2). In most states, this regulatory  approach continues. Key State Supports Aided the Development of Electricity Generation Projects

Key state supports, in the form of state policies, aided the development of  utility-scale electricity generation projects—particularly renewable energy  projects—for fiscal years 2004 through 2013. For example, most states  have a renewable portfolio standard (RPS) that mandates that retail  service providers obtain a certain percentage or amount of the electricity  they sell from renewable energy sources, which helped create additional  demand for renewable energy, according to many stakeholders we  interviewed. In addition, most states remain traditionally regulated, and  regulatory policies in these states provided important state-level support  for renewable or traditional projects by allowing regulated utilities to  recover costs incurred while purchasing power from existing electricity  generation facilities or building new generating capacity themselves. Federal Financial Supports Aided the Development of New Electricity Generating Capacity, but Limited Data on Tax Expenditures Hinders an Understanding of their Effectiveness

For fiscal years 2004 through 2013, programs at DOE, Treasury, and  USDA aided the development of new electricity generating capacity  through outlays, loan programs, and tax expenditures. As shown in table 1, one  program—Treasury’s temporary Payments for Specified Energy Property  in Lieu of Tax Credits (payments-in-lieu-of-tax-credits program)— accounted for most of the $16.8 billion in total outlays, which supported  over 29,000 MW of new generating capacity. Federal Tax Expenditures Accounted for an Estimated $15.1 Billion in Forgone Revenue, but IRS Does Not Collect Key Data on the Two Largest Tax Expenditures

Seven tax expenditures administered by the Internal Revenue Service  (IRS) at Treasury accounted for an estimated $15.1 billion in forgone  revenue for fiscal years 2004 through 2013, but IRS does not collect or  report key data on the two largest tax expenditures supporting new utility- scale electricity generation projects. However, IRS does not make  available the project-level data it collects for the ITC. IRS officials stated that, given  a number of factors, IRS is unlikely to collect additional information on  these tax expenditures without being directed to do so by Congress. Developers Combined State and Federal Supports to Finance Renewable Projects, and Reducing State or Federal Supports Would Likely Reduce Development of These Projects

Developers combined state and federal supports to secure financing for  renewable projects, and these supports reduced the price paid for  renewable electricity by retail customers. Reducing state or federal  supports would likely reduce the development of renewable projects  unless PPA prices increased to compensate for the reduction in federal  support. Developers combined state and federal supports to finance renewable  projects. According to several  stakeholders, the amount that developers can bid for a PPA depends on  how much federal support the project expects to receive; therefore, these  supports allowed developers to offer lower prices in their PPAs than they  otherwise could have. These lower prices were then passed on to retail  customers. To understand the effects of changes to federal tax  expenditures, we modeled hypothetical utility-scale solar photovoltaic and  wind projects and found that reducing or eliminating the ITC or PTC  would likely reduce the number of renewable projects built because either  developers’ returns would decline or PPA prices would increase. The extent to which development of renewable projects would decrease  depends on, among other factors, how states respond to the effects of  reduced federal supports. 4). The amount PPA prices could increase may also be constrained by state  cost-containment mechanisms. Matters for Congressional Consideration

If Congress wishes to evaluate the effectiveness of the ITC and the PTC  as incentives for the development of renewable utility-scale electricity  generation projects as it considers proposals to extend the ITC or  reauthorize the PTC, it should consider directing the Commissioner of  Internal Revenue to take the following two actions:
Provide Congress with project-level data currently collected from  taxpayers who claim the ITC in lieu of the PTC—such as the number  of projects for which they are claiming the credit, the technology of the  projects taking the credit, and the total generating capacity added— and make such data available for analysis. Additionally, take steps to  collect and report the same data from all taxpayers claiming the ITC. Agency Comments and Our Evaluation

We provided a draft of this report to DOE, Treasury, and USDA for review  and comment. Our objectives were to: (1)  identify key state supports for these projects; (2) examine key federal  financial supports provided through outlays, loan programs, and tax  expenditures for these projects; and (3) examine how state and federal  supports affect the development of new renewable projects and how  reducing federal supports may affect such development.
Why GAO Did This Study

The states and the federal government have supported the development of electricity generation projects in a variety of ways. In recent years, state and federal supports have been targeted toward renewable energy sources, such as solar and wind, although there have been some supports for projects using traditional sources—natural gas, coal, and nuclear.
GAO was asked to examine state and federal supports for the development of utility-scale electricity generation projects—power plants with generating capacities of at least 1 MW that are connected to the grid and intend to sell electricity—for fiscal years 2004 through 2013. This report (1) identifies key state supports for these projects; (2) examines key federal support provided through outlays, loan programs, and tax expenditures for these projects; and (3) examines how state and federal supports affect the development of new renewable projects. GAO analyzed relevant legislation, agency outlay and loan program data, and interviewed stakeholders, including project developers and experts. GAO also surveyed state regulatory commissions about state policies. In addition, GAO modeled the impact of reducing federal tax expenditures on project finances.

What GAO Found

Key state supports, in the form of state policies, aided the development of utility-scale electricity generation projects—particularly renewable ones—in most states, for fiscal years 2004 through 2013. For example, most states have a renewable portfolio standard (RPS) mandating that retail service providers obtain a specific amount of the electricity they sell from renewable energy sources, which creates additional demand for renewable energy. In addition, most states supported new renewable and traditional projects through regulatory policies that set electricity prices, which allowed utilities to recover the costs of building new projects or purchasing electricity from them.
Federal financial supports aided the development of new projects, but limited data hinder an understanding of the effectiveness of tax expenditures. From fiscal year 2004 through 2013, programs at the Departments of Agriculture (USDA), Energy (DOE), and the Treasury (Treasury) provided supports including outlays, loan programs, and tax expenditures. For example, one Treasury program provided payments in lieu of tax credits and accounted for almost all of the $16.8 billion in outlays that supported 29,000 megawatts (MW) of new renewable generating capacity. Tax expenditures accounted for an estimated $13.7 billion in forgone revenue to the federal government for renewable projects and $1.4 billion for traditional projects. The two largest tax expenditures GAO examined—the Investment Tax Credit (ITC) and the Production Tax Credit (PTC)—supported renewable projects and accounted for $11.5 billion in forgone revenue. However, the total generating capacity they supported is unknown because the Internal Revenue Service (IRS) is not required to collect project-level data from all taxpayers claiming the ITC or report the data it does collect, nor is it required to collect project-level data for the PTC. IRS officials stated that IRS is unlikely to collect additional data on these tax credits unless it is directed to do so. Since 1994, GAO has encouraged greater scrutiny of tax expenditures, including data collection. Without project-level data on the ITC and PTC, Congress cannot evaluate their effectiveness as it considers whether to reauthorize or extend them.
Developers combined state and federal supports to finance renewable projects, and reducing these supports would likely reduce development of such projects. Demand created by state RPSs allowed developers of renewable projects to obtain power purchase agreements (PPA)—long-term contracts to sell power at specific prices. Federal supports, in turn, lowered developers' costs to build renewable projects, which allowed them to offer lower PPA prices than they otherwise could have. According to most stakeholders, these lower prices were then passed on to retail customers. Overall, if the level of support is reduced, fewer projects would likely be built. For example, GAO's modeling suggests that reducing the ITC or eliminating the PTC would likely reduce the number of renewable projects built because developers' returns would decline unless PPA prices increased to compensate for the reduction in federal support. The extent to which development would decrease depends on how states respond to reduced federal support and the associated increase in prices. For example, many states limit the amount retail prices could increase, limiting PPA price increases, which could reduce development.

What GAO Recommends

Congress should consider directing IRS to (1) collect and report project-level data from all taxpayers who claim the ITC and (2) collect and report similar data for taxpayers who claim the PTC.
DOE, Treasury, and USDA did not provide formal comments in response to a draft of this report.