The DoD Continues To Embrace Renewable Energy
Initiatives are supported through executive orders and financing mechanisms.
By Thomas Swoyer Jr.
It is hard to drive anywhere in the United States and miss seeing the explosion of investment in renewable energy. Solar panels have been installed on everything from rooftops to telephone poles and even on cars themselves. Wind turbines, some standing 500-feet high and others mounted on barns, spin in the breeze, generating electricity. Power plants based on converting biomass such as corn or oil crops generate electricity that is sold to utilities. Even municipal solid waste is a viable feedstock for generating energy. And water currents in rivers and tidal forces are also being tapped for renewable energy.
Virtually every aspect of our nation’s economy is impacted by energy costs and therefore can benefit from investing in and utilizing renewable energy technologies. The rapid growth in the development of renewable energy projects has resulted in the creation of numerous new technologies, significant reductions in installation and operating costs, and a general boom in the renewable energy economy.
The United States government, much like homeowners and businesses, is very interested in the promise of clean, renewable energy. Many federal agencies are working toward making renewable energy a fixture in their operations. The U.S. Department of Defense (DoD) and the U.S. Department of Energy are leading the way. Many other agencies, ranging from the U.S. Department of the Interior and U.S. General Services Administration to the U.S. Environmental Protection Agency, are also investing in renewable technologies and how to use them at the sites, buildings and lands they control or oversee.
These government agencies have been supported in developing their renewable energy initiatives during the past five years based on four major actions that support rapid investment in renewable energy. The four actions are:
*Executive Order 13423 requires among other things that 50 percent or more of renewable energy consumed must be from new sources.
*Executive Order 13514 requires among other things the reduction of use of fossil fuels and water and the establishment of federal standards for high-performance sustainable buildings.
*The Energy Independence and Security Act of 2007 requires the reduction of total energy use in federal buildings.
*The National Defense Authorization Act of 2010 requires the DoD to produce or procure 25 percent of total energy from renewable sources by 2025.
In addition, the National Defense Authorization Act of 2012 added Energy Security as a consideration that DoD must account for in its energy purchasing and production decisions.
The impact of these actions is profound and will reshape the energy landscape of the United States as the country’s single largest energy consumer, the U.S. Government, shifts its attention toward deriving its energy from renewable sources. The DoD is the largest energy consumer within the government and the programs they are implementing and investments they are making will contribute greatly to the continued growth in implementation of renewable energy technologies.
During the past three years, the DoD has been working to better understand how it can integrate renewable energy technologies into its operations, both at home and abroad. The previously described mandates along with the desire to reduce life threatening situations caused by the transport of fuel in war zones has combined to kick-start investment into renewable energy. Within the DoD, the various services have taken similar but distinct approaches to integrating renewables into their energy portfolios. All the services, Army, Navy, Air Force and Marines, have invested in biofuels and other petroleum reducing technologies. The services have also invested in technologies and practices to reduce consumption, a critical path effort toward reducing total energy consumption. The Army and Air Force and to a similar extent, the Navy and Marines, have invested in specific organizations within their command structure to lead the effort in investing in renewable energy. These organizations, which include the recently organized Energy Initiatives Task Force for the Army, the Air Force Real Property Agency, and the Air Force Civil Engineer Support Agency, are perhaps most prominently leading the way for renewables. These organizations are certainly not alone in their efforts.
Tools To Procure Renewable Energies
Each of the organizations has taken slightly different paths toward acquiring renewable energy for their respective services. Regardless of the specific approach, each organization is engaged in managing the acquisition of renewable energy projects. In some cases, the projects are direct acquisitions using appropriated funds. In other cases, and in the face of constricted budgets, the DoD is turning to private sector capital to finance their renewable energy goals.
Currently, the DoD uses five primary procurement tools to acquire renewable energy projects. The first method uses appropriated funds authorized by Congress. It is a direct procurement whereby the government uses its own funds to acquire renewable technologies and issues contracts to companies to install the equipment, and in some cases, operate the equipment. For instance, the government has purchased renewable energy and Renewable Energy Certificates from utilities, an effort which is on the decline. The method fails to meet energy security requirements established in the National Defense Authorization Act of 2012, as well as the intent of Executive Order 13423.
The use of appropriated funds is certainly one of the fastest and simplest ways for the DoD to acquire renewable energy, however; with a future of limited budgets, this method of procurement will see limited use in the future.
Another method of procurement relies primarily on private sector capital, which can be broken into the following four categories:
* Energy Savings Performance Contracts: In ESPC projects, the contractor is responsible for providing all the capital necessary to implement the energy savings project proposed by or accepted by the government. In this contractual scenario, the majority of the risk is placed on the government. While the private contractor is responsible for providing and securing the financing for the project, the financing is secured to government payments based on estimated savings versus a base year of cost. Use of ESPC contracts is on the rise after a memorandum was issued in August 2011 by the Council on Environmental Quality supporting the use of ESPC and UESC (outlined below) contracts.
* Utility Energy Service Contracts: UESC projects allow a federal agency to take advantage of project financing from a utility that serves them. The agency and the utility can enter into a contract allowing the utility to pay for energy efficiency, renewable energy and water savings projects to be repaid by that agency.
* Power Purchase Agreements: PPAs are becoming more common in federal energy purchases as they allow the agency to purchase power directly from a power generator. The power can be generated on private or public lands. The basis of the contract is that a power generator agrees to provide a specific amount of power to the government for a specific price. The development of the power generating facility is then totally the responsibility of the bidder. The Navy has been using this method for several years and most recently, the Army plans to use this method through the release of a Multiple Award Task Order Contract by the Army Corps of Engineers. This contract will allow individual companies to bid on different projects utilizing different technologies and to sell that power to the government.
* Enhanced Use Leasing: EUL projects are growing in numbers but remain one of the more complex procurement structures. EUL projects provide great flexibility for the government but to date, only the DoD and U.S. Veterans Administration use it widely. The EUL authorities allow the DoD and VA to lease parcels of property under their control for periods of up to 50 years and in the case of the VA, up to 99 years. The property can be used for the development of renewable energy assets with some of the power being sold to the government and the rest being sold to “the grid.” EULs remain complex projects with nearly all the risk being placed on the project developer. Yet, given the immense power needs of the federal government, the ability to individually procure projects and the ability to leverage very large amounts of private capital, EUL will become an increasingly popular tool with the government.
These procurement methods are all in use to differing degrees. Currently, the federal government’s budget process is putting pressure on all agencies to reduce spending. As spending declines, direct investment in renewable energy by federal agencies also declines. However, development of renewable energy projects is rapidly on the rise through the use of alternative financing mechanisms like ESPCs, UESCs, PPAs and EULs. Continued use of these contract vehicles gives the federal government a powerful set of tools with which to custom design the proper renewable energy portfolio that is right for them, as well as spur investment in new technologies. In the coming years, procurement methods that leverage private capital will see increased growth through widespread use.
Thomas Swoyer Jr. is the president of Infinity Development Partners, located in San Antonio. He can be reached by calling 210-364-8306 or by emailing email@example.com.
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