Renewable Energy Project Financing:
Improved Guidance and Information Sharing Needed for DOD Project-Level Officials
GAO-12-401: Published: Apr 4, 2012. Publicly Released: Apr 4, 2012.
What GAO Found
To finance renewable energy projects, the military services use up-front appropriations, such as operation and maintenance funds, and alternative-financing approaches that generally rely on private capital, such as arranging financing and implementing a project with a private developer or utility. The military services have funded about 85 percent of nearly 600 projects that were in design, under construction, or operating in fiscal year 2011 with up-front appropriations, but financed 8 of the 9 large-scale projects and 19 of the 57 medium-scale projects with alternative financing. Several factors affect the military services use of financing approaches, including perceived benefits and drawbacks such as how long it takes to obtain funding.
The military services have established methods to help ensure good value and advantageous contract terms and to manage the risks of the various financing approaches, but the services have not issued comprehensive guidance on how and when to prepare analyses for renewable energy projects. For example, headquarters and installation officials said that military services use business case or other cost analyses to help maximize benefits and mitigate drawbacks of the selected financing approach. However, GAO found examples of installations not developing cost analyses or not analyzing different financing approaches for projects, as well as uncertainty about how to account for some benefits in the analyses, because the military services generally do not have guidance to ensure that business case analyses are completed and that analyses fully consider the costs and benefits of different financing approaches. As a result of not having processes and comprehensive guidance in place, the military services cannot ensure that decision makers select the financing approach that maximizes benefits and mitigates drawbacks or risks of available financing approaches.
The Department of Defense (DOD) and other agencies have made available guidance, training, and other resources to assist officials in selecting certain financing approaches for renewable energy projects, but some guidance on the approaches is inconsistent and information sharing at the installation level is ad hoc and not formalized. DOD, the Department of Energy, and the military services have developed an increasing amount of guidance on the available financing approaches; however, GAO found instances where different interpretations of some guidance affected the approaches the services used because DOD has not issued overarching guidance on using these approaches. As a result, the military services may not be taking full advantage of the various approaches available to finance projects to meet renewable energy goals. Additionally, DOD personnel were generally satisfied with training they received on the financing approaches, but DOD does not have a formalized process to share information and best practices on the approaches among project-level officials across the military services at the installation level. As a result, DOD cannot ensure that officials responsible for selecting a financing approach have timely access on an ongoing basis to information on approaches that their counterparts from other services have used and their experiences with those approaches. Such information could assist the officials in selecting a financing approach that maximizes the benefits and minimizes the drawbacks or risks of that approach.
Why GAO Did This Study
DOD is the largest consumer of energy in the federal government, spending about $3.8 billion on facilities energy at more than 500 permanent military installations throughout the world in fiscal year 2010. The House Armed Services Committee directed GAO to review issues related to financing approaches for renewable energy projects on military installations. GAO (1) determined the approaches that military services are using to finance renewable energy projects and the factors the services consider in selecting an approach, (2) assessed the extent to which the services have established methods to obtain good value and advantageous contract terms and manage risks of financing approaches for renewable energy projects, and (3) identified the extent to which the services developed guidance, training, and other resources to assist officials in selecting and implementing financing approaches.
GAO reviewed applicable legal authorities, guidance, and project information from selected projects and interviewed officials from the Office of the Secretary of Defense, military services, 10 selected installations, and the Department of Energy.
What GAO Recommends
GAO recommends that DOD issue comprehensive guidance to ensure key analyses are completed and available- financing approaches are fully considered. GAO also recommends that DOD develop a formalized communications process to share best practices on financing renewable energy projects among installations. DOD generally concurred with GAOs recommendations.
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- Review Pending
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
Recommendation: To better ensure that the military services select a financing approach that best maximizes the benefits and mitigates the drawbacks or risks of available approaches, the Secretary of Defense should direct the Under Secretary of Defense (Acquisition, Technology and Logistics), the Deputy Under Secretary of Defense (Installations and Environment), and the military services to issue comprehensive guidance that establishes and clearly describes the military services' processes to ensure that business case analyses are completed and that these analyses fully consider the costs and benefits of different financing approaches for renewable energy projects.
Agency Affected: Department of Defense
Comments: DOD partially concurred with this recommendation to issue comprehensive guidance related to preparing business case analyses for renewable energy projects. In comments on the report, DOD stated that the department recognizes the importance of establishing guidance for business case analyses, but that the analysis does not need to consider all potential funding mechanisms. In the report, we stated that we agree that not all financing approaches are suitable in all circumstances and we would not expect a business case analysis to consider the costs and benefits of financing approaches that were not suitable for a specific project. We believe that DOD's comments on the report were consistent with the intent of our recommendation. In November 2012, the Acting Deputy Under Secretary of Defense (Installations and Environment) issued basic policy guidance on how to interpret authorities for two types of alternative financing. The policy states that a business case analysis is required for projects under one authority, but does not describe the military services' processes to ensure such analyses are completed for all projects or the information that is required to be included in the analysis. As of June 2014, the Army was in the process of updating its Energy Policy. The Air Force published updated guidance on using one authority--10 USC 2922a--in April 2012. The guidance states that approvals, contracts, and land use agreements should be processed using established procedures, but does not specifically mention whether business case analyses are needed for such projects. As of June 2014, the Navy had not issued updated guidance on financing energy projects.
Recommendation: To help enable officials to better understand how to use all of the approaches that are available to finance projects to meet renewable energy goals, the Secretary of Defense should direct the Under Secretary of Defense (Acquisition, Technology and Logistics) and the Deputy Under Secretary of Defense (Installations and Environment) to develop overarching guidance about the use of available financing approaches for financing renewable energy projects and direct the military services to update their guidance accordingly. At a minimum, this guidance should include the requirements and restrictions of the underlying authorities and any DOD-specific guidelines for using up-front appropriations and alternative-financing approaches for renewable energy projects.
Agency Affected: Department of Defense
Comments: DOD concurred with this recommendation to develop overarching guidance about the use of available financing approaches and direct the military services to update their guidance accordingly. In comments on the report, DOD stated that it expects to develop this guidance, which will include requirements and restrictions related to the authorities and discuss the variety of approaches and strategies for financing renewable energy projects although the department did not specify a time frame for taking this action. In November 2012, the Acting Deputy Under Secretary of Defense (Installations and Environment) issued basic policy on how to interpret authorities for two types of alternative financing. The policy stated that it does not address Energy Savings Performance Contracts or Utility Energy Services Contracts and those would be addressed in subsequent memoranda. As of June 2014, this additional guidance had not been developed or issued.
Recommendation: To improve the information-sharing resources that are available to assist officials in selecting a financing approach that maximizes the benefits and minimizes the drawbacks or risks of that approach, the Secretary of Defense should direct the Under Secretary of Defense (Acquisition, Technology and Logistics) and the Deputy Under Secretary of Defense (Installations and Environment) to develop a formalized communications process, such as a shared Web site or other appropriate approach, that will enable officials at military installations to have timely access on an ongoing basis to information related to financing renewable energy projects on other installations, including best practices and lessons that other installations have learned from their experiences in financing their renewable energy projects.
Agency Affected: Department of Defense
Comments: DOD concurred with this recommendation to develop a formalized communications process to share information on financing renewable energy projects among installations. DOD stated in its comments that the department plans to initiate an alternative-financing energy working group with representatives from around the department for this purpose. An official in the Office of Facilities Energy and Privatization said that the office meets regularly with the Services' Energy offices, but has not established a formal communications process. As of June 2014, an official in the Office of Facilities Energy and Privatization said that the office had implemented a Renewable Energy Integrated Process Team to share information among the services on two of the authorities available to finance projects (power purchase agreements and enhanced use leases). The team includes representatives from the services' headquarters, contracting personnel, and general counsel. The first meeting was held in March 2014, with a second scheduled in June 2014. According to the official, a specific website has not been established to provide information on financing of energy projects.