Otherwise, DOD can finance projects through agreements with private  developers and pay back the costs of the projects over time—referred to  as alternative financing mechanisms. DOD Emphasized Working with Private Developers to Develop Larger Renewable Energy Projects but Builds Some Projects Using Up-Front Appropriated Funds

According to DOD officials and documents, in recent years, DOD’s  approach emphasized developing larger projects and working with private  developers to develop renewable energy projects with a generating  capacity of greater than 1 megawatt on DOD installations in the United  States. However, the project documentation  DOD developed for the officials responsible for approving these projects  did not always clearly identify the value of land used for the projects and  in turn the compensation the department received for the land. In addition, the guidance does not direct project documentation to include  a comparison of the value of the land used and the compensation DOD  receives for it. Our 2009 cost-estimating guide states that one basic  characteristic of a credible cost estimate is the recognition of excluded  costs, so that any excluded costs should be disclosed and given a  rationale. Some Selected Projects Advanced DOD’s Energy Goals and Security Objective, but Documentation of Project Contributions Was Not Always Clear and Consistent Some of the Selected Projects Advanced DOD’s Energy Goals, but Project Documentation about Contributions toward the Goals Was Not Always Clear

Some of the 17 projects we reviewed advanced DOD’s energy goals and  energy security objective, but project documentation was not always clear  about how each project was expected to (1) contribute to the  department’s production and consumption goals or (2) advance the  department’s energy security objective or estimate the value of energy  security provided. Thus  approving officials did not have access to all relevant information about  the project and its contributions toward the energy goals. However, this view  was not consistently reflected in the documentation for the 17 projects in  our sample. However, we found that only 2 of  these projects had the capability to provide electricity to the installation in  the event of an outage of the commercial grid without additional steps. The other 5 projects would require additional steps and investments, such  as the installation of batteries or other energy storage equipment and the  integration of improvements to the electricity delivery and control systems  on the installation before they would be able to deliver electricity during a  grid outage. Under federal standards for internal control, information should be  recorded and communicated to management and others within the entity  who need it and in a form and within a time frame that enables them to  carry out their internal control and other responsibilities. Without specifying this  information, project documentation did not convey a full understanding of  the projects’ potential costs and benefits specific to energy security to  approving officials. Recommendations for Executive Action

We are recommending that the Secretary of Defense direct the Assistant  Secretary of Defense for Energy, Installations and Environment and the  Secretaries of the Army, Navy, and Air Force to take the following eight  actions:  To improve DOD’s analyses of the financial costs and benefits of  renewable energy projects, modify guidance for presenting land values in project documentation  to apply to the range of alternative financing mechanisms DOD has  used and  clarify the guidance to direct all project documentation for alternatively  financed projects involving land use agreements to include the value  of the land, the compensation DOD would receive for it, and how the  value of the land compared with the value of the compensation. To improve DOD’s analyses of the financial costs and benefits of  renewable energy projects involving long-term PPAs on its land, revise  guidance to develop consistent sources for assumptions for escalation;  clarify how to describe sensitivity analyses in project documentation;  and  clarify how project documentation should present information on all  costs of a project, including the value of the land and compensation  received for it and in turn how that value and compensation would  affect the estimated costs and benefits of purchasing electricity from  the project (e.g., whether compensation could be used to reduce  electricity costs for the project when estimating cost-effectiveness). To improve the information available to approving officials on projects’  contributions to DOD’s renewable energy goals and energy security  objective and to help ensure the consistency and completeness of project  documentation, develop guidance to  clarify that projects should specify their contribution to DOD’s energy  production and consumption goals;  clarify the type of energy security benefit that projects will provide and  state whether any such benefit is immediately available or would  require additional investments and, for projects that would require  additional investment, provide a detailed estimate of those  investments; and  clarify that a consistent approach is to be taken to estimate the value  of the energy security benefit of providing assured access to power  during a grid outage and that a description of this approach is  provided in project documentation. Appendix I: Objectives, Scope and Methodology

The objectives of our review were to examine (1) the Department of  Defense’s (DOD) approach for developing renewable energy projects with  a generating capacity greater than 1 megawatt (2) DOD’s approach for  analyzing the financial costs and benefits of selected renewable energy  projects contracted for or funded from 2010 through 2015 and (3) the  extent to which selected projects addressed DOD’s renewable energy  goals and energy security objective. We  selected projects that reflected a range of military departments and  services, funding mechanisms, and renewable energy technologies.
Why GAO Did This Study

By law and executive order, DOD is to pursue goals for the production and consumption of renewable energy. Also, DOD policy calls for investing in cost-effective renewable energy and improving energy security—addressing risks such as disruption of electricity grids serving military installations.
The Joint Explanatory Statement for the National Defense Authorization Act for Fiscal Year 2015 included a provision for GAO to examine how DOD determines the costs and benefits of a sample of renewable energy projects. This report examines (1) DOD's approach for developing renewable energy projects with a generating capacity greater than 1 megawatt, (2) DOD's approach for analyzing the financial costs and benefits of selected projects, and (3) the extent to which these projects addressed DOD's renewable energy goals and energy security objective. GAO examined a nongeneralizable sample of 17 projects that reflect a mix of military departments and services, funding mechanisms, and technologies. GAO also examined legal authorities, project documentation, and DOD guidance, and interviewed DOD officials.

What GAO Found

The Department of Defense (DOD) has emphasized working with private developers using a variety of alternative financing mechanisms—that is, agreements with private developers to pay back the costs of the projects over time—to develop renewable energy projects greater than 1 megawatt. According to DOD officials, DOD works with private developers because doing so gives DOD several advantages. For example, private developers have access to tax incentives that can significantly lower the overall costs of developing projects compared to what those costs would be if DOD developed the projects on its own.
DOD used various approaches to analyze the financial costs and benefits of the 17 renewable energy projects GAO examined, but project documentation was not always clear or complete. In particular, project documentation did not always clearly identify the value of land used and compare that to any compensation DOD received. Specifically, for 8 projects, DOD received little or no financial compensation for the use of its land, but the documentation did not clearly compare the value for granting use of DOD land to the value of what DOD received for it. As a result, DOD contributed potentially valuable land—in some cases, over 100 acres—for the development of a project without including this as a cost in project documentation. GAO's 2009 cost-estimating guide states that one basic characteristic of a credible cost estimate is the recognition of excluded costs, so any excluded costs should be disclosed and a rationale provided. However, DOD guidance does not specify that project documentation should include a comparison of the value of land and any compensation received. By clarifying its guidance to call for project documentation to include a comparison of land values and any compensation it would receive, DOD would have greater assurance that its officials have credible information about projects' financial costs and benefits before approving them.
Some of the 17 projects GAO reviewed advanced DOD's renewable energy goals and energy security objective (e.g., for access to reliable supplies of energy during an outage of the commercial grid), but project documentation was not always clear about how projects did so. For example, officials told GAO they believe that all the projects contributed to DOD's energy security objective, but this view was not reflected in the documentation for the 17 projects. GAO found that only 2 projects would immediately be able to provide electricity to an installation in the event of a grid outage. Five other projects would require additional investment, such as the installation of batteries or other energy storage, before they would be able to deliver electricity during an outage, and project documentation did not always reflect this information. Under federal standards for internal control, agencies are to record and communicate information to management and others who need it and in a form and within a time frame that enables them to carry out their internal control and other responsibilities. Without clarifying its guidance to call for project documentation to include information about projects' contributions to DOD's energy security objective and any additional investment needed to do so, DOD officials may not have a full understanding of all relevant information when approving renewable energy projects.

What GAO Recommends

GAO is making eight recommendations, including that DOD should clarify guidance to call for project documentation to include (1) a comparison of the value of the land used and the compensation DOD is to receive for it and (2) information on projects' contributions toward DOD's energy security objective. DOD fully concurred with GAO's recommendations.