at various stages of the development cycle. For example,
lending institutions charge more to evaluate the creditworthiness of many
small projects than one large one. These institutions also are generally
unfamiliar with new technologies and are more likely to perceive them as
riskier, causing the institutions to lend money at higher interest rates.
Higher financing costs are especially significant for the competitive
position of renewable energy sources such as wind power because these
sources generally require higher initial investments per unit of
electricity produced than fossil fuel plants, even though renewable
sources have lower operating costs.

o 	Impacts on visual landscape, bird deaths, and noise issues. Although
wind power turbines do not emit pollutants, they do present some
environmental issues. According to AWEA and industry sources, wind power
project developers must gauge a local community's receptivity to the
placement of wind turbines in scenic areas that may have high wind
potential, such as ridge lines, mountain passes, or off-shore coastal
areas, or else risk expensive litigation. Regarding birds that die when
they collide with turbine blades, these sources said that developers

22Ancillary costs are the costs of transmission and generation services
necessary to support the transmission of capacity and energy from
resources to loads.

should study the numbers and species of birds (and bats) present at
various times of the year at potential site locations. In general, if the
locations are commonly used by endangered or threatened avian species or
are in bird migration pathways, they may be unsuitable for wind power
development. New construction techniques and technologies may help to
reduce bird deaths,23 such as switching from latticework towers that
entice birds to perch to smooth-sided cylindrical towers that do not offer
perches. In addition, the longer blades on newer, larger turbines turn
more slowly-about 21 to 23 revolutions per minute in optimum wind
conditions-than earlier turbines with shorter blades, making these longer
blades more visible to birds in daylight. Concerning noise, new turbine
designs and engineering as well as the use of appropriate setbacks from
residences have helped to decrease the importance of this issue. For
example, aerodynamic noise has been reduced by adjusting the thickness of
the turbine blades' trailing edges and by orienting blades upwind of the
turbine tower.

Several factors help promote wind power's growth. First, according to
federal and industry officials, direct public sector support programs have
been important to increasing the demand for wind power in the United
States because of wind power's competitive disadvantages in most domestic
markets. For example, the federal production tax credit, established by
the Energy Policy Act of 1992, as amended, is available to tax-paying
owners of wind or "closed loop" biomass energy generation systems.24 The
act provides a credit of 1.5 cents per kWh for the first 10 years from
initial plant operation, indexed for inflation, for electricity generated
by renewable energy sources such as wind turbines; it was 1.8 cents per
kWh during 2003. According to our analysis, using this incentive, a
moderate-sized wind farm with 30 MW of generating capacity could receive
up to $1.6 million a year in tax credits. In addition, in some cases this
tax credit may be combined with the 5-year depreciation schedule allowed
for renewable energy systems under the Economic Recovery Tax

23According to wind industry sources, bird deaths resulting from
collisions with cars, airplanes, windowpanes, tall buildings, and
transmission lines, as well as from hunting, predators, and accidental
poisoning, far exceed bird deaths associated with wind turbines. However,
the number of bird deaths attributable to wind power may grow as more
turbines are installed.

24Pub. L. No. 102-486, 106 Stat. 2776, 3020 (1992), codified at 26 U.S.C.
S: 45. Closed-loop biomass refers to plants grown exclusively to provide
fuel for electric power generation. Closed-loop biomass excludes forest
biomass, mill waste, or urban waste.

Act of 1981, as amended.25 In conjunction with the tax credit, this
accelerated depreciation allows an even greater tax break for renewable
projects facing high initial capital costs. The authority for new
facilities to qualify for the production tax credit expired at the end of
calendar year 2003;26 as of August 2004, legislation was pending in
Congress that would reauthorize this tax credit.27

At the state level, the states with the most installed wind power capacity
generally have implemented strong policies providing regulatory,
financial, or tax incentives to wind power development. For example, 17
states have implemented renewable portfolio standards. Under these
standards, utilities must derive a certain percentage of their overall
electric generation (on a sales basis) from renewable energy sources, such
as wind power. California and Texas-2 of the 17 states that have
instituted these standards-also are the leading states with installed wind
power capacity. California requires that 20 percent of the state's
electric generation be derived from renewable sources by 2017. In Texas,
the requirement is 2.7 percent by 2009. Figure 7 shows the states that
have enacted these standards, including the target amount of generation
from renewable sources and the associated dates for achievement.

25Pub. L. No. 97-34, 95 Stat. 230 (1981), codified at 26 U.S.C. S:
168(e)(3)(B)(vi).

26To qualify for the tax credit, the facility was required to have been
placed in service before January 1, 2004.

27See H.R. 4520 and S. 1637, 108th Cong. (2004).

and at least 15 percent by 2020. However, the legislation does not include
an implementation schedule, compliance verification, or credit trading
provisions.

dIn December 1999, the Public Utility Commission of Texas issued a
renewable energy mandate rule establishing the state's renewable portfolio
standard. In addition to the 880 MW of existing renewable generation in
Texas at that time, the standard called for 2,000 MW in new renewable
generation to be installed by 2009. If this goal is met, an official in
the Texas Office of Public Utility Counsel estimated that renewable
generation will represent about 2.7 percent of total electricity demand in
the state by 2009.

Multiple states have taken other, similar actions to support renewable
energy sources, including wind power. Specifically, according to the
Database of State Incentives for Renewable Energy compiled by the
Interstate Renewable Energy Council in August 2004:

o 	Thirty-two states and the District of Columbia have implemented net
metering laws, which allow customers with their own power generating
units, such as small wind turbines, to sell power that is excess to their
needs back to the power grid, enabling the flow of electricity to and from
the customer through a single meter.28

o 	Twenty states offer property tax exemptions or special assessments for
renewable energy sources, and 6 states allow localities to offer this
exemption.

o  Fifteen states allow sales tax exemptions for renewable energy sources.

o 	Twenty states offer personal or corporate income tax incentives for
renewable energy sources.

o 	Many states have grant (20), loan (18), and rebate (12) programs to
promote renewable energy sources. Utilities or private sources offer these
types of financial incentives in many of these states as well.

o 	Fifteen states have public benefit funds for renewable energy sources.
In these states, a surcharge is assessed to all customers on utility
bills. The money generated goes into a public benefit fund to, among other
things, support renewable energy research and development and education
programs.

28Net metering laws typically include a limit on the size of the
generating units, usually ranging from 1 kW to 1,000 kW. Some states that
have net metering provisions do not qualify wind power for this incentive.

Some states promote wind power creatively. For example, California has
formed a collaborative-known as the California Wind Energy
Collaborative-to promote wind power's growth in the state. The
collaborative includes officials from federal and state government
agencies, wind energy developers, electricity suppliers, environmental
groups, and the academic community. Its primary purpose is to coordinate
statewide activities related to wind power and to recommend policies to
support its growth. The collaborative has developed a number of
recommendations, such as (1) simplifying the permitting process for
establishing a wind project in California and (2) focusing research and
development on, among other things, improving turbine performance and
reliability, addressing transmission grid and interconnection challenges,
and enhancing wind forecasting. The California State Energy Commission
funds the collaborative, providing about $350,000 annually for its
activities.

A second factor helping to further wind power's expansion is environmental
benefits. Wind power is considered a green technology because it has only
minor impacts on the environment.29 In contrast, fossil fuel power plants
are a significant source of air pollution. In general, these plants
produce harmful emissions, such as carbon dioxide, nitrogen oxides, sulfur
dioxide, mercury, and particulate matter, which can pose human health and
environmental risks, such as acid rain and global warming.30 In some
cases, these emissions may increase as electricity generated by fossil
fuels increases to meet growing demand.31 For example, EIA forecasts that
if this generation increases by 42 percent from 2000 through 2020-from 3.5
trillion kWh in 2000 to almost 5 trillion kWh in 2020-annual emissions of
carbon dioxide and mercury from these plants will rise nationwide by

29The raw material acquisition, manufacture, transportation, and
installation of wind turbines may result in minor environmental effects.
For example, fossil fuel resources may be used in the production and
transport of wind turbines and their components. In addition, the
preparation of the foundation and construction of the turbine on site may
result in some pollution due to soil erosion and engine exhaust until
heavy equipment such as cranes, bulldozers, and backhoes are removed and
ground cover is re-established around the base of the turbine. However,
the operation of the turbine to produce electricity does not cause air or
water pollution.

30EPA data for 2000-the most recent available-indicate that conventional
power plants were the single greatest industrial source of certain
pollutants, emitting 40 percent of the nation's carbon dioxide, 37 percent
of its mercury, 22 percent of its nitrogen oxides, 63 percent of its
sulfur dioxide, and 21 percent of its particulate matter.

31GAO, Air Pollution: Meeting Future Electricity Demand Will Increase
Emissions of Some Harmful Substances, GAO-03-49 (Washington, D.C.: Oct.
30, 2002).

about 800 million tons (or 35 percent more) and 4 tons (or 9 percent
more), respectively.32 To some extent, these anticipated increases could
be offset by an increasing reliance on nonpolluting, renewable sources
such as wind power. For example, according to DOE, by 2020, the growth of
wind power could eliminate millions of tons of atmospheric carbon that
would otherwise be released by fossil fuel power plants, thereby reducing
greenhouse gas emissions.

Fossil fuel power plants are also the nation's second largest user of
water resources after agriculture.33 Specifically, power plants use about
48.2 trillion gallons of fresh water from rivers, lakes, and other sources
each year, primarily to produce steam to turn turbines and for cooling,
according to the U.S. Geological Survey. This amount represents nearly 40
percent of the nation's total water usage. Power plants' water
requirements will likely rise as demand for electricity grows over the
next 2 decades. Although state and local authorities protect certain water
uses, such as for drinking water, when approving the construction of new
power plants, these plants nevertheless can affect aquatic ecosystems. For
example, drawing water into a plant can kill fish, and discharging water
with elevated temperatures back to its source can damage aquatic organisms
or habitats. Wind power, as an alternative energy source, does not use
water to generate electricity.

In addition, increasing environmental consciousness has created "green
consumerism"-a segment of consumers who are willing to pay more for
products, including wind-generated electricity, whose production,
application, and disposal are less harmful to the environment. Thus,
utilities may offer customers the option of paying a higher rate for
electricity produced from renewable sources such as wind power in lieu of
electricity produced from fossil resources, arrangements often referred to
as green pricing programs. For example, in the program sponsored by Xcel
Power in Colorado, known as Windsource(R), customers pay a premium of

32Carbon dioxide emissions have been linked to global climate change,
among other effects, and exposure to mercury can lead to nervous system
disorders and birth defects. EIA projects slight decreases in emissions of
nitrogen oxides and sulfur dioxide, sources of acid rain and smog, due to
technology improvements and regulatory measures. Specifically, EIA
forecasts that by 2020, power plants' total emissions of nitrogen oxides
and sulfur dioxide will decrease nationwide by about 100,000 tons (2
percent) and about 2 million tons (19 percent), respectively.

33Power plants consume only about 3 percent of the water they draw from a
particular source during the process of generating electricity. In
contrast, agriculture consumes about 61 percent.

$2.50 per 100 kWh for wind-generated electricity. According to some
sources, customer interest in this program was an important factor in the
installation of more than 230 MW of wind power capacity in the state.34 In
Texas, Austin Energy has a green pricing program, known as GreenChoice(R),
for wind power, which accounts for about 4 percent of its annual
electricity sales. Although participating customers generally pay a
premium for this wind-generated electricity, demand is such that this
utility is currently negotiating to add an additional 91 MW of wind power
capacity. As an added inducement, this utility offers its wind power
customers the choice of locking in a rate for a period of 10 years, while
regular customers are subject to possible rate increases if the costs for
fossil fuels increase.

A third factor is energy security. This could help promote wind power and
other renewable energy sources in order to reduce the nation's dependence
on foreign fossil resources, including oil and natural gas. For example,
the United States currently imports about 65 percent of the oil and 15
percent of the natural gas it uses. Natural gas, in particular, is
increasingly used to produce electricity,35 and according to DOE, the
anticipated growth in demand for this fossil fuel will lead to an
increasing reliance on imports. According to DOE, this dependence harms
the U.S. trade balance and exposes our economy to potential supply
disruptions.36 In light of these concerns, federal legislative and
regulatory initiatives have encouraged a diversified energy portfolio. For
example, the Public Utilities Regulatory Policies Act of 1978, as amended,
was enacted in part to encourage the

34According to DOE officials, Colorado's Public Utility Commission also
deemed wind power to be a cost effective alternative under least cost
planning.

35The United States used about 23.5 trillion cubic feet of natural gas in
2000 in five sectors: residential, commercial, industrial, electric
generation, and transportation. DOE expects the country's consumption of
natural gas will increase to 33.8 trillion cubic feet per year by 2020.
More than half of this increase is predicted to come from gas-fired
electric generation.

36According to the National Energy Policy Initiative, even in peacetime,
the United States pays tens of billions of dollars a year for the
readiness costs of military forces whose primary mission is intervention
in the Persian Gulf region. A significant portion of those costs can be
attributed to protection of oil production sites and transport routes. The
economic, diplomatic, and military cost of foreign oil dependence is
likely to increase as low-cost reserves become increasingly concentrated
in that region, further increasing the potential market power of a few
Middle Eastern countries.

development of alternative energy resources.37 More recently, the
administration's National Energy Policy, issued in May 2001, states that
sound energy policy should encourage a diverse portfolio of domestic
energy supplies and that renewable energy can be a reliable source of
energy at a stable price because it does not depend on the availability of
fossil fuels. Furthermore, while the nation's transmission grid and
central power plants remain vulnerable to terrorist attack, renewable
sources, such as wind power, are geographically more dispersed and contain
no volatile or radioactive fuel stocks.

Fourth, government and industry experts expect that improvements in wind
power technology and forecasts for higher fossil fuel prices will continue
to help wind power compete with other sources of electric power
generation. For example, technology improvements in turbine design and
components have dramatically increased the efficiency and cost
competitiveness of wind power generation, and continuing research and
development will likely lead to further improvements. Regarding forecasts
for higher prices, EIA projects that 69 percent of the 235,000 MW of new
generating capacity needed in the United States by 2020 will be fueled by
natural gas and another 9 percent by coal.38 In recent years, prices for
natural gas have, at times, spiked dramatically, and the market for
natural gas remains volatile, with small shifts in the supply of or demand
for gas likely to cause wide price fluctuations.39 In addition, DOE and
industry sources anticipate that as domestic and international demand for
natural gas increases in the electric and other industrial and commercial
sectors, the prices for natural gas will rise, making alternative energy
sources such as wind power more competitive.

3716 U.S.C. S:S: 2601 et seq. The act requires utilities to purchase power
output from nonutility facilities at prices not exceeding the utilities'
"avoided cost" of generating it or purchasing it from another source if
the facilities are (1) generators that produce electricity using solar,
wind, waste, or geothermal sources; or (2) co-generators that produce both
electricity and heat or steam for industrial or commercial purposes.

38These percentages exclude electricity that is generated by industrial
and other facilities that is then sold to electric utilities.

39GAO, Natural Gas: Analysis of Changes in Market Price, GAO-03-46
(Washington, D.C.: Dec. 18, 2002).

Growth of Wind Power Will Depend on Continued Government Financial
Incentives and Prices for Fossil Fuels

According to EIA forecasts prepared at our request, future wind power
capacity could increase to 48,000 MW or more by 2025-enough to power about
13 million homes based on current usage rates-if the federal production
tax credit were to remain available through 2010. On the other hand, if
this credit is not available after December 31, 2003 (its authorization
expired after that date and it had not been reauthorized as of August
2004), capacity will increase to only about 11,000 MW by 2025.40 According
to EIA and other DOE officials, these forecasts are likely conservative
estimates because the assumptions used were conservative.41 Other
stakeholders have offered larger estimates. For example, AWEA estimates
that wind power capacity could grow to 100,000 MW by 2020, representing
about 6 percent of total U.S. production. In another case, the National
Petroleum Council estimates that renewable capacity-primarily wind
power-will grow to between 73,000 MW and 155,000 MW by 2025, with the
larger number dependent in part on proactive public policies to promote
renewable sources. Despite these varying estimates, DOE and industry
sources agreed that the key to the potential future growth of the wind
industry is the continued availability of the production tax credit or
other subsidy support, although expected increases in fossil fuel prices,
particularly for natural gas, also will be an important factor.

DOE and industry sources noted that prior periods of uncertainty about the
availability of the production tax credit led to a boom-and-bust cycle in
the installation of new wind power capacity. For example, in years in
which the authorization for the credit expired and its renewal was
delayed,42 the installation of new capacity fell dramatically compared
with the years in which it was available without interruption. Figure 8
provides information on this cycle.

40In its Annual Energy Outlook 2004, EIA projects that wind capacity will
increase to about 16,000 MW by 2025 without the production tax credit,
primarily due to expected higher natural gas prices and an increase in
known, near-term wind projects that are being planned.

41These assumptions are discussed in appendix I.

42In the past, when the authorization for the production tax credit
expired and its renewal was delayed, the credit's renewal was made
retroactive to the prior date of expiration.

Figure 8: Fluctuations in the Installation of New Wind Power Capacity
Related to the Changing Availability of the Production Tax Credit (PTC)

Wind capacity (thousands of MW)

6

5

4

3

2

1

0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Source: California Energy Commission.

Note: Authorization for the credit for new facilities lapsed on Dec. 31,
2003. In 2003, the administration's proposed energy bill would have
extended the authorization for 3 years, but this legislation was not
enacted. As of August 2004, legislation was pending before Congress that
would reauthorize this credit for 3 years.

According to DOE and wind industry sources, the expiration of the
production tax credit at the end of 2003 has significantly reduced wind
power expansion. Potential developers are reluctant to commit resources to
the planning and construction of new capacity without the certainty that
the tax credit will be reauthorized. For example, AWEA estimates that the
uncertainty over the reauthorization of the tax credit has caused the loss
of over 2,000 manufacturing and construction jobs related to wind power
and put about 2,000 MW of new wind energy production and nearly $2 billion
in economic activity on hold. Thus, industry sources expect a significant
drop in the installation of new capacity in 2004 from 2003 levels-capacity
expansion in 2003 was a near record 1,700 MW, attributable in large
measure to the availability of the tax credit.

According to EIA, without the production tax credit, wind power will be
relegated to a niche resource whose expansion will depend largely on long-

term trends in natural gas prices.43 Furthermore, in the view of some
stakeholders, the most stable, predictable production tax credit would
have a long-term or permanent authorization that would not induce market
booms and busts but would facilitate steady market development for wind
power and other renewable sources. Other stakeholders note, however, that
to the extent this credit would be used, tax revenues would be lost to the
federal government that could be used for deficit reduction or other
purposes. For example, the Congressional Joint Committee on Taxation
estimates that if the authorization for the production tax credit were
extended through 2006, its cost to the Treasury for the 10-year period
ending in 2013 would be $3 billion, or about $300 million annually. On the
other hand, some stakeholders believe that renewable energy sources
require subsidies such as the production tax credit to level the playing
field because various subsidies for fossil fuel and nuclear technologies
have made it difficult for renewable energy sources to compete, even when
renewable technologies become cost competitive with these conventional
technologies. In general, it is difficult to quantify all of the subsidies
provided to the fossil fuel and nuclear power industries, and there is
sometimes disagreement on how to define a subsidy. Nevertheless, many
stakeholders maintain that these subsidies are substantial-measuring in
the billions of dollars annually. For example, EIA estimates that the
federal subsidies to the oil, natural gas, coal, and nuclear power
industries totaled about $2.8 billion in fiscal year 1999, the most recent
year for which EIA compiled these data.44

43NREL officials noted that if the states continue to expand requirements
for renewable portfolio standards, then further expansion of wind power
and other renewable sources may occur even in the absence of the
production tax credit and regardless of fossil fuel prices.

44Stakeholders also cite additional, hidden subsidies resulting from the
fact that the full environmental and health costs of the fossil fuel and
nuclear industries are not accounted for. For example, according to the
Department of Labor, the federal government has paid about $40 billion
over the past 33 years to cover the medical expenses of coal miners who
suffer from "black lung disease." These subsidies mean that the true cost
of coal is not reflected in its market price. In addition, according to
the Department of Health and Human Services, air pollution is estimated to
be associated with 50,000 premature deaths and an estimated $40 billion to
$50 billion in health-related costs annually. Fossil fuel power plants
account for much of this pollution.

Wind Power Does Not Contribute Significantly to Total Farm Income, but
Some Individual Farmers and Communities Have Benefited

Wind power does not currently contribute significantly to total farm
income in the 10 states with the highest installed wind power capacity,
although some individual farmers and rural communities have benefited
considerably from this energy source. However, wind projects located on
farmland have increased some individual farmers' income significantly,
according to our site visits and analysis. In addition, large wind power
projects established in some of the poorest rural counties in the United
States have generally benefited these counties through the tax revenues
they produce and the employment opportunities they provide.

Wind Power Accounts for Only a Very Small Amount of Total Farm Income, but
Provides Substantial Income to Some Farmers and Communities

In the 10 states we examined, total net farm income exceeded $14 billion
in 2002, but total direct income to all U.S. farmers from wind power
ranged from only $10 million to $45 million, representing only a fraction
of 1 percent of net farm income in these states. Nevertheless, wind
projects located on privately owned farmland-the majority of U.S. wind
power projects, according to AWEA-have increased individual farmers'
income by as much as tens of thousand of dollars annually, according to
our analysis and site visits. In most cases, the farmers do not have an
ownership interest in the projects. Rather, they receive lease payments
from energy development companies for the use of the land and the
associated "wind rights." According to AWEA and other sources, the
compensation a farmer receives for leasing land for wind power turbines
effectively amounts to between $2,000 and $5,000 per year per MW of
installed capacity. However, actual compensation received varies widely,
depending the following factors:

o 	The number of turbines. One California project includes turbines with a
total generating capacity of approximately 60 MW. Based on data developed
from our site visit to this project, we estimate that one of the
landowners has enough turbines on his land to have generated over $200,000
in annual lease payments from the project owner. In another case, an Iowa
project consisting of about 260 turbines has a total generating capacity
of approximately 190 MW. However, the turbines are spread out over
separate properties owned by 65 farmers. According to the project owner
and one of these farmers, the average annual lease payment is about $2,000
per turbine, with each farmer's total payments depending on the number of
turbines located on that farmer's land.

o 	The value of electric power generated by the project. Land lease income
is often linked to wind power project revenues. For example, land lease
income may be a percentage of the gross revenues from the sale of the
project's wind power. Thus, the higher the sale price of power, the higher
the lease income to the landowner. The price paid by utilities for the
electricity produced from wind power projects has varied by location and
over time. Nationwide, these prices currently range from $20 to $35 per MW
hours (MWh). However, power purchase contracts signed in California in the
early 1990s tended to be well above this range. For example, the price
currently received for electricity from one California wind power project
is about $70 per MWh.

o 	The terms of the lease payments. The lease payments may include a
single lump sum payment, fixed annual fees per turbine or per unit of
power generation capacity, or a percentage of the project's gross
revenues. The farmer may receive additional lease payments for other
structures or considerations related to the wind project, such as
substations, operations and maintenance buildings, and rights-of-way,
including roads leading to and from the project and transmission poles and
lines to connect the project to the local power grid. In cases in which
the farmer has an ownership interest in the project, the potential
financial benefits may be even greater per turbine. However, farmerowned
wind projects tend to be smaller, because farmers generally do not have
the financial resources of an energy development company to establish
larger projects with more turbines.

Whatever the lease arrangements, the income farmers receive from wind
projects located on their land is relatively stable compared with the
income they derive from crop and livestock production, according to some
farmers and other sources. Although the income from wind projects may be
modest, these individuals said, it serves as an important hedge against
possible fluctuations in income from crop and livestock production.45
Furthermore, income from wind turbines located on a farmer's land

45Various federal farm programs also help to protect farmers from
fluctuations in commodity prices. For example, between 1999 and 2002,
farmers received about $60 billion in farm program payments-averaging $15
billion annually-from USDA to help support the production of major
commodities, such as corn, cotton, rice, soybeans, and wheat. According to
USDA, in 2002, about 2.1 million farms produced and sold agricultural
products. From these farms, aproximately 1.3 million producers received
farm payments. Large farming operations get the most payments because the
payments are based primarily on the amount of crop produced or the
historical acres farmed.

generally does not fluctuate significantly, although higher or lower
average wind speeds from one year to another can affect the amount of
royalty payments a farmer receives. Royalty payment rates-for example, 4
percent of gross revenues for electric power generated-are generally
negotiated for a period of years. In addition, contracts between a
landowner and a wind project owner often have a provision for minimum
payment per turbine per year to protect a landowner's income in cases of
unusual low-wind periods or if a turbine is out of operation because of
weather-related damage or maintenance. In some cases, a farmer said the
additional income from the wind project helps keep the farm solvent and
the farmer's family on the farm.

Wind Power Benefits Rural Communities by Providing Additional Investment,
Employment Opportunities, and Tax Revenues

The construction and operation of a large wind project in a rural county
is likely to increase the county's general level of economic activity and
wealth. Constructing a large wind power project with several dozen
turbines requires the services of multiple businesses and scores of
skilled and unskilled workers, as well as the purchase of equipment and
material, such as turbines, towers, asphalt, cement, concrete, and
electrical cables. In these activities, wind power project developers and
operators have directly benefited rural communities by hiring local people
and purchasing locally some of the goods and services needed to construct
and operate a project. Furthermore, according to DOE, increasing the
proportion of the nation's energy generation attributable to wind power to
5 percent by 2020 would add about $60 billion in capital investment in
rural America; provide an estimated $1.2 billion in new income to farmers,
Native Americans, and rural landowners; and create approximately 80,000
new jobs. (To determine the overall economic benefits of increasing wind
power to farms and rural communities, any losses to the fossil fuel
industry need to be counted as an offsetting factor.)

In general, a county with a larger, more diversified economic base can
more likely provide these services and supplies, thereby retaining more of
the project's direct economic benefits. For example, according to the
developers of a large wind project-High Winds in Solano County,
California-they obtained much of the services and supplies needed to
construct this project within the county, which has over 400,000 residents
and a diversified business community. However, if a county cannot provide
some of the services and supplies needed, other nearby counties or cities
that can provide these services and supplies may benefit. In Pipestone
County, Minnesota, for example, wind power developers purchased some
supplies locally, such as concrete, but had to contract with a firm in
Fargo,

North Dakota, for a crane large enough to erect the turbines and with a
firm in Minneapolis to do the electrical wiring. Pipestone County, located
in southwestern Minnesota, has about 9,800 residents and a small business
community.

Furthermore, businesses and individuals directly employed by the wind
project are likely to spend part of their income at local businesses, such
as restaurants, hotels, and gas stations, and hardware, clothing, and food
stores. In some cases, the benefits from these activities may exceed the
level of a project's direct benefits. For example, according to the Fort
Stockton Economic Development Corporation in Pecos County, Texas, the
county experienced a 10 percent increase in gross sales during the
construction of several wind power projects.

The property tax revenues resulting from the establishment of a wind power
project in a county creates additional revenues that support schools,
hospitals, fire protection, and other public services. Following are some
examples:

o 	Lincoln County, Minnesota, with a population of about 6,200, obtained
about $470,000, or 18 percent of its property tax revenues, in 2003 from
local wind power projects with a combined capacity of 156 MW.

o 	Pipestone County, Minnesota, obtained about $660,000, or 8 percent of
its property tax revenues, in 2001 from wind projects with a combined
capacity of 113 MW.

o 	In Pecos County, Texas, with a population of about 16,000 the school
districts received about $5 million in 2002 from property tax revenues
directly associated with wind power projects in that county. For example,
the Iraan-Sheffield School District, obtained one-third of its property
tax revenues from wind power projects that year. These projects also added
about 30 to 35 full-time permanent jobs to operate and maintain the
projects.

For some counties, tax benefits may have to be deferred to attract wind
power developers. These counties have offered generous tax abatements,
forgoing part or much of the tax revenues that would have otherwise been
collected for the period covered by the abatement. For example, to attract
wind power developers, Texas's Upton County offers a tax abatement of 10
years, waiving all property taxes during this period with the exception of
taxes collected for schools.

In terms of other taxes, counties that have sales taxes or that receive a
share of state sales tax revenues are likely to realize income from the
sale of taxable goods and services connected with the construction and
operation of a wind power project. In addition, in states that have a
personal or corporate income tax, the increased employment and business
opportunities associated with a wind power project are likely to increase
these tax revenues, which are then shared with counties in the state or
used for public projects that benefit county residents.

To better gauge the significance of general increases in economic
activity, we asked NREL to use its Wind Impact Model to estimate these
benefits, as well as direct benefits, for the counties we visited. NREL
developed a number of estimates, varying the size of the wind project but
otherwise keeping key model assumptions constant. In general, the results
of NREL's analysis confirm our observations from our site visits. For
example, NREL estimates that the operation of a 150 MW project located in
Alameda County, California-a county with a large population and
diversified economic base-would result in the creation of 65 new jobs in
the county and increase total income in the county by $5.4 million.
However, the same size project located in Upton County, Texas, which has a
much smaller population and economic base, would result in only 47 new
jobs and an increase in total county income of $2.75 million. This is
because in the case of Upton County, more of the staff needed to operate
the project would be hired from outside the county. Nevertheless, the
impact of the local hires on employment in Upton County may be greater
than in Alameda County because the population of Upton County is so much
smaller. A detailed discussion of this model and NREL's analysis is
contained in appendix III.

Leasing Land for Wind Power Projects Is Easier Than Owning, and Most
Farmers Do Not Qualify for Tax Credit

Ownership of a wind power project may be more profitable to a farmer than
leasing, based on our fieldwork and analysis. For example, whereas lease
payments per turbine may provide several thousand dollars a year to the
farmer, ownership may double or triple that income per turbine as the
profits are not shared with an energy company. On the other hand, a farmer
may only be able to afford to construct 1 or 2 turbines, as the cost per
MW of installed capacity is about $1 million. In contrast, leasing land to
an energy development company could result in the installation of a dozen
or more turbines. In the latter case, although the farmer's income per
turbine is less, the total income received by the farmer would be
substantially greater. In addition, farmers and other small investors
generally lack sufficient tax liability to take full advantage of the
federal renewable energy

production tax credit. However, some states offer incentives that help
landowners develop wind power projects.

Farmers Find Leasing Is Easier Than Owning Wind Power Projects

Nationwide, farmers and other landowners own less than 1 percent of
utility-scale wind power capacity. We found that farmers generally find
leasing their land for wind power projects to be easier than owning
projects because of the complexity of, and risk associated with,
developing a wind power project. In general, development of a project may
take 2 years or more from conception to completion, especially when
multiple turbines are involved. Table 1 summarizes the major steps in
project development. These steps are also discussed in greater detail in
appendix V.

       Table 1: Major Steps in the Wind Power Project Development Process

Step Conditions generally considered or required

Detailed wind data for the proposed project site: local wind data from
airports or meteorological stations; wind data on an hourly basis at
varying heights for about 1 year; a minimum annual average wind speed of
11 to 13 miles per hour.

As applicable, information on the potential effects on birds-particularly
endangered or protected species; receptivity of neighbors and local
communities; possible obstruction of air traffic by the turbines;
interference with aerial crop dusting; possible need for environmental
impact assessment.

A lease or easement agreement negotiated with the farmer that grants the
developer (1) a right of access to and across the property to construct,
operate, and maintain the project; (2) a right to transmit the electricity
from the property; and (3) a term sufficient for financing the project,
usually 25 years or more.

Permission to construct and operate the project from local permitting
authorities, including land use and construction permits.

a

Easement rights of access to interconnect to transmission lines.

A power purchase agreement between the project owner and the utility that
will buy the electricity produced.b

Project financing from a bank or other lending institution; and federal or
state assistance programs for renewable energy sources.

Services and supplies related to site preparation, construction of
turbines, substations, and access roads, and operation and maintenance of
the project.

Source: GAO analysis of AWEA, NREL, and National Wind Coordinating
Committee information.

Note: These steps are not necessarily sequential or mutually exclusive or
inclusive.

aThe cost of adding connecting lines from the project to high voltage
transmission lines can be expensive, adding substantially to a project's
cost.

bThe power purchase agreement guarantees that the buyer will purchase the
energy from the seller at a negotiated price for a specified period of
time, thereby creating a predictable long-term cash flow. This agreement
is considered an asset of the project and is usually critical to obtaining
financing for it.

The associated capital costs for a wind power project could also be
daunting to an individual landowner-approximately $1 million per MW of

generating capacity installed. Thus, even purchasing just one or two
utilityscale wind turbines can be a substantial investment for even a
large farm or ranch.

Leasing land to a wind power developer relieves a farmer of many of the
formidable challenges of developing a wind power project, but the benefits
of leasing may depend on the type of the lease arrangement offered. Table
2 summarizes information on lease payment options.

    Table 2: Four Types of Lease Payment Options Option type Advantages and
                           disadvantages to landowner

Lump sum payment	A one-time payment for all turbines placed on the land,
with no ongoing royalties. Advantage: provides substantial cash to pay a
debt or purchase farm equipment. Disadvantages: precludes benefits from
future increases in wind power value and may complicate the sale of the
land because a prospective buyer stands to gain nothing from the turbines.

Fixed annual payment	A fixed dollar amount per turbine per year.
Advantage: minimizes risk of income fluctuation. Disadvantages: prohibits
the landowner from benefiting from future increases in wind power value.

Fixed payment plus percentage of A fixed payment per turbine per year,
plus a percentage of the turbines' gross generated

revenue	revenue. Advantage: The fixed payment holds even when the wind is
low or the turbines do not operate.

Percentage of revenue only	A larger percentage of the turbines' gross
generated revenue. Advantage: more profits if wind power values increase.
Disadvantage: more risk of not receiving revenue.

Source: Oklahoma Wind Power Initiative.

A landowner may need expert advice-from an attorney to ensure the lease
protects the landowner's interests and from a financial adviser to
understand the income and tax implications of various lease payment
options. For example, University of Texas officials indicated that legal
and technical resources available to the university were critical to
negotiating a favorable lease agreement for a wind project on university
property.

Landowners may also face other problems in leasing land for wind power
projects, as illustrated in the following examples:

o 	A Minnesota wind developer went bankrupt before completing the project.
Unable to collect from the developer, the construction contractor that
poured the concrete foundations for the turbines placed a lien on the
farmer's land. In the end, the farmer assumed responsibility for
completing the project.

o 	In California, a landowner who leased land to wind developers for 200
turbines had to renegotiate leases with the tenant farmers who also use
this land. These farmers charged that they were disadvantaged by the wind
power project because (1) the turbines prevented them from using aerial
crop dusting; (2) the project created obstacles, such as the turbines,
substations, and access roads, that the farmers had to drive their
equipment around, causing their fuel costs to rise; and (3) the turbines
and associated structures had reduced the acreage available for
cultivation (by approximately 40 to 50 acres out of a total of 1,100
acres). Although he lost some revenue from the renegotiated lease
agreements with the tenant farmers, the landowner indicated he had more
than recouped these losses from the income associated with the lease
agreement for the wind turbines. The landowner also said the tenant
farmers ultimately benefited by the adjusted (lower) rents for the land
they farm.

During our fieldwork, some farmers indicated it was difficult to make
informed decisions about owning a wind power project or leasing their land
to a commercial wind power developer because of a lack of readily
accessible information. One farmer also noted it would be helpful to have
a forum in which farmers could exchange relevant information and
experiences. A number of entities offer information on wind power,
including the pros and cons of ownership versus leasing. These include
AWEA, NREL, the Union of Concerned Scientists, Wind Powering America, and
Windustry. They also include state-based groups such as the California
Wind Energy Collaborative, Iowa Policy Project, Minnesota Sustainable
Energy for Economic Development Coalition, Oklahoma Wind Power Initiative,
and Texas Renewable Energy Industries Association. However, federal and
industry officials said that while access to information is important, it
is not enough. According to these officials, given the complexity of
owning a wind project or leasing land to a wind power developer, farmers
and other rural landowners should seek legal, financial, and technical
advice, as appropriate, before making a commitment to a project.

Farmers Generally Cannot Farmers generally cannot use the federal
renewable energy production tax Use the Production Tax credit, which many
stakeholder groups view as crucial to making wind Credit energy projects
economically viable for project owners because of these

projects' high capital costs. According to Department of Treasury
officials,

for a farmer who does not materially participate in a wind power project
to

make use of the production tax credit,46 the farmer must have tax
liability attributable to passive income (e.g., rental income or income
from businesses in which the farmer participates only as an investor)
against which to claim the production tax credit. Passive income does not
include income from the farmer's active farming business, wage income, or
interest and dividend income. Unless a farmer materially participates in
the production of wind power, the production tax credit cannot offset tax
liability attributable to income from these sources. Since many farmers do
not have passive income and do not materially participate in wind power
production, this passive versus nonpassive income distinction limits the
number of farmers that are able to take advantage of the renewable energy
production tax credit. Furthermore, even in a case where a farmer
materially participates in and operates a wind project, the value of the
tax credit is usually greater than the income tax on the revenue earned by
the project for wholesale electricity generation as well as from other
relevant sources, such as revenue from the farming business and wage
income related to off-farm employment.

Although an individual farmer may not be able to use the full amount of
the production tax credit, farmers can benefit from this tax credit in
other ways. For example, in Rock County, Minnesota, some farmers
interested in wind power have formed two limited liability companies,
pooling their individual passive incomes and associated tax liabilities in
order to make use of the production tax credit. These arrangements have
led to the establishment of two wind power projects, Minwind I and II.
Each company has rules similar to a traditional farmer cooperative,47
although legally they are not cooperatives.48 Each company sold stock to
more than 30 individuals and required that 85 percent of the shares be
owned by farmers; the remaining 15 percent of the shares are available to
local residents and investors. No single person can own more than 15
percent of

46Internal Revenue Service Publication 925 defines criteria for material
participation in a trade or business activity. For example, an individual
materially participates in a trade or business activity if the individual
participates more than 500 hours during the tax year.

47In general, a cooperative is an organization formed for the purpose of
producing and marketing goods or products owned collectively by members
who share in the benefits.

48Rural electric cooperatives and publicly owned municipal utilities are
not eligible for the federal production tax credit. However, they may
qualify for the federal Renewable Energy Production Incentive that
provides cash payments based on electricity production from renewable
sources on a per kWh basis. See 10 C.F.R. part 451 (DOE's regulations
setting out its policies and procedures for implementing the incentive
program).

the shares. These projects started operating in late 2002, and each has a
capacity of 1.9 MW. Furthermore, seven additional Minwind projects (III
through IX) are under development in Rock County. When complete, these
projects will have 200 local owners and a combined capacity of 12 MW.

In addition, some individual farmers in Minnesota have entered into equity
partnerships with an investor in order to benefit from the production tax
credit indirectly. In these cases, the investor owns nearly all of the
interest in the project for the first 10 years, receiving most of the net
cash from the project and the benefits of the production tax credit and
accelerated depreciation. After this 10-year period, the ownership
switches, or "flips," to the farmer and the farmer receives most of the
project income. For example, at one wind project we visited in Pipestone
County, an equity partner owns a 99 percent interest in a 1.5 MW project
(two 750 kilowatt turbines) for the first 10 years of the project's
operation. The farmer who provided the land for the project has the other
1 percent interest. The equity partner provided most of the up-front
capital needed to establish the project, and the project's assets provide
the collateral for the remaining required debt. However, the equity
partner also reaps most of the profits and the benefits of the federal
production tax credit. During these first 10 years, the farmer receives
lease payments of about $2,000 per year per turbine, plus management
service payments of about $30,000 per year, based on a percentage of the
revenues associated with the electricity production. After the 10th year,
majority ownership of the project will be transferred to the farmer, who
will start earning about $120,000 per year through the end of the
project's expected lifetime (an additional 10 years or more). Thus,
beginning with the 11th year, the farmer's annual income from the project
will more than triple.

Minnesota Offers In addition to the federal tax credit, landowners may
benefit from state Renewable Energy Cash incentives. For example,
Minnesota offers several incentives to promote Payments and Other farmer,
rural landowner, and rural business ownership of small wind power

projects. Federal and industry officials often cited Minnesota as
beingIncentives to Promote particularly proactive in this regard. Table 3
summarizes these incentives. Landowner-Owned Wind

Power Projects

Table 3: Minnesota Initiatives That Promote Small Landowner-Owned Wind Projects

Incentive Description

Renewable Energy Production Incentive	Begun in 1997, this incentive
provides payments for 10 years of 1.5 cents per kWh of electricity
generated by new renewable projects such as wind with less than 2 MW
capacity.a Projects must begin generating electricity within 18 months
after approval. The incentive was available only for the first 200 MW of
approved projects. Planned capacity for new wind power projects reached
the 200 MW goal in November 2003.

Agricultural Improvement Loan Program	The state's Rural Finance Authority
provides low-interest loans to farmers for improvements or additions to
permanent facilities. Beginning in 1995, the installation of wind power
equipment qualifies as an improvement.

Value-Added Stock Loan Participation The state's Rural Finance Authority
provides low-interest loans to farmers to assist them in

Program	buying into wind generation cooperatives-45 percent of total loan
principal up to $24,000. The maximum size of an individual project is 1
MW.

Interconnection Standards Law	The Minnesota Public Utilities Commission is
developing uniform interconnection requirements for distributed power
generation, including generation from renewable sources such as wind
power, applicable to all state utilities. These standards will be
available to all qualifying sources of 40 kilowatt generating capacity or
less. The law specifies that uniform applications must be developed and
that utilities must report annually on the number of distributed systems
interconnected.

Standard Power Purchase Agreement	In June 2000, Xcel Energy, as part of a
state merger stipulation, agreed to work with the state and other
interested parties to develop a tariff (surcharge) to benefit renewable
energy systems of up to 2 MW generating capacity. In December 2000, the
company proposed a wind energy tariff to encourage the development of
small wind power projects within the company's service territory. In
August 2001, the commission approved the company's proposal to purchase
power from a qualifying wind power facility at a price of 3.3 cents per
kWh for a term of up to 20 years.

Source: GAO analysis of information from the Database of State Incentives
for Renewable Energy, the Minnesota Public Utilities Commission, and other
sources.

aThe renewable energy systems eligible for incentive payments in Minnesota
include wind, small hydroelectric, and biomass digester technologies.

According to Minnesota and wind industry officials, the most important of
these incentives is the state's Renewable Energy Production Incentive
program. As of December 2003, this program had benefited about 170
renewable energy projects in the state, including 130 wind power projects
that are collecting incentive payments and another 43 that have secured
eligibility but are not yet operational. According to a Windustry
official, more than one-third of the beneficiaries have been farmers and
rural small businesses over the life of the program. This official also
said that because of current difficult fiscal conditions, it is uncertain
whether Minnesota will expand the program beyond the 200 MW cap to assist
additional projects.

USDA Can Do More to Promote Wind Power

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, although it has provided some funding through other
provisions of the farm bill. In particular, USDA had not issued a
regulation for loans and loan guarantees under the farm bill's key wind
power assistance program-the Renewable Energy Systems and Energy
Efficiency Improvements Program (Renewable Energy Program). As a result,
although grants are available, farmers and other applicants cannot obtain
loans and loan guarantees under this program, which limits the ability of
the program to promote renewable energy sources. In addition, USDA may be
missing opportunities to leverage information, resources, and expertise
available from EPA in implementing the Renewable Energy Program and to
simplify the program's application process.

Farm Bill Provisions Promote Renewable Energy Systems, Including Wind
Power, but USDA Has Not Made Full Use of These Provisions

Among other things, the 2002 farm bill promotes the use of renewable
energy systems, such as wind turbines, on the nation's approximately 900
million acres of farmland and rangeland.49 According to USDA and other
sources, these farm bill provisions will create economic opportunities in
rural communities, give farmers a means to earn additional income,
diversify the nation's energy production, reduce its dependence on
imported fossil fuels, and help protect the environment. Table 4
summarizes information on the farm bill provisions for promoting renewable
energy systems, including wind power.

49According to USDA, this farm bill was the first one to include an energy
title.

Table 4: Farm Bill Provisions to Further Wind Power's Growth

Pub. L. No. 107-Section title or relevant
171 Section program Provisions

2101 (a) (1) (B) Conservation Reserve Program	Biomass and wind turbine
installations are now allowed on lands retired in this program. Turbine
installation is subject to USDA approval, taking into account the proposed
site location, habitat, and purposes of the program, including protection
of environmentally sensitive land. Installations do not reduce program
payments.

Rural Development Title	Extends loans and loan guarantees under the
Consolidated Farm and Rural Development Act to renewable energy systems,
including wind power projects.

Business and Industry Direct Loan Expands program for rural development,
and includes farmer/rancher equity

and Loan Guarantee Program	ownership in wind power projects. Limits range
from $25 million to $40 million per project.

6401 (a) (2) Value-Added Agricultural Product Expands the definition of
the term "value-added agricultural product" to include Market Development
Grants farm- and ranch-based renewable energy. Competitive grants are
available to assist producers with feasibility studies, business plans,
marketing strategies, and start-up capital. Maximum grant amount is
$500,000 per project.

Energy Audit and Renewable Competitive grants are available for
organizations to assist farmers, ranchers,

Energy Development Program	and rural small businesses by conducting and
promoting energy efficiency audits and renewable energy assessments.

Renewable Energy Systems and Offers low-interest loans, loan guarantees,
and grants to farmers, ranchers, and

Energy Efficiency Improvements rural small businesses to purchase and
install renewable energy systems,

(Renewable Energy Program)	including wind projects. Grants may fund up to
25 percent of the cost of the project. Combined grants and loans or loan
guarantees may fund up to 50 percent of the cost of the project. Provides
that $23 million of the funds of the Commodity Credit Corporation be made
available each year-for fiscal years 2003 through 2007-for this program.

Source: Pub. L. No. 107-171 (2002 farm bill).

During fiscal year 2003 and through August 2004, USDA has made limited
progress in using the farm bill provisions to further the use of renewable
energy systems. Table 5 shows the status of USDA's efforts. As the table
shows, in several cases these provisions have not been used yet. In other
cases, the provisions cannot be fully used until USDA has developed
relevant regulations. USDA officials told us that the newness of these
provisions-the farm bill was enacted in May 2002-and the lead time needed
to train its staff, disseminate information to the farm community, and
develop regulations and publish them in the Federal Register for comment,
as appropriate, has slowed the agency's ability to fully use these
provisions.

Table 5: Status of USDA's Implementation of Farm Bill Provisions That
Support Wind Power's Growth

Pub. L. No.  Section title or                            Fiscal year 2004  
                relevant                                     status, as of    
     107-171        program       Fiscal year 2003 status     August 2004     
     Section                                               
2101 (a) (1)   Conservation         Farm Service Agency Only a few farmers 
       (B)          Reserve         issued policy guidance have contacted     
                                 stating that farmers with      the agency to 
                    Program      land enrolled in this            discuss the 
                                                                    placement 
                                 program may lease this    of wind turbines   
                                 land for renewable        on land enrolled   
                                                           in                 
                                  energy purposes without     the program.    
                                       affecting the       
                                   program payments they   
                                         receive.          

Rural Development Title         Definition of "rural No wind power systems 
                                development" changed in             financed. 
                           draft interim final rule to  
                           include renewable            
                           energy systems, such as wind 
                           power. This                  
                            rule was being reviewed by  
                                    OMB as of           
                                August 2004. USDA       
                                 anticipates its        
                            publication in the Federal  
                                   Register by          
                           December 2004. No wind power 
                           systems                      
                                    financed.           

Business and Industry Direct Program guidelines amended to include No wind
power systems financed.
Loan and Loan Guarantee renewable energy systems, such as wind
Program power. No wind power systems financed.

6401 (a)     Value-Added      Four wind projects received    No awards had 
     (2)       Agricultural              grant funds               been made. 
                 Product Market   totaling about $600,000.    
                    Development                               
                  Grants                                      
               Energy Audit and                               Program was not 
                      Renewable    Program was not funded.    funded.         
            Energy Development                                
                  Program                                     

Renewable Energy Systems and Energy Efficiency Improvements (Renewable
Energy Program) $23 million in mandatory funds available. Of this amount,
$21.7 million in grants offered, including about $7.4 million for wind
power, supporting 35 projects. No loans or loan guarantees offered pending
USDA's publication of program regulation. The budget authority for the
remaining $1.3 million lapsed because the remaining project applications
lacked technical merit. $23 million in discretionary funds appropriated by
Pub. L. No. 108-199. However, this amount was reduced by $136,000 due to
rescission under Div. H. S: 168(b) of Pub. L. No. 108199. USDA issued a
Notice of Funds Availability on May 5, 2004, to solicit grant proposals.
No loans or loan guarantees offered pending USDA's publication of program
regulation.

Source: The 2002 farm bill and USDA information.

Many stakeholders consider the Renewable Energy Program as the key USDA
program for promoting renewable energy sources, including wind power, on
farms, ranches, or other rural lands. The program focuses on promoting
renewable energy generation and energy efficiency improvements and was
authorized a total of $115 million-$23 million

yearly-for fiscal years 2003 through 2007 for its implementation.50 This
funding can be used for loans, loan guarantees, or grants to farmers,
ranchers, or rural small businesses.51 Eligible projects include those
that derive energy from a wind, solar, biomass, or geothermal source.52

Since passage of the farm bill, USDA has undertaken a number of actions to
begin to implement the Renewable Energy Program.

o 	In November 2002, USDA formed a rural energy working group-with
representatives from several USDA agencies as well as DOE and EPA- to
strengthen interagency relationships and to leverage information,
resources, and expertise to assist in implementing the Renewable Energy
Program. This group met again in December 2002 and January 2003.

o 	In November 2002, USDA issued a Federal Register notice announcing a
public meeting to solicit comments and suggestions from stakeholder groups
on how to implement the Renewable Energy Program. This meeting was held on
December 3, 2002.

o 	In February 2003, the Under Secretary for Rural Development requested
that all Rural Development State Directors designate a Rural Energy
Coordinator to, among other things, coordinate the implementation of the
Renewable Energy Program.

o 	In April 2003, USDA issued a Notice of Funds Availability (NOFA) in the
Federal Register inviting applications for grant assistance under the
Renewable Energy Program for fiscal year 2003. According to this notice,
$23 million was available for this program. Applications were initially
due by June 6, 2003. In May 2003, USDA issued another NOFA extending the
application deadline to June 27, 2003, and clarifying information
regarding requirements for financial information and utility
interconnection agreements.

50USDA is to carry out this program from the funds of the Commodity Credit
Corporation, a government-owned corporation within USDA.

51A rural small business must operate with 500 or fewer employees and $20
million or less in total annual receipts and must be headquartered in a
rural area.

52Projects using energy from these sources to produce hydrogen derived
from biomass or water are also eligible.

o 	In August 2003, USDA signed an Interagency Acquisition Agreement with
DOE to obtain its assistance in implementing the Renewable Energy Program.
Among other things, this agreement calls for DOE to assist USDA in
evaluating the technical aspects of proposals submitted for renewable
energy projects or energy efficiency improvements. In part, this agreement
also helps to fulfill the farm bill's requirement that USDA consult with
DOE in implementing the Renewable Energy Program. USDA's Rural Development
mission area made about $162,000 available for this purpose.

o 	In August 2003, USDA signed a contract with MACTEC Federal Programs
(MACTEC), a consultant, to develop a regulation for the program, including
proposed and final regulations to be published in the Federal Register.
USDA's Rural Development mission area made about $317,000 available for
this purpose.

o 	In May 2004, USDA issued a NOFA in the Federal Register inviting
applications for grant assistance under the Renewable Energy Program for
fiscal year 2004. According to this notice, $22.8 million is available for
this program in fiscal year 2004.53 Applications were to be postmarked by
July 19, 2004. As of August 2, 2004, USDA indicated that it received a
total of 56 applications for wind projects totaling about $10.8 million.54

In fiscal year 2003, wind power projects represented about one-third of
the projects selected and grant funds awarded under the Renewable Energy
Program, or 35 of the 114 grantees selected and $7.4 million of the $21.7
million awarded. The applicants selected for wind projects included four
farmers and 31 rural small businesses located in eight states. Table 6

53USDA's fiscal year 2004 appropriations act provided $23 million in
discretionary funding for the Renewable Energy Program-Consolidated
Appropriations Act of 2004, Pub. L. No. 108-199, Div. A, tit. III, 118
Stat. 24 (2004). However, an across-the-board rescission of 0.59 percent
applicable to all discretionary programs reduced the amount of funds
available by $136,000-Pub. L. No. 108-199, Div. H. S: 168(b). Funds
appropriated to the Renewable Energy Program are considered 1-year money;
i.e., the budget authority for any amount not obligated by the end of the
fiscal year in which the funds were appropriated lapses at the end of that
year and is no longer available for obligation.

54After the agency's initial review, including its consideration of
factors such as borrower eligibility, project eligibility, and financial
need, USDA was still actively considering 48 of these 56 applications as
of August 2, 2004. However, these applications are subject to further
review, including analysis of their environmental and technical merit.

summarizes the grant assistance provided for renewable energy projects,
including wind power, under the program in fiscal year 2003.

Table 6: USDA Grant Assistance for Renewable Energy and Energy Efficiency
Projects in 2003

Renewable Number of Agricultural Rural small Total amount technology

                      awards producers businesses awarded

                Biomass-anaerobic                            
                         digester    30        25          5 
                Biomass-bioenergy    17        11          6 
                    Total biomass    47        36      11         $11,475,535 
                       Wind-large    24        1       23    
                       Wind-small    11        3           8 
                 Total wind power    35        4       31           7,412,118 
                Geothermal/hybrid                            
                          systems     2        0           2          589,762 
                            Solar     6        5           1          725,566 
              Building/industrial                            
                energy efficiency    24        13      11           1,504,252 
                         Hydrogen     0        0           0 
                            Total    114       58      56         $21,707,233 

Sources: NREL and USDA.

Note: The distinction between large and small wind projects depends on the
capacity of the turbines to be installed. Small projects include
installation of a turbine with a capacity of up to and including 100 kW
and a generator hub height of 120 feet or less. Any turbine above this
threshold is considered large.

Notwithstanding the above actions, USDA's implementation of the Renewable
Energy Program in fiscal year 2004 remains incomplete. Although USDA has
issued a NOFA, it will again offer only grants, as was done in fiscal year
2003. According to USDA officials and documents, the Rural
Business-Cooperative Service (RBS)-the USDA agency responsible for
implementing the program-had planned to issue proposed and final versions
of the program regulation during fiscal year 2004 and to make awards of
loans and loan guarantees, as well as grants, during the year based on the
final regulation. However, RBS was not able to hold to this schedule.
According to RBS officials, they underestimated the time that would be
needed to develop and process the regulation. In this regard, they cited
several factors that have contributed to the time needed.

First, these officials said the Office of Management and Budget (OMB)
designated the regulation as "significant" according to Executive Order
12866, as amended.55 A regulation designated as significant is subject to
OMB review. Specifically, the executive order provides that significant
regulations are subject to review by OMB's Office of Information and
Regulatory Affairs. This office may take up to 90 days for its reviews at
the proposed and final regulation stages before publication of the
regulation in the Federal Register.56 In addition, the executive order
provides that agencies should afford the public a meaningful opportunity
to comment on any proposed regulation, which in most cases should include
a comment period of not less than 60 days.

Second, USDA has opted to apply the Administrative Procedure Act's notice
of proposed rule making and public comment requirements in certain
instances where not required by law. This policy, promulgated by former
Secretary of Agriculture Clifford Hardin, was published in the Federal
Register in 1971.57 The policy is known informally as the "Hardin memo."
Specifically, this memo provides, in part, that the public participation
requirements prescribed by the Administrative Procedure Act, 5 U.S.C. 553
(b) and (c), will be followed by all agencies of the department in rule
making relating to public property, loans, grants, benefits, or contracts.
Thus, while the act does not require notice and public comment for
regulations related to these matters, USDA's policy is to follow the
public participation requirements of the act for these types of
regulations as well. USDA officials noted that the Hardin memo is
consistent with the recommendations of the Administrative Conference of
the United States, and although the memo was promulgated more than 30
years ago, it remains in effect.

Third, delays occurred in contracting with MACTEC. This contract was
signed in August 2003, about 15 months after the farm bill's enactment
(May 13, 2002). Specifically, delays occurred with GovWorks, a federal
contract acquisition and administration office used by USDA to handle the

55Executive Order No. 12866, Regulatory Planning and Review, 58 Fed. Reg.
51735 (Sept. 30, 1993).

56OMB may return a proposed regulation to an agency for further
consideration.

5736 Fed. Reg. 13804 (July 24, 1971).

contract solicitation and administration.58 According to USDA officials,
GovWorks took longer than expected to complete the solicitation phase-
including advertising the solicitation and performing the initial
evaluation of applicants-due to staffing shortages and its
responsibilities for other major federal contracts. The solicitation
produced a number of applicants, from which four were selected for
interview by RBS staff. USDA officials indicated that it took additional
time to arrange these interviews. MACTEC was selected from among the final
four firms.

Fourth, USDA officials noted that the draft proposed program regulation is
a very large document-over 200 pages. Thus, the time needed for review is
longer. In early June 2004, USDA officials noted that the draft had been
under review within USDA since February and was now in final departmental
clearance. Among other offices, the Rural Development mission area, the
Office of General Counsel, and the Office of Budget and Program Analysis
have reviewed the draft. USDA officials noted that as much as possible,
the draft was reviewed concurrently by relevant offices and that the
Office of General Counsel assigned one of its attorneys virtually full
time to review the regulation in order to expedite that office's review.

Finally, USDA officials described the Renewable Energy Program as a new
and unique program. These officials said that neither USDA nor DOE had a
grant or loan program similar to it before its creation in the energy
title of the farm bill. Thus, USDA did not have an existing program to use
as a model for developing the program regulation. In addition, these
officials said that RBS staff were generally not familiar with renewable
energy technologies and thus needed to reach out to other agencies, such
as DOE and EPA, to obtain technical assistance. They also noted that
consultation with DOE is required in section 9006 of the farm bill.

Although USDA officials maintain that the agency's development in early
2004 of an emergency pilot program for developing renewable energy systems
from the use of diseased livestock as a process raw material for energy
generation was not a source of delay, it may have been a contributing
factor. This pilot program was announced in a NOFA

58GovWorks (GovWorks Federal Acquisition Center) is a Franchise Fund
established by Congress and OMB to offer administrative services for
procurement throughout the federal government. Organizationally, GovWorks
is located in the Department of the Interior's Minerals Management
Service.

published in the Federal Register on May 18, 2004. According to the NOFA,
this program is a further action to support USDA's efforts to address the
risks associated with bovine spongiform encephalopathy (BSE), also known
as mad cow disease. The NOFA states that RBS expects projects to be
constructed that will produce energy through the destruction of diseased
cattle.

Under the pilot program, USDA plans to provide guaranteed loans totaling
up to $50 million for up to three project proposals. USDA estimates the
cost of the pilot to be about $3.1 million, needed to fund the credit
subsidy costs. According to USDA officials, these funds will come from the
fiscal year 2004 appropriation for the Renewable Energy Program, reducing
the funds available to make grant awards under this program by an
equivalent amount. Although it will use funds from the Renewable Energy
Program, these officials said the pilot program is a distinct 1-year
program that will not be addressed in the regulation for the Renewable
Energy Program. Instead, the NOFA indicates that the program regulation
for USDA's Business and Industry Loan Guarantee Program is being used as
the basis for the delivery of the pilot program, with certain provisions
of that regulation revised to accommodate the pilot's purpose. For
example, changes to the guaranteed fee and the percent of guarantee were
made to provide a further incentive to lenders to participate in the pilot
program.

MACTEC, the same contractor that USDA is using to develop the proposed
regulation for the Renewable Energy Program, was also used to develop the
NOFA for the pilot program. The original contract with MACTEC was modified
for this purpose. Specifically, a contract amendment signed in February
2004 provided for additional payments of about $25,000 for this purpose,
increasing the total value of the contract to about $342,000. According to
the amendment, MACTEC was to begin work on the NOFA in late February 2004.
USDA officials indicated that MACTEC had delivered the draft proposed
program regulation for the Renewable Energy Program to USDA for review
prior to beginning work on the pilot program, and thus the work on the
pilot did not delay the work on the proposed program regulation. However,
progress reports prepared by MACTEC in March and April 2004 indicate that
there was overlap between the two efforts, although the reports do not
make clear whether work on the pilot delayed progress on the program
regulation.

USDA's Inability to Offer Loans and Loan Guarantees under the Renewable
Energy Program Limits This Program's Potential

USDA's continuing inability to offer loans and loan guarantees under the
Renewable Energy Program, as specified in the farm bill, limits the
agency's ability to achieve a much higher program level. For example,
according to USDA's fiscal year 2005 Budget Summary, the Consolidated
Appropriations Act for 2004 and the administration's budget proposal for
2005 provide sufficient funding for the Renewable Energy Program-about $23
million in 2004 and about $11 million in 2005-for $200 million in program
level each year, based on a combination of loans, loan guarantees, and
grants.59 This is possible because for direct loans and loan guarantees,
program funds would be needed only for the credit subsidy cost.60
Otherwise, direct loans are made from funds borrowed from the U.S.
Treasury, and guaranteed loans are made by private lending institutions.
Thus, a greater number of renewable energy projects could be financed. In
addition, providing loans or loan guarantees in conjunction with grants
could provide individual recipients with a greater level of assistance.
That is, while grants can be used to pay up to 25 percent of the eligible
project costs, a combination of grants and loans or loan guarantees may be
used to pay up to 50 percent of the eligible costs.61 In addition, loans
may be a more cost-effective way to provide federal assistance than
outright grants, as the funds used for loans are repaid by the recipient.

USDA's continuing inability to offer loans and loan guarantees under the
Renewable Energy Program also limits the program's potential benefits and
the agency's ability to achieve one of its performance goals: to increase

59As discussed, the $23 million appropriated for the Renewable Energy
Program in fiscal year 2004 was reduced by $136,000 per a rescission,
leaving $22.864 million available. Of this amount, the emergency pilot
program will use an estimated $3.1 million, reducing the funds available
to make grants under the Renewable Energy Program to about $19.8 million.
The administration's budget proposal for fiscal year 2005 includes $10.77
million in discretionary funds for the Renewable Energy Program.

60The credit subsidy cost is the estimated long-term cost to the
government of a direct loan or loan guarantee, excluding administrative
costs. Specifically, it is the present value-over the life of the loan or
guarantee-of payments by the government minus estimated payments to the
government.

61In determining the amount of a grant or loan, section 9006 of the farm
bill requires USDA to consider, as applicable, (1) the type of renewable
energy system to be purchased; (2) the estimated quantity of energy to be
generated by the system; (3) the expected environmental benefits of the
system; (4) the extent to which the system will be replicable; (5) the
amount of energy savings expected to be derived from the activity, as
demonstrated by an energy audit; (6) the estimated length of time it would
take for the energy savings generated by the activity to equal the cost of
the activity; and (7) other factors, as appropriate. In addition,
applicants must demonstrate financial need to receive a grant.

economic opportunity in rural areas. For example, USDA's fiscal year 2005
Budget Explanatory Notes indicate that the $21.7 million in grant awards
made in fiscal year 2003 under the Renewable Energy Program resulted in an
estimated 736 jobs created or saved and 100 million kWh of electricity
generated. However, the agency estimates that the addition of loans and
loan guarantees in fiscal year 2004 would result in (1) a program of about
$200 million, (2) an estimated 7,169 jobs created or saved, and (3) 888
million kWh of electricity generated.62 Jobs created or saved and
electricity generated are identified as key performance measures in the
Budget Explanatory Notes.

USDA's ability to offer loans and loan guarantees is also important
because of uncertainty regarding the Renewable Energy Program's future
funding. Although the program was fully funded in fiscal years 2003 and
2004, the administration's budget proposal for fiscal year 2005 provides
only $10.77 million of the $23 million authorized in the farm bill. If
enacted as proposed, this level of funding would represent less than 50
percent of the resources authorized for the program. Since direct loans
and loan guarantees require appropriations for only the credit subsidy
cost, not their full face value, they may result in making more financing
available at less cost to the government than outright grants. Also, the
ability to leverage greater amounts of private financing with loan
guarantees would take on added importance. Many stakeholder organizations,
including AWEA, the Environmental and Energy Study Institute, the American
Council for an Energy-Efficient Economy, and the Environmental Law and
Policy Center, have expressed concerns regarding this proposed cut.

USDA's Ability to Offer Loans and Loan Guarantees under the Renewable
Energy Program in Fiscal Year 2005 Is Uncertain and Questions Remain

In June 2004, USDA officials indicated that they anticipate publishing the
final regulation for the Renewable Energy Program in late spring 2005.
Specifically, documentation related to the agency's contract with MACTEC
indicates that the final regulation will be published in the Federal
Register on May 31, 2005. Assuming this schedule is met, only 4 months in
fiscal year 2005 would remain for (1) USDA to issue a notice in the
Federal Register announcing the availability of funds for loans, loan
guarantees, and grants; (2) program applicants to prepare project
proposals and applications, including obtaining professional assistance
from an engineer, financial adviser, or environmental consultant; and (3)
USDA to receive and analyze

62We did not independently assess the validity of these estimates.

program applications and to consult with DOE or EPA, as appropriate,
regarding the technical merit of the proposals. USDA officials
acknowledged that this would be a very tight schedule, but expressed the
view that they could offer loans and loan guarantees in fiscal year 2005
if this schedule is met.

However, questions remain as to when the proposed and final program
regulation will be published. The proposed regulation completed final
departmental clearance on June 23, 2004, and was sent to OMB for review.
As noted, OMB may take up to 90 days for its review. USDA must then make
revisions to the proposed regulation to address OMB's comments before its
publication in the Federal Register for public comment. USDA has already
revised its target date for publishing the proposed regulation several
times-from November 17, 2003, to May 24, 2004, to the fall of 2004.
Similarly, it has revised its target date to publish the final regulation
from June 7, 2004, to May 31, 2005.

USDA officials said that 60 days would be allowed for public comment on
the proposed regulation after its publication. In addition, they said they
expect a large volume of comments and that it will take time to review
these comments and consider revisions to the regulation. These officials
said they would consider options to speed up the agency's review,
including detailing additional staff to assist with this work. Once USDA
has completed its review of the comments and revised the regulation, as
appropriate, the agency will submit the final regulation to its internal
clearance process and then to OMB for review. Regarding its internal
clearance process, USDA officials said they would consider doing
concurrent reviews to speed up this process. However, these officials
noted that RBS lacks the authority or control to compel other offices in
USDA to expedite their reviews of the program regulation. These officials
noted that USDA's Office of Budget and Program Analysis is responsible for
overseeing the timely completion of this clearance process. Regarding
OMB's review, this agency again may take up to 90 days for its review.63

Any unanticipated problems could affect USDA's current plan to issue the
proposed regulation by the fall of 2004 and the final regulation by May
31, 2005. As noted, many delays already have been experienced in
developing

63According to Executive Order 12866, as amended, if there has been no
material change in the facts and circumstances upon which the regulatory
action is based, OMB's review should be completed within 45 days.

this regulation. Further delays, possibly pushing the publication date for
the final regulation beyond May 31, 2005, would likely preclude USDA from
offering loans and loan guarantees in fiscal year 2005, as was the case in
fiscal years 2003 and 2004. The Renewable Energy Program was authorized
for 5 years-fiscal years 2003 through 2007. If USDA is unable to offer
loans and loan guarantees again in fiscal year 2005, only 2 years will
remain to utilize all of the financial mechanisms provided by the
legislation. As noted, utilization of these mechanisms would increase the
program level and benefits. In this regard, eight members of the Senate
Agriculture Committee sent a letter to USDA in June 2004 noting that a
third year without a final regulation in place could impede and undermine
the full potential of the Renewable Energy Program. Accordingly, they
urged USDA to issue the proposed and final rules as soon as possible.

Another concern is staffing. RBS's Processing Branch has lead
responsibility for implementing the Renewable Energy Program. This branch
is also responsible for administering five other national grant or loan
programs.64 According to USDA officials, the branch has been able to
implement the Renewable Energy Program as a grant program to date without
the need for additional staff. However, these officials said that once
USDA starts to offer loans and loan guarantees under the Renewable Energy
Program, staffing could become an issue. Currently, the branch has four
program specialists in addition to the Branch Chief. According to the
Chief, administering a loan program is more complicated than a grant
program, and therefore a loan program requires more staff resources and
time. For example, administering a direct loan program requires agency
resources to handle loan origination, processing, and servicing functions.

USDA Has Taken Some Actions to Promote Wind Power through Other Programs

Aside from its actions to implement specific provisions of the 2002 farm
bill to promote wind power, USDA has provided additional assistance for
this purpose under several of its programs. For example:

o 	From May 1997 through March 2004, USDA provided about $13.3 million in
grant and loan assistance to 25 rural electric cooperatives or small
businesses to procure or manufacture small wind turbines for on-farm use.

64These programs are the Rural Business Enterprise Grant Program, Rural
Business Opportunity Grant Program, Intermediary Relending Program, Rural
Economic Development Loan Program, and Rural Economic Development Grant
Program.

o 	In 2001, the Animal and Plant Health Inspection Service entered into an
agreement with a local utility to purchase 25 percent of the electricity
used at its National Wildlife Research Center in Colorado from
windgenerated sources.

o 	In fiscal year 2003, USDA provided a $2.5 million grant under its High
Energy Cost Program to the Alaska Village Electric Cooperative to address
high energy costs in Chevak, Alaska, an impoverished community of about
800 residents. Among other things, the funds will be used for a wind
generation system.

o 	In October 2003, USDA signed a memorandum of understanding with the
National Rural Electric Cooperative Association to increase the use of
renewable resources to generate electricity. The agreement provides for
cooperation in conducting renewable energy technology research and for
conducting education and outreach to promote the use of renewable energy
resources, such as biomass, solar, and wind power, in rural areas.

o 	The Agricultural Research Service conducts research and development to
lower the costs of wind generation for isolated farms, ranches, and rural
communities that lack access to affordable and reliable electrical energy.
Currently, the service is conducting research with Sandia National
Laboratories on lowering the costs of wind turbine blades, which account
for more than 50 percent of the cost of new wind turbines.

USDA May Have Opportunities to Obtain Additional Assistance from EPA

In implementing the Renewable Energy Program, USDA may also be missing
opportunities to obtain further assistance from EPA. USDA's rural energy
working group included a representative from EPA's AgStar Program, but
this program is focused solely on the production of power from the
anaerobic digestion of biomass such as livestock manure.65 According to
EPA officials, other EPA offices also may be able to offer information,
resources, and expertise to assist USDA's implementation of the Renewable
Energy Program for other renewable sources, including wind power. For
example, an official in EPA's Office of Air and Radiation said that this
office has extensive contacts with the electric power utilities

65The anaerobic digestion of biomass produces methane gas, which can be
used to power a generator that produces electricity.

through its Green Power Partnership Program, and could therefore help
Renewable Energy Program applicants find buyers for the electricity they
will generate and negotiate related power purchase agreements. In
addition, this office could help answer applicants' questions on project
site selection and permitting for environmental impacts, where applicable.

USDA officials said they recognize that other EPA offices may be able to
offer assistance and that they would welcome such assistance. However,
these officials noted that the rural energy working group has not met
since January 2003, having identified at that time the information,
resources, and expertise available from the group's participants to assist
USDA's implementation of the Renewable Energy Program. There are no plans
for the group to meet again. More recently, USDA officials indicated that
they are considering an interagency acquisition agreement with EPA to
obtain technical assistance from the AgStar program in reviewing project
proposals for anaerobic digestion. This agreement would be similar to the
agreement USDA has with DOE regarding the review of project proposals for
other renewable energy technologies. According to the Chief of RBS's
Processing Branch, he has had discussions with the lead EPA official for
the AgStar program as to whether other EPA offices should be included in
this agreement; as of June 2004, USDA officials said this matter was still
under discussion.

Stakeholders Are Concerned about the Complexity and Short Time Frames for
Submitting Applications under the Renewable Energy Program

Various stakeholders have expressed concerns about the complexity and
short time frames for submitting grant applications under the Renewable
Energy Program. For example, in the course of our fieldwork during 2003,
we heard a number of concerns from farmers and others about the complexity
of this application process and the short time frames for completing and
submitting applications. The applications must include economic
feasibility studies, tentative agreements with an electricity buyer,
financial information demonstrating need under the program, and
information for completing environmental assessments. USDA officials
acknowledged some of these concerns and indicated they have been and
continue to look for ways to simplify the application process. However,
these officials also cautioned that renewable energy projects are, by
their nature, legally, technically, and financially complicated ventures,
and, consequently, it is not surprising that applicants might find the
application process difficult and need the assistance of an attorney,
engineer, or financial consultant.

Regarding the complexity of the application process, USDA officials noted
they have applied lessons learned from the agency's experience under the
fiscal year 2003 grant program to the fiscal year 2004 program. The NOFA
for the fiscal year 2003 program invited comments from applicants and
other stakeholder groups. USDA officials said they considered these
comments and other subsequent comments that have been received from
various stakeholders over the past year. As a result, the NOFA for the
fiscal year 2004 grant program is about three times as long as the one for
the previous year. Among other changes, the 2004 NOFA contains specific
application guidance for each renewable energy technology covered by the
program.

Regarding time frames, USDA initially gave applicants 2 months to submit
their applications under the fiscal year 2003 grant program. Specifically,
USDA issued a NOFA in the Federal Register on April 8, 2003, with a
requirement that applications be postmarked no later than June 6, 2003.
However, in part because of complaints from applicants and other
stakeholders regarding the short time frame, USDA issued a subsequent
notice in the Federal Register on May 19, 2003, to extend the application
deadline to June 27, 2003.66 As for the fiscal year 2004 program, USDA
issued the NOFA on May 5, 2004, with a requirement that the applications
be postmarked no later than 75 calendar days after the date of the
published notice (July 19, 2004). Although USDA's issuance of the 2004
NOFA fell a month later in the fiscal year than the 2003 NOFA's issuance
and the time frame allowed under the 2004 NOFA is shorter than that
allowed under the 2003 NOFA (including the extension), USDA officials said
they believed the time allowed in 2004 is sufficient. They noted that the
guidance in the 2004 NOFA is more detailed than the 2003 NOFA. They also
said that the agency's rural energy coordinators encouraged potential
program applicants to begin pulling together information needed for
environmental assessments even before the 2004 NOFA was published.

In June 2004, USDA officials also said they expect to receive further
detailed comments on the application process and other aspects of the
program when the proposed program regulation is published in the Federal
Register for comment later in 2004. These officials indicated they would
use these comments to consider further refinements to the application

66USDA also issued the subsequent notice to clarify the financial
requirements for agricultural producers and requirements for utility
interconnection agreements and power purchase arrangements.

process. Also in June 2004, we discussed with these officials the
potential advantages of surveying program applicants, the agency's rural
energy coordinators, and other stakeholders, as appropriate, regarding
their views as to how the application process could be improved and
streamlined. We suggested that a survey would comprehensively document
problems and related suggestions to better inform USDA as to the severity
or extent of the problems cited and whether corrective actions are
warranted. USDA officials indicated they did not think a survey is needed
in addition to the comments already received and those expected after
publication of the proposed regulation. They also noted the rural energy
coordinators often provide information on problems or concerns related to
the application process during monthly conference calls with USDA's Rural
Development state offices.

Conclusions	USDA has yet to utilize all of the financial mechanisms of the
farm bill's Renewable Energy and Energy Efficiency Improvements Program.
Among other things, USDA has not issued the final program regulation yet
that would allow it to offer loans and loan guarantees, as well as grants.
The addition of loans and loan guarantees would allow USDA to achieve a
much higher level of program activity, potentially increasing the number
of projects financed and providing benefits such as increased economic
opportunities in rural areas. Loans may also be a more cost-effective way
to provide federal assistance than outright grants. In addition, the
provision of loans or loan guarantees in conjunction with grants would
enable USDA to offer a greater level of assistance to program applicants.

While USDA has taken a number of actions to coordinate its efforts to
implement the program internally and externally, it may be missing
opportunities to leverage information, resources, and expertise that may
be available from EPA, such as from EPA's Office of Air and Radiation.

Finally, applicants and other stakeholders have raised concerns regarding
the complexity of the application process for the program, as well as the
limited time frame provided for submitting these applications. USDA's
continued collection and consideration of these concerns may identify ways
to improve and streamline this process.

Recommendations	To ensure USDA's timely and effective implementation of
the farm bill's Renewable Energy Systems and Energy Efficiency
Improvements Program,

we recommend that the Secretary of Agriculture direct the Rural
Business-Cooperative Service to take the following actions:

o 	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.

o 	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.

o 	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 Comments	We provided a draft of this report to USDA for review and
comment. We received written comments from USDA's Acting Under Secretary
for Rural Development, which are reprinted in appendix VI. USDA also
provided us with suggested technical corrections, which we have
incorporated into this report, as appropriate.

USDA agreed with our recommendations and provided information on how it
planned to implement them. Specifically, the Acting Under Secretary for
Rural Development stated that the agency is continuing to expedite the
development of the program regulation, noting that it is in the best
interests of all parties to expedite the rule making process. This
official stated further that the agency would work with EPA officials to
identify EPA offices that could provide USDA with information, resources,
or expertise to implement the program and that a draft interagency
agreement, which it planned to execute before the end of the fiscal year,
would allow USDA to fund specific support activities provided by EPA.
Finally, this official stated that the agency would continue to examine
ways to simplify the program application process through consultation with
DOE, EPA, and other interested stakeholders, including those commenting on
the proposed rule making during its 60-day comment period.

We also provided a draft of this report to DOE and EPA for review and
comment. These agencies provided us with suggested technical corrections,
which we incorporated into the report, as appropriate.

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
the date of this letter. We will then send copies to interested
congressional committees; the Secretary of Agriculture; the Secretary of
Energy; the Administrator, Energy Information Administration; the
Director, Office of Management and Budget; and other interested parties.
We will also make copies available to others on request. In addition, the
report will be available at no charge on GAO's Web site at
http://www.gao.gov.

If you have any questions about this report, please contact me at (202)
5123841. Key contributors to this report are listed in appendix VII.

Sincerely yours,

Lawrence J. Dyckman Director, Natural Resources

and Environment

Appendix I

                       Objectives, Scope, and Methodology

At the request of the Ranking Democratic Member, Senate Committee on
Agriculture, Nutrition, and Forestry, we agreed to examine (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 and rural
communities of owning a wind power project or leasing their land to a
commercial wind power developer, and (4) the efforts of the U.S.
Department of Agriculture (USDA) to promote the development of wind power
on farms and in rural communities.

To determine the amount of wind power generation in relation to all U.S.
electricity generation and the prospects for wind power's growth, we
interviewed officials or reviewed the documentation they provided at the
Department of Energy's (DOE) Energy Information Administration (EIA),
Office of Energy Efficiency and Renewable Energy, National Renewable
Energy Laboratory (NREL), and Wind Powering America program. We also
interviewed officials or reviewed documentation from the American Wind
Energy Association (AWEA), Bonneville Power Administration, Edison
Electric Institute, Electric Power Research Institute, Environmental and
Energy Study Institute, Interstate Renewable Energy Council, Windustry (a
rural-based, wind stakeholder organization), Union of Concerned
Scientists, Energy Foundation, California Wind Energy Collaborative, and
National Corn Growers Association. From these sources we were able to
determine the extent of wind power capacity installed in the United
States, including a state-by-state breakdown, and information on the wind
potential of various parts of the United States.

These sources also provided information on prospects for wind power's
growth, including factors that may either constrain or promote it.
Regarding these factors, we also reviewed our own past work, relevant
publications of the Congressional Budget Office and the Congressional
Research Service, and applicable laws, regulations, and executive orders.
Concerning one of these factors-production tax credits-we spoke with staff
of the Congressional Joint Tax Committee and the Department of Treasury,
as well as two tax lawyers and a certified public accountant who
specialize in these tax issues. In addition, we reviewed relevant
literature addressing the growth potential of wind power and discussed
data related to these projections with DOE officials.

Appendix I
Objectives, Scope, and Methodology

We also asked EIA to use its National Energy Modeling System to forecast
wind power's growth by 2025 under two scenarios. EIA uses this
computerbased model to annually forecast future energy supply, demand, and
prices, typically over a 20-year period.1 The model uses assumptions
regarding economic growth; changes in world energy prices; technology,
demographic, and other trends; and the possible changes to current laws
and regulations. In short, the first scenario-EIA's reference case-
assumed that the authorization for the federal production tax credit would
expire and not be available after December 2003. The second scenario
assumed that authorization for the production tax credit would continue
through December 2010.2 Other assumptions, including those for demographic
and other trends, price increases for fossil resources, and current laws
and regulations, were held constant in modeling these scenarios. In
addition, EIA assumed that further design and technological improvements
in turbines-known as the "learning effect"-would occur in both scenarios.
However, the agency assumed that this effect would be greater in the
second scenario due to the continued availability of the production tax
credit. Specifically, the continued availability of this credit would lead
to greater interest in wind power, spurring further design and
technological improvements. These improvements would result in more
efficient and productive turbines, making wind power more competitive with
fossil fuels.

To determine 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, we started with the
information collected above to identify the relevant states. In
particular, we used data developed by DOE and AWEA to determine the 10
states with the largest amount of wind power generating capacity as of
December 2002; these states represented about 90 percent of the nation's
wind generating capacity at that time.3 From this list of 10 states, we
selected 5 states to visit: the 4 states with the largest generating
capacity-California, Texas, Minnesota, and Iowa-and the
state-Colorado-that had the 10th largest

1The National Energy Modeling System and EIA forecasts made with this
model are discussed in Annual Energy Outlook 2004, with Projections to
2025, DOE/EIA-0383(2004), January 2004. See also www.eia.doe.gov.

2EIA assumed that the value of the production tax credit is kept at an
inflation-adjusted 1.8 cents per kWh in year 2002 dollars.

3As of December 2002, these 10 states were California, Colorado, Iowa,
Kansas, Minnesota, Oregon, Texas, Washington, West Virginia, and Wyoming.

Appendix I
Objectives, Scope, and Methodology

capacity. We chose Colorado as a point of contrast-unlike the top four
states, Colorado had few state programs to promote wind power. For each
state, we collected information on the number of farms; the types of
agriculture crops produced; total farm income; farm, ranch, and rural
lands acreage; wind energy generation sources; and state policies and
financial and tax incentives designed to encourage wind power development.
We obtained this information from a variety of sources, including USDA's
Farm Services Agency, Economic Research Service, and National Agricultural
Statistics Service, and state and local taxing authorities.

In the five states, we then visited nine wind projects in 10 counties to
obtain information on specific wind power projects.4 In addition, we
visited two other wind projects during the course of our work, but we did
not obtain detailed information on these projects. To select the projects
visited, we compared lists of wind projects for each state; we obtained
these lists from AWEA, Windustry, and the states of California, Iowa, and
Minnesota. From these lists we selected a mixture of leased, farmer-owned,
and community-operated wind projects that also were geographically
dispersed within a state. In addition to operating projects, we sought
information on projects that may have failed in the past 5 years; however,
federal, state, and local officials were unaware of any such failures in
these states.

Our work focused on utility-scale wind power projects-projects that
generate at least 1 megawatt (MW) of electric power (from one or more
turbines) annually for sale to a local utility. Utility-scale wind power
accounts for over 90 percent of wind power generation in the United
States. In addition, we defined "community projects" as those operated by
a municipal or rural utility or by a school district. At the project
locations, we generally met with landowners, project owners and investors,
state and local taxing authorities, community leaders, and electric
utility officials. To some extent, our work was limited because we did not
have access to cost and income data of a proprietary nature. In other
cases, we were able to obtain this information but used it only to develop
ranges.

In addition, we asked NREL to model the economic impact of wind power
projects on the counties we visited. Specifically, we asked NREL to use
its Wind Impact Model to assess the employment and income impacts of three
hypothetical scenarios on the 10 counties included in our visits. The

4In some cases, we visited more than one project in a county. In other
cases, a project straddled two counties.

Appendix I
Objectives, Scope, and Methodology

scenarios were (1) a 150 MW project that is owned by an out-of-state firm,
(2) a 40 MW project that is owned by an out-of-state firm, and (3) several
small projects with total capacity of 40 MW that are owned by county
residents. This modeling work, including related assumptions, is discussed
in greater detail in appendix III.

To determine the advantages and disadvantages for farmers and rural
communities of owning a wind power project or leasing their land to a
commercial wind power developer, we interviewed officials or reviewed
documentation from DOE's NREL and Wind Powering America program; AWEA; the
Environmental and Energy Study Institute; the National Wind Coordinating
Committee; Windustry; the Izaak Walton League of America; and the Union of
Concerned Scientists. The documentation we reviewed covered issues such as
wind project economics and development, research, technology, site
selection, electricity transmission, economic and legal constraints, and
various federal and state incentives. We also discussed these issues with
farmers, landowners, wind project investors, state and local government
officials, including local taxing authorities, and others during the
course of our site visits.

To determine USDA's efforts to promote the development of wind power on
farms and in rural communities, we interviewed officials or reviewed
documentation from USDA's Agricultural Research Service, Economic Research
Service, Office of Energy Policy and New Uses, Natural Resources
Conservation Service, Rural Business-Cooperative Service, Rural Utilities
Service, and Office of General Counsel. In particular, we reviewed USDA's
efforts to implement the Renewable Energy Systems and Energy Efficiency
Improvements Program (Renewable Energy Program) provided for in section
9006 of the 2002 Farm Security and Rural Investment Act (farm bill). We
also spoke with USDA officials and reviewed documents they furnished to
determine the extent to which USDA provided assistance under other rural
development loan or grant programs for wind project research, planning, or
construction. In addition, regarding USDA's implementation of the
Renewable Energy Program, we discussed USDA's consultation with DOE and
the Environmental Protection Agency (EPA) with officials from all three
agencies. Furthermore, during our site visits in the selected states, we
discussed with farmers, ranchers, and rural small business officials the
financial or technical assistance they may have received from USDA or
other federal agencies in developing their wind power projects. We also
discussed with them their experiences with the application process for
seeking assistance under the section 9006 program, including obtaining
information on the

Appendix I
Objectives, Scope, and Methodology

program and completing the application, as well as obtaining information
and assistance from USDA or other sources on the factors-economic,
technical, and legal-that need to be considered before embarking on a wind
project. Finally, we reviewed written comments submitted to USDA in
response to a December 2002 public meeting to solicit suggestions from
interested stakeholders about USDA's implementation of the section 9006
program.

Finally, to get a better sense of what the federal government is doing
more generally to promote wind power generation and how these efforts may
be coordinated with USDA's efforts to foster its development on farms and
in rural communities, we spoke with officials or reviewed documentation
from DOE, USDA, the Department of Defense, the Department of the Interior,
and EPA.

We conducted our review from February 2003 through August 2004 in
accordance with generally accepted government auditing standards. We did
not independently verify the data obtained from the sources noted above.
However, as appropriate, we discussed with these sources the measures they
take to ensure the accuracy of these data. These measures seemed
reasonable. Appendix II provides further information on the sources used
in our work.

Appendix II

Sources for Information on Wind Power Generation

Following are the names, addresses, and Web sites for sources of
information on wind power generation used in our work.

American Wind Energy Association
122 C Street, NW, Suite 380
Washington, DC 20001
(202) 383-2504
www.awea.org

California Wind Energy Collaborative
University of California, Davis
One Shields Avenue
Davis, CA 95616
(530) 752-7741
www.cwec.ucdavis.edu

Edison Electric Institute
Alliance of Energy Suppliers
701 Pennsylvania Avenue, NW
Washington, DC 20004-2696
(202) 508-5652
www.eei.org/alliance

Electric Power Research Institute
3412 Hillview Avenue
P.O. Box 10412
Palo Alto, CA 94304
(800) 313-3774
www.epri.com

Energy Information Administration
U.S. Department of Energy
Forrestal Building
1000 Independence Avenue, SW
Washington, DC 20585
(202) 586-6582
www.eia.doe.gov

Appendix II
Sources for Information on Wind Power
Generation

Environmental and Energy Study Institute
122 C Street, NW, Suite 630
Washington, DC 20001
(202) 628-1400
www.eesi.org

Interstate Renewable Energy Council
P.O. Box 1156
Latham, NY 12110-1156
(518) 458-6059
www.irecusa.org

Izaak Walton League of America
Midwest Office
1619 Dayton Avenue, #202
St. Paul, MN 55104
(651) 649-1446
www.iwla.org

Minnesota Department of Commerce
Energy Information Center
121 7th Place East, Suite 200
St. Paul, MN 55101
(800) 657-3710
www.commerce.state.mn.us

National Renewable Energy Laboratory
National Wind Technology Center
1617 Cole Boulevard
Golden, CO 80401
(303) 384-6979
www.nwtc.nrel.gov

National Rural Electric Cooperative Association
4301 Wilson Boulevard
Arlington, VA 22203
(703) 907-5500
www.nreca.org

Appendix II
Sources for Information on Wind Power
Generation

National Wind Coordinating Committee
1255 23rd Street, NW
Washington, DC 20037
(888) 764-WIND
www.nationalwind.org

Union of Concerned Scientists
Energy Program
2 Brattle Square
Cambridge, MA 02238
(617) 547-5552
[email protected]

Utility Wind Interest Group
2111 Wilson Boulevard, Suite 323
Arlington, VA 22201-3001
(703) 351-4492, ext. 121
www.uwig.org

U.S. Department of Agriculture
Agricultural Research Service
Conservation and Production Research Laboratory
P.O. Drawer 10
2300 Experiment Station Rd.
Bushland, TX 79012
(806) 356-5734
www.cprl.ars.usda.gov

U.S. Department of Agriculture
Rural Business-Cooperative Service
Renewable Energy and Energy Efficiency Program
1400 Independence Avenue, SW
Washington, DC 20250
(202) 720-1497
www.rurdev.usda.gov/rbs/farmbill/index.html

Appendix II
Sources for Information on Wind Power
Generation

U.S. Department of Energy
Wind Energy Program
Forrestal Building
1000 Independence Ave., SW
Washington, DC 20585
(202) 586-5348
www.eren.doe.gov/wind

Windustry
2105 First Avenue
S. Minneapolis, MN 55404
(612) 870-3461
www.windustry.org

Appendix III

Results of NREL Modeling on Potential Economic Impacts of Wind Power on
Rural Communities

We asked NREL to model the economic impact of wind power projects on the
counties we visited during our review. This appendix describes the model
used for the analysis, including the key data inputs and parameters. It
also describes the model results.

NREL has retained the services of MRG & Associates, a consulting firm (the
firm) that specializes in energy economic analysis. The firm developed the
Wind Impact Model (the model) to assess the impact of wind power
investments on employment, earnings, and economic output at the state and
local levels. Economic output as defined in the model is a measure of
economic activity (value of production) on the state or local level that
is similar to the measure of the gross domestic product on the national
level. For simplicity, this appendix refers to economic output as
"income."

We asked NREL to assess the employment and income impacts of three
hypothetical scenarios on 11 counties in the five states we visited. The
scenarios are: (1) a 150 MW project that is owned by an out-of-state firm,
(2) a 40 MW project that is owned by an out-of-state firm; and (3) several
small projects totaling 40 MW of capacity that are owned by county
residents. Table 7 lists the 11 counties for which the firm conducted the
analysis. We selected these counties because we determined that the NREL
analysis would be an appropriate complement to our visits. We also
believed that our visits would give us some general sense of the economic
conditions of the counties, helping us judge the differences in
assumptions regarding the counties in NREL's modeling.

                                  Appendix III
                     Results of NREL Modeling on Potential
                    Economic Impacts of Wind Power on Rural
                                  Communities

Table 7: Counties Included in NREL's Economic Analysis

                            State     County         Wind project visited     
                       California     Alameda            Altamont Pass        
                       California     Solano              High Winds          
                         Colorado            Weld          Ponnequin          
                             Iowa   Buena Vista           Storm Lake          
                             Iowa    Cherokee             Storm Lake          
                             Iowa    Dickinson            Spirit Lake         
                        Minnesota    Pipestone        Woodstock, Kas Brothers 
                        Minnesota            Rock      Minwind I and II       
                            Texas      Pecos              Indian Mesa         
                            Texas      Upton            Southwest Mesaa       
                            Texas     Crocket           Southwest Mesaa       

Source: GAO.

aWe did not visit the Southwest Mesa project, but it is close to Indian
Mesa, and we discussed it with the common owner, FPL Wind.

The Wind Impact Model	The model provides a tool that can be used by wind
power developers, decision makers, and others to identify the local
economic impacts associated with constructing and operating wind power
projects. The model, based on a spreadsheet, emulates, on a small scale,
the basic function of an input-output model. It relies on input-output
multipliers that, in this case, estimate how much a dollar of expenditures
injected into an economy will generate in total employment or income.
Employment and income multipliers for a given sector of a state's or a
county's economy depend on the spending patterns and the specific economic
structure of the jurisdiction in question. The source of the multipliers
used in the model is Minnesota IMPLAN Group Inc., whose databases and
modeling system are used by many government agencies, academic
institutions, and other researchers worldwide for economic impact modeling
and analyses.

Input-output models are used to trace supply linkages in the economy. For
example, an input-output model of wind power would show how investments in
wind turbines benefit turbine manufacturers as well as fabricated metal
industries and others businesses supplying inputs to those manufacturers.
An input-output analysis of local benefits generated by wind power project
expenditures would depend upon how much of those expenditures are spent
locally and the structure of the local economy.

Appendix III
Results of NREL Modeling on Potential
Economic Impacts of Wind Power on Rural
Communities

Different levels of expenditures support varying levels of employment,
income, and output, consistent with the spending pattern and local
economic structure.

"Inputs" into the model include cost data for a given wind power project
and parameters that characterize the particular state-or county-level
economy being analyzed. Multipliers are used on the input data to
calculate the "outputs," which are the estimated employment and income
impacts of the project.

The model is designed to examine economic impact on the state or county
levels, and it does so separately for the "construction period" and
"operating years" of a wind power project. Construction phase impacts are
reported as a 1-year equivalent of the incremental change to state or
county employment, earnings, and income attributable to a new project. For
example, if a project results in full-time employment of 200 workers for 6
months, the model will "see" this effect as 100 full-time jobs added for 1
year. On the other hand, a model output of 25 jobs for the operating years
of a project means that this project is expected to employ (directly at
the plant and indirectly) 25 full-time equivalent workers annually over
its lifetime.

The model divides a state or county economy into 14 sectors.1 For each
sector, the model has three sets of employment, earnings, and income
multipliers. One set is for direct effects, another for indirect effects,
and a third for induced effects. In the case of a 150 MW wind power
project, for example, the construction period direct employment effect
includes the onsite jobs of the contractors and crews hired to build the
project and jobs at the manufacturing plants that produce the turbines. In
the operating years, the direct employment effect includes all of the
workers who are employed directly by the project (field technicians,
administrative staff, and project managers) as well as employment directly
supported by expenditures for goods and services used by the plant. The
indirect employment effect includes employment that results because
suppliers of goods and services to the project also procure goods and
services from others. The contractor who builds the project, for example,
procures goods and services from

1These sectors are agriculture; construction; electrical equipment;
fabricated metals; finance, insurance, and real estate; government;
machinery; mining; other manufacturing; professional services; other
services; retail trade; transportation, communication and public
utilities; and wholesale trade.

                                  Appendix III
                     Results of NREL Modeling on Potential
                    Economic Impacts of Wind Power on Rural
                                  Communities

bankers, accountants, suppliers of construction and other materials, and
others. Finally, the induced employment effects refer to the change in
employment that occurs due to the spending of those persons directly and
indirectly generating income associated with the project. Direct,
indirect, and induced income effects follow the same logic.

Model Inputs	A major portion of the required "inputs" into the model are
cost data, including the following:

o  construction costs-for materials and labor, for example;

o  equipment costs for such things as turbines, rotors, and towers;

o 	other construction period costs, such as for interconnection to the
electric grid, engineering services, land easements, and permitting;

o 	annual operating and maintenance costs, including payroll of direct
employees, material, and various services; and

o  financing and lease costs and taxes.

Other inputs include estimates of "local share value" for certain dollar
expenditures and labor. For example, a 10 percent local share value for
construction material expenditures for Pecos County, Texas, means that,
for a wind project being built in this county, the model assumes that only
10 percent of the value of project expenditures on construction materials
accrues to local vendors. The relatively low number means that Pecos
County has a limited economy and much of the construction material needed
for the project would have to be obtained from outside the county-possibly
from neighboring urban centers, such as the cities of Midland-Odessa and
Lubbock, or from out-of-state locations. Similarly, for Pecos County, the
model assumes that only 10 percent of the labor used for laying the
foundations for the project's turbines would be hired locally. In
contrast, the corresponding percentages for Alameda County, California-a
county with a much larger population and larger and more diversified
economic base-would be 90 percent for the local share of construction
material expenditures and 100 percent for the local share of labor used
for foundation work.

                                  Appendix III
                     Results of NREL Modeling on Potential
                    Economic Impacts of Wind Power on Rural
                                  Communities

The Interaction between Local Share Values and Multipliers

The local share values and multipliers used in the model determine how an
expenditure of a particular type translates into employment and income
impacts on a county's economy. The interaction between the model inputs
may be partly illustrated by comparing Rock County, Minnesota, with Weld
County, Colorado.

o 	For Rock County, the model assumes the local share value for
construction expenditures is 4 percent. The model also uses a direct
employment multiplier of 10.1 jobs for every $1 million spent on
construction in the county.

o 	For Weld County, the model assumes the local share value for total
construction expenditures is 76 percent, and the direct employment
multiplier is 8.3 jobs for every $1 million spent on construction in the
county.

The differences in the local share values and multipliers for these two
counties are attributable to the differing population and economic
characteristics of these counties. Rock County is rural, with a small
population and economic base, and thus the project developer must obtain
much of the construction material, equipment, and labor needed from
outside the county. In contrast, Weld County has a much larger population
and economic base capable of fulfilling more of the developer's material
and labor needs.

On the other hand, the direct construction employment multiplier for Rock
County, at 10.1 jobs per million dollars of expenditure, is somewhat
higher than the corresponding multiplier of 8.3 for Weld County,
reflecting a more labor-intensive local economy in the former.

The difference in local share values and employment multipliers for Rock
County, Minnesota, and Weld County, Colorado, results in bigger employment
impacts of a wind power project in the latter. For example, the model
assumes that the construction of a 150 MW project will cost about $15
million in each county.2 However, in the case of Rock County, only about
$600,000 of this amount will be spent within the county, while the
corresponding local share for Weld County will be $11.5 million.
Consequently, according to the model results, the $15 million construction

2The model assumes uniform costs across the United States.

                                  Appendix III
                     Results of NREL Modeling on Potential
                    Economic Impacts of Wind Power on Rural
                                  Communities

project results in direct construction phase employment for Rock County of
only 16 jobs compared with 141 jobs for Weld County.

Model Results	We have not summarized all model results-to do so would
involve publishing 33 large tables. However, those we do include are
illustrative of the results we found. Overall, the model results showed
that employment and income impacts

o 	tend to be greater for counties that are more highly populated and have
a larger economic base, and

o 	are considerably greater for projects that are locally owned than for
projects that are owned by out-of-area firms.

As discussed, the model estimates economic impacts for the construction
period separately from impacts during the years of the project's
operation. Tables 8 and 9 summarize the model's estimates of economic
impacts for the construction period, while tables 10 through 12 summarize
the estimates for the years of operation. Estimates for the construction
period are 1-year impacts.

Construction Period Impacts	Table 8 shows the economic impacts of
constructing a 150 MW wind power project owned by an out-of-area energy
company (a company headquartered outside the county). Table 9 depicts the
impacts of constructing a 40 MW project owned by an out-of-area company.
As depicted in these tables, the economic impacts during the construction
period are bigger for counties that have a larger population and economic
base. For example, the impacts of constructing a 150 MW project on Weld
County, Colorado, would include the creation of the equivalent of 349
fulltime jobs for 1 year. Weld County has a population of over 200,000. In
contrast, the construction of a 150 MW project in Pecos County, Texas,
would create the equivalent of only 36 full-time jobs for 1 year in the
county. Pecos County has a much smaller population-about 16,000 people-and
economic base. Thus, most of the labor and professional staff resources
needed to construct the project would be hired from outside the county.

                                  Appendix III
                     Results of NREL Modeling on Potential
                    Economic Impacts of Wind Power on Rural
                                  Communities

Table 8: Economic Impacts during Construction Period of 150 MW Wind Power
    Project Owned by Out-of-Area Energy Company Model results Direct impacts
                        Indirect impacts Induced impacts

                   Total impacts (direct, indirect, induced)

                             2003 population (thousands) 2003 personal income

(billions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions)

      Alameda,                                                         
       Calif.       1,501 $60.52  130  $19.09 76 $10.99 108 $12.67 314 $42.75 
Solano, Calif.     420  11.71  139  19.09  78 10.62  105 10.64  321  40.35 
     Weld, Colo.      211  4.68   141  17.47  91 12.48  117 10.82  349  40.77 
    Buena Vista,                                                       
        Iowa           20  0.52    23   1.95  11  1.44  13   1.15  47    4.54 
      Cherokee,                                                        
        Iowa           13  0.33    17   1.28  6   0.67  10   0.83  33    2.78 
     Dickinson,                                                        
        Iowa           17  0.53    23   1.95  7   0.48  10   0.65  40    3.09 
     Pipestone,                                                        
        Minn.          10  0.28    18   1.28  3   0.23   7   0.41  28    1.92 
     Rock, Minn.       10  0.25    16   1.28  4   0.50   6   0.52  27    2.30 
Crockett, Tex.       4  0.07    14   1.28  3   0.22   4   0.27  21    1.76 
     Pecos, Tex.       16  0.24    24   1.95  4   0.30   8   0.53  36    2.77 
     Upton, Tex.        3  $0.06   18  $1.28  1  $0.13   2  $0.17  22   $1.57 

Source: NREL.

Note: Totals are subject to rounding.

                                  Appendix III
                     Results of NREL Modeling on Potential
                    Economic Impacts of Wind Power on Rural
                                  Communities

Table 9: Economic Impacts during Construction Period of 40 MW Wind Power Project
Owned by Out-of-Area Energy Company Model results Direct impacts Indirect
                            impacts Induced impacts

                   Total impacts (direct, indirect, induced)

                             2003 population (thousands) 2003 personal income

(billions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions)

     Alameda,                                                         
      Calif.      1,501 $60.52  35  $5.09  20  $2.93  29  $3.38   84   $11.40 
      Solano,                                                         
      Calif.        420  11.71  37   5.09  21   2.83  28   2.84   86    10.76 
    Weld, Colo.     211  4.68   42   5.09  27   3.54  34   3.19  103    11.81 
Buena Vista,                                                       
       Iowa          20  0.52    6   0.52   3   0.38   3   0.31   13     1.21 
     Cherokee,                                                        
       Iowa          13  0.33    4   0.34   2   0.18   3   0.22   9      0.74 
    Dickinson,                                                        
       Iowa          17  0.53    6   0.52   2   0.13   3   0.17   11     0.82 
    Pipestone,                                                        
       Minn.         10  0.28    5   0.34   1   0.06   2   0.11   7      0.51 
    Rock, Minn.      10  0.25    4   0.34   1   0.13   2   0.14   7      0.61 
     Crockett,                                                        
       Tex.           4  0.07    4   0.34   1   0.06   1   0.07   6      0.47 
    Pecos, Tex.      16  0.24    6   0.52   1   0.08   2   0.14   10     0.74 
    Upton, Tex.       3  $0.06   5  $0.34   0  $0.03   1  $0.04   6     $0.42 

Source: NREL.

Note: Totals are subject to rounding.

Operations Period Impacts	Tables 10, 11, and 12 provide annual estimates
of the economic impacts during the operations period of various size
projects. Table 10 shows the impacts of a 150 MW project owned by an
out-of-area energy company. Table 11 depicts the impacts of 40 MW project
owned by an out-of-area company. Table 12 shows the combined impacts of 20
small projects-each 2 MW-that are locally owned. Together, these 20
projects would constitute 40 MW of generating capacity. A comparison of
tables 11 and 12 shows that local ownership can generate significantly
higher economic impacts for a county. For example, a single 40 MW project
built in Pipestone County, Minnesota, would generate about $650,000 in new
income for the county annually. In contrast, 20 locally owned projects
that are 2 MW each (40 MW total) would generate about $3.3 million
annually in the same county.

                                  Appendix III
                     Results of NREL Modeling on Potential
                    Economic Impacts of Wind Power on Rural
                                  Communities

Table 10: Economic Impacts during Operations Period of 150 MW Wind Power Project
Owned by Out-of-Area Energy Company Model results Direct impacts Indirect
                            impacts Induced impacts

                   Total impacts (direct, indirect, induced)

                             2003 population (thousands) 2003 personal income

(billions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions)

      Alameda,                                                         
       Calif.       1,501  $60.52  37  $2.00  6  $0.94  21  $2.49  65   $5.43 
      Solano,                                                          
       Calif.         420  11.71   37   2.00  6   0.78  20   2.05  64    4.83 
    Weld, Colo.       211   4.68   40   2.00  8   0.99  29   2.67  76    5.66 
    Buena Vista,                                                       
        Iowa           20   0.52   33   1.67  9   1.15  44   3.91  86    6.74 
     Cherokee,                                                         
        Iowa           13   0.33   33   1.61  9   1.02  51   4.08  93    6.71 
     Dickinson,                                                        
        Iowa           17   0.53   34   1.67  9   0.77  39   2.57  81    5.01 
     Pipestone,                                                        
       Minn.           10   0.28   33   1.61  4   0.36   7   0.45  45    2.42 
    Rock, Minn.        10   0.25   32   1.61  5   0.57   7   0.61  45    2.79 
     Crockett,                                                         
        Tex.            4   0.07   32   1.61  8   1.00  19   1.20  60    3.82 
    Pecos, Tex.        16   0.24   32   1.67  4   0.47  30   1.98  67    4.12 
    Upton, Tex.         3  $0.06   33  $1.61  2  $0.30  12  $0.83  47   $2.75 

Source: NREL.

Note: Totals are subject to rounding.

                                  Appendix III
                     Results of NREL Modeling on Potential
                    Economic Impacts of Wind Power on Rural
                                  Communities

Table 11: Economic Impacts during Operations Period of 40 MW Wind Power Project
Owned by Out-of-Area Energy Company Model results Direct impacts Indirect
                            impacts Induced impacts

                    Total impacts (direct, indirect, induced

                             2003 population (thousands) 2003 personal income

(billions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions)

      Alameda,                                                         
       Calif.       1,501  $60.52  10  $0.53  2  $0.25   6  $0.67  17   $1.45 
      Solano,                                                          
       Calif.         420  11.71   10   0.53  2   0.21   5   0.55  17    1.29 
    Weld, Colo.       211   4.68   11   0.53  2   0.26   8   0.71  20    1.51 
    Buena Vista,                                                       
        Iowa           20   0.52    9   0.45  2   0.31  12   1.04  23    1.80 
     Cherokee,                                                         
        Iowa           13   0.33    9   0.43  3   0.27  13   1.09  25    1.79 
     Dickinson,                                                        
        Iowa           17   0.53    9   0.45  2   0.21  10   0.69  22    1.34 
     Pipestone,                                                        
       Minn.           10   0.28    9   0.43  1   0.10   2   0.12  12    0.65 
    Rock, Minn.        10   0.25    9   0.43  1   0.15   2   0.16  12    0.75 
     Crockett,                                                         
        Tex.            4   0.07    9   1.35  2   0.27   5   0.32  16    1.94 
    Pecos, Tex.        16   0.24    9   0.45  1   0.12   8   0.53  18    1.10 
    Upton, Tex.         3  $0.06    9  $0.43  1  $0.08   3  $0.22  13   $0.73 

Source: NREL.

Note: Totals are subject to rounding.

                                  Appendix III
                     Results of NREL Modeling on Potential
                    Economic Impacts of Wind Power on Rural
                                  Communities

  Table 12: Economic Impacts during Operations Period of 20 Locally Owned Wind
Power Projects, Each with a 2 MW Capacity Model results Direct impacts Indirect
                            impacts Induced impacts

                   Total impacts (direct, indirect, induced)

                             2003 population (thousands) 2003 personal income

(billions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions) Jobs

Income (millions)

     Alameda,                                                          
      Calif.       1,501  $60.52   21  $2.47  6  $0.86  11  $1.34  38   $4.68 
      Solano,                                                          
      Calif.         420  11.71    18   2.47  6   0.74  10   1.03  34  
    Weld, Colo.      211   4.68    23   2.47  7   0.94  15   1.42  46  
       Buena                                                           
    Vista, Iowa       20   0.52    22   2.34  8   0.94  18   1.61  48  
     Cherokee,                                                         
       Iowa           13   0.33    23   2.34  8   0.89  20   1.63  52  
    Dickinson,                                                         
       Iowa           17   0.53    24   2.34  8   0.72  16   1.06  48  
    Pipestone,                                                         
       Minn.          10   0.28    24   2.34  6   0.54   7   0.42  36  
    Rock, Minn.       10   0.25    23   2.34  7   0.73   8   0.65  38  
     Crockett,                                                         
       Tex.            4   0.07    23   2.34  5   0.58   9   0.55  37  
    Pecos, Tex.       16   0.24    22   2.34  5   0.49  12   0.80  39  
    Upton, Tex.        3  $0.06    25  $2.34  3  $0.28   5  $0.34  32   $2.96 

Source: NREL.

Note: Totals are subject to rounding.

Caveats to and Reliability of the Modeling Effort

We did not expect a high level of accuracy in the model results because
data sources on costs and expenditures are limited, in part because
companies may consider these data to be proprietary. Rather, we expected
the model's analysis to illustrate the differences between counties that
have different economic structures. The cost data and assumptions for
local share values seemed reasonable and consistent with what we found
during our visits regarding economic conditions in these counties. The
model's results also generally conform to what we found during our visits,
especially for employment effects.

Appendix IV

Summary of Visits to Wind Power Projects in Five States

This appendix summarizes key information for the nine wind power projects
we visited in 10 counties in five states (California, Colorado, Iowa,
Minnesota, and Texas). At each site, we discussed the planning,
development, construction, and operation of the project with landowners,
project developers and owners, and local government officials.

                             Projects in California

                                 Altamont Pass

       Figure 9: Horizontal Axis Wind Turbines, Altamont Pass, California

                                  Source: GAO.

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

Project location: 	Alameda and Contra Costa Counties,	California	

Project owners and locations: 	FPL Energy (Florida), Global Renewable
   	Energy Partners (Denmark), and several	other partners	

Year operations started: 	1983 through 1990	

Number of turbines:	2,526	

Total installed generation capacity:	268.7 MW	

Annual generation estimate:	392.2 million kWh	

Power purchaser:	Pacific Gas & Electric (PG&E) 	

Number of landowners:	43	

Source: GAO.

Six wind power projects are located in Altamont Pass, near Livermore,
California. Collectively, these projects are among the oldest and largest
utility-scale wind power projects worldwide (based on installed generating
capacity). The projects have been controversial because of associated bird
deaths, particularly for golden eagles. Eagles present in Altamont Pass
may be attracted to the perches offered by the latticework towers used for
older turbines. This project was also among the last in the United States
to use vertical axis turbines. This technology has largely fallen into
disuse in favor of modern, horizontal-axis turbines mounted on towers to
access better winds available at heights of 100 feet or more. In June
2004, an FPL Energy official said that the vertical axis turbines have
been decommissioned and are being removed. (These turbines were operative
at the time of our site visit in August 2003.)

The projects are located on about 100 square miles of mostly agricultural
land used for cattle grazing.

The projects pay a total of about $280,000 in property taxes annually to
Alameda and Contra Costa Counties. Although important, these property
taxes are not a significant source of revenue for these counties. For
example, Alameda County reported about $215 million in property tax
revenues for the tax year ending 2002. Furthermore, the property taxes
assessed for these projects have fallen considerably as the value of the
projects has declined with depreciation.

In general, the Altamont projects were not eligible for the federal
production tax credit because they began operation before this tax credit
was initially authorized in legislation. However, because the power
purchase contracts for the projects were negotiated under favorable
conditions in the 1980s, the projects sell power to the local utility at
rates higher than the range of 2 to 3.5 cents per kWh that has been common
for wind power projects in recent years.

Overall, the projects employ 53.7 full-time equivalent employees.

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

High Winds Energy Center, Solano County

Source: GAO.

The High Winds Energy Center project is located in the Montezuma Hills
region of Solano County. This region has average annual wind speed of
between 18 and 20 miles per hour. The project is the largest single wind
farm in California.

The project extends over approximately 6,500 acres of agricultural land.
However, project facilities, such as the turbines, substations, and access
roads, occupy only about 60 acres of the total leased. The project has no
effect on the primary uses of the land; crops are grown and cattle are
grazed right up to the base of the turbines. The project owner estimates
that it will pay about $21.5 million in lease payments to the landowners
over the life of the project (25 years).

Because the project only began operating in late 2003, actual data on
property taxes paid are unavailable. However, the project owner estimates
that the project will pay approximately $1.8 million in direct property
taxes to Solano County in 2004. It will also

Project location: 	Solano County, California	

Project owners and locations: 	FPL Energy (Florida)	

Year started operating:	Phase I: August 2003	Phase II: December 2003	

Number of turbines:	Phase I: 81	Phase II: 9	

Total installed generation capacity:	162 MW	

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

Annual generation estimate: pay approximately $70,000 in property taxes
for the landowners in 480 million kWh 2004. Furthermore, the project owner
estimates that the project will

pay about $24 million in property taxes over the life of the project.
Power Purchaser: PPM Energy Inc. The project will employ 6 to 8 full-time
equivalent employees.

During its construction, the project generated about 250 Number of
landowners: construction-related jobs.

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

                              Projects in Colorado

Ponnequin Wind Farm

Source: GAO.

The Ponnequin wind farm is the first utility-scale wind power project in
Colorado. A key factor in the development of wind power in Colorado,
including the Ponnequin wind farm, is the Windsource(R) program offered by
Xcel Energy, the state's largest electric utility. This program offers
customers the option of signing up for 100 kWh blocks of electric power
produced by wind power or other renewable sources at a premium of $2.50
per block over regular rates.

About half-23 of 44-of the Ponnequin turbines are located on 942 acres of
land belonging to the state of Colorado. According to the state land
board, Colorado received $40,763 from this project for the use of the land
in 2003.a The remaining turbines are located on 420 acres of a privately
owned cattle ranch. According to the ranch owner, the lease income from
the turbines is significant and constitutes a much larger share of the
ranch's total income than the earnings from cattle production. Xcel
Energy, which owns 37 of the 44 turbines, indicated that it paid about
$100,000 for the two land leases and related rights-of-way in 2001.

Project location: Weld County, Colorado

Project owners and locations: Xcel Energy (Colorado) and Energy
Unlimited/Ponnequin Acquisitions (Pennsylvania)

Year started operating: Phase I: 1998 Phases II-IV: 1999 Phases V-VI: 2001

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

Number of turbines: 44

Total installed generation capacity: 31.65 MW

Annual generation estimate: 71 million kWh

Power purchaser: Xcel Energy

Number of landowners: 2 Weld County officials told us that the property
taxes paid by the Ponnequin project do not constitute a significant share
of the county's total property taxes. For 2003, the project's property
taxes were about $53,000; the county's total property taxes collected in
2002 were almost $200 million.

The project employs 2.33 full-time equivalent employees for maintenance
and operations.

aThe state receives $1.50 per acre for the 942 acres leased to the
project. The lease is for a period of 52 years. The state also receives an
annual payment per MW of installed capacity. Per the lease agreement,
every 5 years the state has the option to adjust the latter payment for
inflation, based on the producer price index for commercial electric
power. For example, in 2003-5 years after phase I of the project began
operations-the state increased the payment to $2,475 per MW, about 13
percent higher than the year before.

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

Projects in Iowa	

Spirit Lake Community School District

Source: GAO.

Project location: The Spirit Lake Community School District was one of the
first school districts in the Spirit Lake, Dickinson County, Iowa nation
to own a wind power project. The project consists of two turbines, a 250
kW

turbine constructed in 1993 and a 750 kW turbine constructed in 2001. The
school Project owners and locations: district justified the project based
on its estimated savings in electricity costs. Spirit Lake Community
School District (Iowa)

The turbines supply most of the electricity needed for school facilities
in the district, Year started operating: including school buildings, a
maintenance facility, and the lights for baseball and football Phase I:
July 1993 fields. A local utility purchases electricity generated by the
turbines that exceeds the Phase II: October 2001 school district's needs.
Although the turbines generate more electricity than the district

uses in some months, the school district is a net user of the
utility-provided electricity on

an annual basis.

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

Number of turbines: 2

Total installed capacity: 1 MW

Annual generation estimate: 2.1 million kWh

Power Purchaser: Alliant Energy

Number of landowners: 1

A DOE grant and a low-interest loan from the Iowa Department of Natural
Resources financed the first turbine. A combination of low-interest and
no-interest loans obtained through the Iowa Department of Natural
Resources and the Iowa Energy Center, respectively, financed construction
of the second turbine. School district funds normally budgeted for
electrical fees are used to pay the principal and interest on the loans.

The turbines are located on school district property; thus no lease
payments are involved. In addition, because the turbines are owned by a
local government entity, no property taxes are levied or collected. The
school district also does not qualify for the federal production tax
credit.

Appendix IV
Summary of Visits to Wind Power Projects in
Five States

Storm Lake

Source: GAO.

Project location: The Storm Lake I and II projects are located in Buena
Vista and Cherokee Counties, Buena Vista and Cherokee Counties, Iowa.
Iowa. These projects benefited from Iowa's renewable portfolio standard
(RPS), which

served as an impetus to wind power development in the state. This standard
required Project Owners and locations: the state's two major utilities to
generate, on average, 105 MW of electric power from GE Wind (California),
Edison Capital renewable energy sources each year, starting in 1992. The
projects also benefited from (California), and Waverly Light and Power a
partial property tax abatement offered by Buena Vista and Cherokee
Counties, (Iowa) including a full abatement for the first year of
operation. Thereafter, property taxes are

assessed, gradually increasing to 30 percent of the taxable value of the
projects by the Year started operating: beginning of the seventh year of
operation. 1999

Appendix IV
Summary of Visits to Wind Power Projects in
Five States

Number of turbines: 259

Total installed generation capacity: 194.25 MW

Annual generation estimate: 490 million kWh

Power purchaser:	Alliant Energy and MidAmerican Energy	

Number of landowners: 65

The Storm Lake projects paid a total of about $500,000 in property taxes
to Buena Vista and Cherokee Counties and associated local jurisdictions in
the tax year ending 2004. Buena Vista collected the majority of these
taxes ($451,000) because most of the Storm Lake turbines (232 of 259) are
located in that county. According to Buena Vista officials, this tax
income is particularly important for the school district in the town of
Alta, located near the projects, providing about 16 percent of the school
district's property tax revenues.

The Storm Lake projects employ about 23 people for operations and
maintenance.

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

                             Projects in Minnesota	

Kas Farms, Minnesota

Source: GAO.

The Kas brothers wind project was the first farmer-owned, commercial-scale
wind power project in the United States. The turbines are located on
agricultural land used for crop production. The brothers did much of the
construction work themselves, reducing their construction costs below the
national average of $1 million per MW of installed capacity. A local bank
financed the project.

In order to take full advantage of the federal production tax credit, the
Kas brothers-who did not qualify for full use of the credit-found an
equity investor who could use the credit. Under this arrangement, the
investor owns most of the equity interest in the project for the period of
time (10 years) that the production tax credit is available. After this
period, the Kas brothers will have majority ownership. Because the project
has less than 2 MW of capacity, it also qualified for Minnesota's
renewable production incentive payment of 1.5 cents for each kWh of
electricity it produces for the first 10 years of the project's
operations.

Project location: Pipestone County, Minnesota

Project owners and location: Richard and Roger Kas (Minnesota)

Year started operating: December 2001

Number of turbines: 2

Appendix IV
Summary of Visits to Wind Power Projects in
Five States

Total installed generation capacity: 1.5 MW

Annual generation estimate: 4.5 million kWh

Power purchaser: Xcel Energy

Number of landowners:

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

                          Minwind I and II, Minnesota

Source: GAO.

Project location: Minwind I and II are limited liability companies that
function in a manner similar to farmer Rock County, Minnesota
cooperatives.a Minwind I has 32 shareholders and Minwind II has 34.
Farmers must own

85 percent of the company shares; the remaining 15 percent of the shares
are available to Project owners and locations: local residents and
investors. Each share gives the owner one vote in the company, and Minwind
I and II (Minnesota) no single person can own more than 15 percent of the
shares.

Year started operating: October 2002

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

Number of turbines: Minwind I: 2 turbines Minwind II: 2 turbines

Total installed generation capacity: 3.8 MW

Annual generation estimate: 11.1 million kWh

Power purchaser: Alliant Energy

Number of landowners: Through Minwind I and II, the shareholders are able
to pool their incomes and tax liabilities to take advantage of the federal
production tax credit. This tax provision provides a credit for
electricity generated by renewable energy sources such as wind
turbines-about 1.8 cents per kWh during 2003. In addition, the projects
benefit from Minnesota's renewable production incentive. This incentive is
available to renewable energy projects up to 2 MW of capacity, offering a
payment of 1.5 cents per kWh of power produced for the first 10 years of a
project's operation.

According to Minwind I and II officials, the impetus behind the projects
was to bring economic development to Rock County by emphasizing local
ownership, providing farmers with a return on their investment, and using
local businesses and contractors to construct and operate the projects. As
of April 2004, seven additional Minwind projects are being constructed in
Rock County. In total, these projects will have 200 local owners and have
a combined capacity of nearly 12 MW.

aIn general, a cooperative is an organization formed for the purpose of
producing and marketing goods or products owned collectively by members
who share in the benefits.

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

Woodstock Wind Energy Project

Source: GAO.

Project location: The Woodstock Project employs an innovative funding
arrangement. DanMar Associates Woodstock, Pipestone County, Minnesota
partnered with a large corporate investor, Edison International, so that
this company

Project owners and locations: DanMar Associates (Minnesota) and Edison
International (California)

Year operations started: 1999

Number of turbines: 17

Total installed generation capacity: 10.2 MW could take advantage of the
federal production tax credit. Specifically, Edison International provided
the majority of the equity capital for the project in return for being
able to take advantage of the tax credit during the project's first 10
years of operation. At the end of this period, Edison International will
transfer majority ownership of the project to DanMar Associates. With the
assistance of DanMar Associates, other wind power projects in Minnesota
have used a similar funding arrangement, also known as the "equity flip."

The Woodstock project turbines are located on a soybean and cattle farm.
The landowners receive an annual cash payment per turbine. According to
the landowners, this payment is a significant supplement to their farm
income.

Appendix IV
Summary of Visits to Wind Power Projects in
Five States

Annual generation estimate: In 2001, Woodstock paid about $15,000 in
property taxes to 29 million kWh Pipestone County. DanMar Associates has 4
employees, but its

work supports other business interests as well as the Power purchaser:
management and operation of the Woodstock Project. Xcel Energy

Number of landowners:

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

Projects in Texas

Indian Mesa Wind Energy Project

Source: GAO.

Project location: The Indian Mesa wind farm is located in West Texas, an
area with strong, sustained wind Pecos County, Texas resources.

Project owners and locations: The project is located on 34,000 acres
situated on a mesa. One of the four landowners of FPL Energy (Florida)
this acreage is the University of Texas. About 7,000 of these acres are
leased for the

project. The uses of the land include grazing livestock-primarily
sheep-and hunting. Year started operating: The project does not limit
these uses. May 2001

Number of turbines: 125

                                  Appendix IV
                  Summary of Visits to Wind Power Projects in
                                  Five States

Total installed capacity:	82.5 MW	

Annual generation estimate:	250 million kWh	

Power Purchaser:	Lower Colorado River Authority and Texas	Utilities
Company	

Number of landowners:	

As an incentive for locating the project in Pecos County, the county
provided the project with a full property tax abatement for 5 years.a In
return, the project owner (at that time) agreed to donate funds in an
amount equivalent to about 10 percent of the abated taxes to a regional
technical training center. The owner also agreed to hire and use local
companies and labor for the construction of the project, to the extent
possible. In addition, the project paid about $930,000 in local school
district taxes in 2003.

The project owner currently employs 43 people to operate and maintain the
four wind projects the company owns in the area, including the Indian Mesa
project. In the future, the owner plans to hire 4 additional people after
the warranty and maintenance agreement with the turbine manufacturer
expires.

aBecause one of the four landowners was a county commissioner, property
taxes were assessed for this landowner's parcel to avoid the appearance of
a conflict of interest.

                                   Appendix V

                      The Wind Project Development Process

Appendix V
The Wind Project Development Process

Source: Distributed Generation Systems Inc.

Appendix VI

Comments from the U.S. Department of Agriculture

Appendix VI
Comments from the U.S. Department of
Agriculture

Appendix VII

                     GAO Contacts and Staff Acknowledgments

GAO Contacts	Lawrence J. Dyckman, (202) 512-3841 James R. Jones Jr., (202)
512-9839

Staff Acknowledgments

In addition to the individuals named above, Jacqueline Cook, Philip Farah,
William Roach, and Carol Herrnstadt Shulman made key contributions to this
report. Important contributions were also made by Carol Bray, Oliver
Easterwood, Richard Kasdan, and Lynn Musser.

We also wish to give special recognition to our dear friend and colleague,
Patricia Gleason, who passed away during the course of our work. Pat's
distinguished career with GAO was characterized by her strong desire to
make government programs more effective and efficient. Furthermore, her
courage, humor, and determination to keep working even as her health
declined were an inspiration to her co-workers who held her in the highest
esteem and miss her greatly.

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