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National Defense > Blog > Posts > Army to Renewable-Energy Industry: Show Me the Money
Army to Renewable-Energy Industry: Show Me the Money
By Sandra I. Erwin



Seasoned government contractors might consider this an ominous sign of the times: A $7 billion Army plan to procure renewable energy financed entirely by the private sector.

The Army Corps of Engineers today issued a “multiple-award task order contract” solicitation that seeks private investments of up to $7 billion to build renewable energy plants that would provide electricity to Army bases over 30 years.

The winning bidders can expect to recoup their investment and make profits once they start producing electricity but in the near term companies will have to either cough up their own funds or secure third-party financing to build the renewable energy infrastructure that would be needed on Army bases. The reward will come from long-term agreements by the Army to buy the electricity.  

“We are not going to Congress to ask for taxpayer dollars for this project,” said Katherine Hammack, assistant secretary of the Army for installations, energy and environment.

“This is a public-private partnership,” Hammack said Aug. 7 during a news conference.

The Army’s renewable energy push is part of an Obama administration policy that directs the U.S. military to deploy 3 gigawatts — enough to power two to three million homes — of renewable energy, including solar, wind, biomass and geothermal, by 2025.

The Army is the biggest consumer of electricity in the Defense Department and therefore is in a position to attract private sector investors. Of the Pentagon’s annual $15 billion energy bill, about 25 percent is for electricity for facilities at more than 500 military installations in the United States and overseas. The Army owns approximately 155 installations and 200 utilities.

A new organization within the Army, called “energy initiatives task force,” was created to manage the transition of outdated Army-owned power utilities into privately-owned modern grids that integrate renewable sources of energy. Industry analysts have estimated the military services will need at least 2,000 megawatts of renewable power just to meet the administration’s 2025 goal.

Privatizing the electricity supply is the next step. The cost of building the infrastructure is too high for the Army to bear, and the military lacks the technological know-how of the private sector. The Army Corps of Engineers soon will release a request for proposals to interested vendors. A mix of companies — from defense contractors, renewable energy developers and public utilities — are said to be considering jumping into the fray.

Bidders will be vetted and those that are deemed technically and financially qualified will be included in a pool of eligible competitors. Those selected firms will then vie for specific “task orders” for particular projects, to be built on Army-owned land. The plan is to award task orders for about 100 megawatts of renewable energy each year. Because vendors vary in size and capabilities, the Army will break down projects into three categories: Less than 4 megawatts, 4 to 10 megawatts, and larger than 10 megawatts.

“Our commitment is to buy the energy,” said Hammack. “No [energy] generation assets will be procured by the Army.”

The unorthodox contracting strategy appears to have drawn significant attention from the private sector.

“We have been astounded by the interest in this,” Hammack said. A draft RFP published in February drew 900 comments from approximately 130 interested firms, she said.

E. Sanderson Hoe, energy industry attorney and partner at McKenna Long & Aldridge, said the RFP has been highly anticipated as proof that the Army is serious about moving forward with this project.

Companies, nonetheless, have mixed feelings about the multiple award task-order approach, Hoe said in an interview. Contractors that lack the cash flow and patience to get through the selection process will not find this project attractive, he said. Getting on the “preferred vendors” list is only the first step, and not necessarily an assured path to success, Hoe said.

Vendors must understand the risks involved, he said. The Army MATOC simply allows you to “get in the game,” said Hoe. “We refer to these kinds of contracts as a ‘hunting license.’”

Photo Credit:
Andreas Lemans

Comments

Re: Army to Renewable-Energy Industry: Show Me the Money

While this RFP may be a move in the right direction, it is fraught with issues no one wants to truly address.

For one, all participants will be asked to compete with current energy costs on bases, which is often very low such as 6 to 7 cents per KWh. The exception is Hawaii, Alaska and California and a handful of locations that are higher. 

Renewable energy can rarely if ever compete at those numbers.  It is always mentioned that since we are spending tax payer money we cannot spend more than we are currently paying.  The PROBLEM is that we are not monetizing the cost of current utility correctly, from subsidies the incumbents have enjoyed for over a hundred years to the cost of clean up associated with global climate change, the cause of severe weather that is costing the tax payers millions each year....and it will get a lot worse.

Until we change our current and future monetization of energy, I am afraid that this RFP is largely and exercise with very few new energy plants actually being built. And just to clarify, the Army is allowing for future increase in energy costs, however, that is based in these incorrect current numbers.  If we were to monetize the current energy cost accurately we may find that renewables are not just competitive but most likely even less expensive...oh and not to mention energy security...which is by the way anyone ever talks about as the phrase climate change is an ugly phrase so political that most would prefer to just stick their head in the sand.        
Gabriele Whyard at 8/9/2012 1:18 PM

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