Army to Renewable-Energy Industry: Show Me the Money

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 apublic-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A new organization within the Army, called “energy initiatives task force,” was created to manage the transition of outdated Army-owned power utilities into privately-owned modern grids that integrate renewable sources of energy.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

Topics: Energy, Alternative Energy, Energy Security, Procurement