United States

United States

US auditors get tough on wind projects receiving grants

UNITED STATES: Acciona, the world's fifth-largest owner of wind-power capacity, has found itself in the spotlight after an audit of its $226 million EcoGrove project by the US Treasury Department's inspector general.

Such incidents are becoming more common as US federal grants and tax breaks for wind projects are being increasingly scrutinised, even as the debate escalates about extending the support, including the production tax credit (PTC).

Aid programmes for renewables are contentious because of public debt and the fallout from the high-profile bankruptcy in September of solar company Solyndra. The Department of Energy (DoE) has been heavily criticised for its management of a $535 million loan guarantee to Solyndra. The aftershocks have continued to rock the Obama administration in the run up to the November 2012 election.

Acciona had received $67.9 million from the Treasury under Section 1603 —which offers upfront grants of 30% of project costs — in October 2009 for its 100.5MW EcoGrove wind project in Illinois. The audit questioned $2.1 million of the grant. The matter has been referred to Treasury management for assessment, which is expected to take a few months, said a Treasury spokeswoman.

The investigators also questioned $5.3 million interest on a late payment for Acciona's own turbines, as well as costs for an extended warranty, spare parts and transmission lines. EcoGrove has agreed to return $35,379 of the grant and is contesting the rest. An Acciona spokeswoman would not comment because of the ongoing dispute.

Also in dispute is the DoE's handling of the Montana Alberta Tie Line, funded partly with $161 million lent by the Treasury to the Western Area Power Administration (WAPA), a regional authority that markets power.

"Because of a variety of problems, the project is estimated to be two years behind schedule and $70 million over budget; essentially out of funds and currently at a standstill," said the report by the DoE's inspector general out on 4 November, which was publicised by the Washington Post.

Especially intriguing was the report's unconfirmed assertion that "certain [WAPA] officials ... indicated that they encountered pressure from the [DoE] to spend Recovery Act funds expeditiously". The 214-mile transmission line, which will shift wind power from northern Montana both southwards and northwards, is however "back on track", said the investigators.

In separate audits, Treasury investigators initially disallowed $953,000 in grants to two E.on wind farms in Texas, but then reversed their initial decisions and decided that the questioned spare parts and a "balance to tie" cost were eligible. The 249MW Pyron project had received $122 million under Section 1603, while the 197MW Inadale got $84.2 million.

Sign of the times

Amy Grace, a North American wind analyst at Bloomberg New Energy Finance, said the recent scrutiny will complicate the extension of the PTC, which expires at the end of 2012. "How much exactly is impossible to say," she said. "It was never going to be an easy exercise ... particularly in an election year with all the budget drama."

Indeed, according to a Washington Post-Pew Research Centre poll released on 10 November, voter approval for federal financial support for renewable energy has now fallen to its lowest point since 2006, down from about 80% to 68%.

Despite the publicity, the amounts disputed, including for Acciona, were not high, George Schutzer, a tax lawyer and partner at Patton Boggs, pointed out. He said it is notoriously difficult in tax law to allocate costs properly when multiple assets have been acquired. Disputes are common.

More scrutiny may be imminent. According to an internal Internal Revenue Service memo of 30 September, the agency will start addressing excessive payments that might have been received for renewables projects under Section 1603.

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