Defense Energy: Market Holds Promise, and Plenty of Caveats

A recent Army-Air Force “Renewable Energy Industry Day” drew more than 800 participants from the private sector. The record attendance was welcomed by Pentagon officials as a sign that companies are enthused about the opportunities in the military energy business.

The Defense Department’s green energy business, however, is far from guaranteed gold.

The big daddy of military renewable energy projects is the Obama administration’s directive for the U.S. military to deploy 3 gigawatts — enough to power 2 to 3 million homes — of renewable energy, including solar, wind, biomass and geothermal, by 2025. Each service will be seeking one gigawatt worth of clean electricity at facilities across the United States.

But the Pentagon’s budget has zero dollars for this effort. The plan is to lure private-sector investment to build renewable energy plants on Army, Navy and Air Force bases, with the promise of more than $20 billion worth of power purchases over three decades. Those are funds that the military would spend on electricity regardless.

Industry will bear the upfront cost but can expect long-term returns, said John Lushetsky, executive director of the Army Energy Initiatives Task Force.

Each gigawatt of electricity from renewable sources could generate $7 billion to $8 billion in utility payments over 30 years.

Lushetsky said hundreds of companies have submitted questions and comments in response to an Army Corps of Engineers’ draft request for bids.

None of this will be easy money, however, officials warned at the Army-Air Force conference. The relatively low cost of coal and gas could deter investors, said Terry Yonkers, assistant secretary of the Air Force for installations, environment and logistics. “The challenge for industry is how to do this in today’s environment when fossil fuels are still pretty darn competitive.”

Another caveat for potential contractors — especially commercial energy firms and utilities that might not be familiar with the Defense Department — is that each branch of the military manages renewable energy programs differently, Yonkers said. “To do business with the Defense Department you have to learn three different systems,” he said. Senior officials from the three services are looking to standardize requests for bids, contracts and evaluations, but that could take a long time. “We are looking at how we can put one face to the private sector,” Yonkers said.

The Army’s upcoming bids for large-scale renewable energy projects will be closely watched, as they could offer valuable clues to companies that are seeking to break into this market.

Lushetsky cites four green-tech projects that could get under way over the next several months: 20 megawatt solar at Fort Bliss, Texas; 20 megawatt solar at Fort Irwin, Calif.; 15 megawatt solar at Fort Detrick, Md; and a 50 megawatt biofuel project at Schofield Barracks, Hawaii. Approximately 180 sites are being evaluated for future developments.

But Lushetsky gave no assurances. “We should tell you that additional government reviews are required,” he told industry representatives. “There are no done deals in renewable energy project developments, only deals that have been done.”

Because of the risk and the large investments required, it is likely that only top defense contractors and commercial energy conglomerates will be able to play in large-scale energy development.

Small businesses see greater opportunities on the “operational” side of the military energy market, with a focus on portable solar systems and hybrid generators that help reduce fuel use at forward deployed bases.

Some companies worry that as the war in Afghanistan winds down, operational energy dollars will dry up.

“It is a difficult environment for small businesses,” said Ken Schweers, CEO of SkyBuilt Power, a supplier of mobile renewable energy.

Schweers, an energy industry veteran and retired Navy officer who has only been on the job at SkyBuilt less than three months, predicts the military will continue to spend money on deployable renewable energy. The company’s suitcase- and container-size solar units have been purchased by the U.S. military to power communications towers and surveillance sensors in remote areas where it’s difficult to get fuel and maintenance. “That’s the focus of our market,” he said.

Military commanders at the U.S. naval base in Djibouti, on the Horn of Africa, have replaced their communications towers’ turbine generators with renewable power units that SkyBuilt supplied as a subcontractor to CSC Applied Technology Group. The renewable power generators range in price from $15,000 to $250,000 based on the wattage. These costs can be recouped over time from fuel and maintenance savings, Schweers said.

The future of companies such as SkyBuilt depends on whether the Pentagon and Congress begin to see renewable energy as a money-saver, not an unaffordable luxury. “It’s never been easy for politicians to make tradeoffs between capital expenditures and operations,” Schweers said. “You need investments for the future. Sometimes that requires upfront funds,” he said. “Congress has a short-term horizon. Energy has a 20- to 30-year horizon.”

In its fiscal year 2013 budget, the Defense Department requested more than $1.4 billion for operational energy programs.                

Topics: Energy