ENERGY
Defense Department Needs Investors to Buy Into its Renewable Energy Goals
8/1/2012
Today, most bases rely on local utilities to supply them with the vital energy they need to function. The Defense Department wants to turn the clock back, but not with fossil fuels. It is looking to alternate sources of energy — solar, wind and waste — to help it meet some lofty goals.
The Air Force, Army and Navy have committed to producing 1 gigawatt each of renewable energy by 2025. And they want private companies and Wall Street investors — or third parties — to fund the projects out of their pockets. One gigawatt is enough to power about 400,000 homes for one year.
The department has a variety of mechanisms that allow these investors to build renewable energy projects on U.S. bases so they can reap financial rewards later. Power purchase agreements and energy savings performance contracts are two of the more popular means. Ideally under these contracts, the facility gains a less expensive and more reliable source of energy without upfront costs. The companies sell the energy generated to the base, and possibly local utilities if there is excess capacity.
“We are not going to enter into renewable energy projects if they don’t make business sense,” Terry Yonkers, assistant secretary of the Air Force for installations, environment and logistics, said at a National Defense Industrial Association conference.
This is about energy security, he said. Bases need reliable, uninterrupted power. But they aren’t going to pay more than local utilities charge for it.
“Fundamentally, this is going to come down to dollars. This is the thing that is going to make it work. Or it’s the thing that’s not going to make it work,” he said at the Environment, Energy Security and Sustainability Symposium.
That’s good news for the private sector. Companies want to see a return on their investment, too. The ones that specialize in managing and developing solar fields, wind farms and such must go to third parties — most often large Wall Street investment firms — to convince them that they have a viable and potentially profitable project.
The problem so far has been the uncertainty of dealing with the federal bureaucracy.
Paul Bollinger, director of Boeing Energy, said getting a renewable energy project off the ground currently is a years-long process that involves complex federal contracting.
“And the information on how this will work is unclear,” he added.
These factors are not attractive to the Wall Street investors who are being asked to provide capital for the projects.
On top of that, negotiations often must include the local utilities. Bases are often their largest customers. If a military facility’s power consumption goes down, so will the amount of money they collect. And these plans sometimes call for them to purchase any excess energy.
Utilities might rightly ask: “How does this add value to our shareholders?” Bollinger noted.
This may explain in part why renewable energy projects are occurring at only a handful of bases, Bollinger said.
Dorothy Robyn, deputy undersecretary of defense for installations and environment, said facility energy costs totaled $4.1 billion in fiscal year 2011. These costs are expected to rise as more personnel return from overseas deployments, she added. Most of these facilities depend on local electrical grids, which are not seen as secure or reliable in times of emergency. They are vulnerable to weather disruption, physical attacks and cyber-assaults, she said. Meanwhile, there are many personnel working in domestic military buildings that are providing direct support to troops in the field, she noted.
These critical buildings do have diesel generators as backups, but in the case of a catastrophic event such as widespread natural disaster, that calls into question how bases will resupply this fuel once it runs out after a day or two.
Officials at the conference took pains to explain that this was not about saving the planet or reducing greenhouse gasses. They couched it in terms of security.
They also noted that the renewable energy goals can be achieved with little expense to the taxpayers.
Katherine Hammack, assistant secretary of the Army for installations, energy and environment, said one of the problems was a lack of direction coming from the services.
“We were saying, ‘Hey, we’ve got some land — put something on it.’ That’s not a real good project definition,” she said.Richard Kidd, deputy assistant secretary of the Army for energy and security, said the service has come up with a plan to address some of these concerns.
But to do so, it will have to spend some of its own money up-front to ensure that projects go smoothly.
Private capital has a choice of what projects it is going to fund, he noted.
“There is not a four-star general in the Army or a member of Congress [who] can order a financial institution to invest in a project if it is not attractive,” Kidd said.
The Army has identified some 80 projects that it is currently prioritizing. For each one, the service’s Energy Initiative Task Force is examining the potential pitfalls. These may be technical, regulatory, or they may not make economic sense.
“Part of the process is to kill bad projects as quickly as possible so as little manpower [as possible] is invested,” he said.
A “red team” then comes in and looks at the project to find more potential roadblocks. The Army currently has about $28 million per year to pay for these upfront development costs. Kidd has traveled to New York to meet with investment firms in order to understand exactly what they want to see before green-lighting a project.
“We believe by doing that we will get more private sector interest and we will get more competition from more developers,” he said.
There is no shortage of renewable energy companies interested in these programs. A request for information for “large-scale renewable and alternative energy power production for Army installations” that was issued in February was expected to have about 50 responses. His office received 150 instead.
There may be relatively few renewable energy programs on U.S. bases now, but that will soon change with the projects the Army will approve, Kidd said. Requests for proposals were expected this summer.
By the summer of 2013, the service “may have one of the largest renewable energy project pipelines in the country,” he asserted. The request for information said the Army will purchase $7 billion worth of energy from this program over the lifetime of the 30-year contracts.
As for the Air Force, Yonkers said it has a more aggressive goal. It wants to reach the 1 gigawatt of renewable energy goal by 2016 rather than 2025. The service needs “reliable uninterrupted power.” It has about 153 projects ongoing at 50 different bases.
Like the other services, it is depending on third parties to finance them. But the bureaucratic military contracting process — which can differ from service to service — is a hindrance, he admitted.
“I think we are shooting ourselves in the foot. It is much too complex,” he said.
The military needs to reduce the amount of time it takes to complete the development stage from two to three years and whittle it down to something manageable like 12 months, Yonkers said.
“In the private sector, time is money,” he added.
Kidd said the Federal Acquisition Regulation, which governs how agencies acquire goods and services, is not going away, and must be followed no matter where the funding is coming from.
“People say it takes too long but the FAR is the FAR and we have to follow [it] or we go to jail,” Kidd said.
Meanwhile, there are other hurdles to some of these projects. Solar power generation, for example, is a relatively mature technology. There are several solar fields on U.S. bases now. The assumption is that large bases, particularly those in the sunny West, have millions of acres to spare.
Robyn said the Defense Department recently made an attempt to figure out just how much potential there was on these facilities. It studied nine bases in the Southwest to determine how much land was available for solar farms. The conclusion: not as much as one would think.
Despite the region’s reputation for year-round sun, the study showed 96 percent of the land was not available. It was being used for operations, the topography was mountainous and not suitable, or there were environmental concerns such as the desert tortoise, which is protected by the Endangered Species Act. In such cases, “he wins,” she said of the reptile.
The good news coming out of the study was that the other 4 percent of land could potentially produce 7,000 megawatts of electricity on the bases, she said.
Wind farms are also problematic. The giant turbines dot farmland in the Midwest, but so far few such projects exist on military bases. The issue has been interference they can cause military radars.
Hammack said the bottom line is that none of these renewable energy projects can obstruct the normal operations of a base.
“The mission comes first,” she said.
Dave Buemi, senior director of federal business development of solar power cell maker Suniva, said there is a general lack of knowledge in the government and industry on just how to get these projects off the ground.
“I think everybody has their risk antennas up on both sides of the table and if we’re going to overcome and get moving, everybody is going to have to take a little bit more risk.”
Topics: Energy, Power Sources
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