June 28 (Bloomberg) -- Government investigators are auditing some of President Barack Obama’s more than $7 billion in renewable energy grants to determine whether the money was awarded properly and the recipients were eligible.
Examiners are reviewing 14 of the 2,600 projects that received tax dollars under the initiative to promote wind and solar power created in the 2009 stimulus bill, according to Richard Delmar, counsel to the Treasury Department’s inspector general. Under the program run by the Treasury, developers receive as much as 30 percent of the cost of a project.
The audits by Eric Thorson, the Treasury’s inspector general, aim to determine whether the department has “established (and followed) appropriate procedures for awarding the grants,” and whether developers meet eligibility requirements, Delmar said in an e-mail.
He declined to identify projects under review. The office expects to issue reports on five of the audits by the end of September, and the remaining nine reports in 2012, he said.
The audits, which began in February 2010, involve visits to the headquarters of companies that received grants and to project sites, Delmar said. The last site visit was in February of this year.
“We are looking at a sampling of the grants that have been made,” Delmar said in an interview. “They’re all works in progress.”
The grant program “has helped dramatically expand and accelerate renewable energy development across the country, enabling companies to create and retain tens of thousands of jobs,” Sandra Salstrom, a Treasury Department spokeswoman, said in an e-mail. The program “requires applicants to provide detailed descriptions and supporting documentation to ensure that taxpayer funds are awarded appropriately.”
Because the grants are based on the cost of a project, “there is no built-in encouragement for the developer to keep costs as low as possible,” Lisa Linowes, executive director of the Industrial Wind Action Group, said in an interview. Her New Hampshire-based organization says it counters “misleading information” from wind-farm developers.
Kevin Walsh, managing director of renewable energy at GE Energy Financial Services, a unit of General Electric Co. of Fairfield, Connecticut, said the Treasury Department is at times faced with “differences of opinion” over the value of a project, which is used to calculate grants.
The Treasury is “doing its job” in “looking at evidence being given by applicants to ensure that it’s a reasonable fair-market valuation,” said Walsh, who said he hadn’t been aware of the inspector general’s inquiry.
‘Bit of Gaming’
A developer attaching too high a valuation may be committing fraud in certain cases, said Dave Llorens, chief executive officer of One Block Off The Grid, a solar developer based in San Francisco. Such cases have been flagged by the Treasury Department, Llorens said.
“There’s been a little bit of gaming with it because some greedy developers tried to inflate their costs,” Llorens said in an interview. “You could sell a project for $7 a watt and apply for a grant at $10 a watt. They slapped those down though.”
Both GE and One Block Off the Grid have participated in projects that received grants under the program. GE is a partner in a $2 billion wind farm in Oregon that expects to apply for a government grant, Walsh said.
The U.S. program has awarded grants for wind, solar, geothermal, hydropower and biomass systems in 47 states, the District of Columbia and Puerto Rico.
Horizon Wind Energy, a unit of EDP-Energias de Portugal SA, received $276 million for four Indiana wind farms. The Mad Batter Restaurant in Cape May, New Jersey, a seaside resort, used an $18,354 grant to install 38 rooftop solar panels.
“It was an enormous success,” Walsh of GE said. “Projects got built which otherwise in my view would not have been built.”
The grants were authorized in the American Recovery and Reinvestment Act of 2009, which directed the Treasury to provide funding to qualified projects. There is no cap on the amount that can be awarded. Obama signed the measure into law on February 17, 2009.
Obama’s administration has invested more than $90 billion in clean energy, a commitment that has “created or saved hundreds of thousands of jobs across the country,” according to the White House website.
Team of Four
Six months after Obama signed the stimulus measure, the inspector general said managers at the Treasury Department had failed to explain what staffing would be needed to evaluate “the potentially thousands of applications of varying complexity for awards under this program,” according to an Aug. 5, 2009, report.
The Treasury Department responded that “the current team of four is adequate,” according to the inspector general’s report.
The incentives began under President George W. Bush as a tax credit companies could use to offset profit by investing in renewable energy projects.
Concerned that the 2008 financial crisis “dried up” company profits and opportunities to use the tax credit, the Obama administration engineered its transition into a grant, said Paul Dickerson, head of Haynes & Boone LLP’s clean-technology group in Houston and former chief operating officer of the Energy Department’s office of energy efficiency and renewable energy.
Trying to Cheat
The grant program is worth continuing even if some developers try to cheat, Dickerson said. Grant applicants for projects of more than $1 million must submit an independent accountant’s certification of costs, he said.
“It’s like people who cheat on their taxes,” Dickerson said in an interview. “If someone is inflating their projects’ costs or somehow getting an independent accountant to falsely attest to the accuracy of those costs, well then we just get to send them to prison.”
The grant program, which was to expire at the end of 2010, is likely to end after an extension through the end of this year, according to Dita Bronicki, chief executive officer of geothermal energy developer Ormat Technologies Inc. of Reno, Nevada.
“The political climate in Washington makes it very unlikely the grants will continue past this year,” Bronicki said in an interview. “We will have to find other ways to finance projects that don’t make the deadline.”
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