Department of Defense Makes Waves in the Renewable Energy Industry

Posted by Paul Krebs on Wed, Oct 03, 2012 @ 31:11 AM


While the outlook for renewable energy remains uncertain, commitments from government agencies such as the Department of Defense and US Army present stable growth opportunities for the industry. On April 11th of this year, the White House announced steps to increase energy security. A featured step was the Department of Defense’s commitment to deploy over 3 gigawatts (25% of DOD consumption) of solar, wind, biomass and geothermal energy across Army, Navy and Air Force installations nationwide by 2020. The Army took the initiative and hit the ground running with an ambitious plan to procure 1 gigawatt or 7 billion dollars worth of renewable energy contracts to enter service by 2020 (8). The army’s plan could help reduce energy consumption and increase energy security for the nation’s largest energy user, and spur growth in renewable energy, especially for small businesses.

 

 The DOD’s plan, with the army RFP at the forefront, is the foundation to transform the DOD’s energy issue from one of security and cost into a source of stability and positive fiscal value. Currently, the DOD is the nation’s and the government’s largest consumer of energy. At 90% of the federal government’s consumption, the DOD uses 932 trillion BTU (British thermal units) of energy at a cost of 13.3 trillion dollars/year. An ICF international study for the DOD estimated there to be 7 gigawatts of potential energy from DOD solar installations in California and Nevada alone. This 7 gigawatts equates to 100 million dollars of potential revenue (4). Furthermore, the army’s RFP only calls for PPA (power purchase agreements) which reduces risks to the government. Through these PPAs, the Army purchases only the power. The energy providers are responsible for the design, installation and maintenance with a strong incentive for cost mitigation. The Army’s RFP is the first stage of a compelling but more importantly viable solution to energy security, cost control and economic stimulation.

The US Army’s plan offers WindandSolarforBlogPostenergy providers the potential to develop contracts that transcend the pitfall of collapsed contracts, barriers to participation and high transactional costs that plague renewable project development. The ideal PPA contract to renewable energy developers is a long term agreement for power from a project realized at the lowest cost. This translates to a low upfront cost and a long payback period. A power consumer’s credit can be an issue, and can cause developers to opt for shorter term agreements out of fear of default. Due to the stable nature of the government, they can be a preferred partner for renewable developers. A carve out for small businesses creates tremendous opportunity for smaller sized bidders. A small business is defined as a company’s whose transmission, distribution and/or generation capacity for the prior fiscal year are less than 1 tWh. Projects less than 4MW are reserved for small businesses, and these small businesses are given preference for the 4-12 range. There are no carve outs for projects above the 12 MW range, though small businesses are encouraged to participate. Furthermore, another advantage to the Army’s RFP is that the Army will shoulder a majority of the due diligence such as ensuring compliance with the Environmental Policy Act (8). While the army will perform a portion of the permitting work, the developer could be responsible for mitigation measures including environmental permits and approvals conforming to various federal, state and local policies. This is expensive and could be a prohibitive factor, especially for small businesses (2). North American Windpower sums up this situation well with the statement “Developers looking to bid on the Army’s RFP should know that the process and requirements differ substantially from those of utility and commercial contracts, and working with the government presents both advantages and disadvantages” (1).

The first stage of the Army’s solicitation closes October 5th, representing a landmark for the future of the DOD’s energy portfolio and the renewable energy industry. In the second phase, bidders will submit their actual project proposals. The DOD will evaluate the market every 18 months to decide if it should conduct “on ramps” and accept new proposals, or “off ramps” and remove companies. The Army’s solicitation is the first stage of the DOD’s drive towards an efficient energy portfolio and renewable energy market.   



References:

1. (n.d.). Retrieved from http://www.nawindpower.com/e107_plugins/content/content.php?content.10465

2. Association of Defense Communities . (2012). Army Issues RFP to Obtain $7B Worth of Renewable Energy; Pre-Proposal Conference Scheduled. Defense Communities 360 .

3. Clean Energy Authority . (2012). Study: DOD could put 7,000 MW of solar on bases—just in CA, NV.

4. New York Daily . (2012). New Initiatives to Increase Energy Efficiency in the U.S. Military.

5. North American Windpower. (2012). Bidding On The Army's Renewable Energy RFP: What You Need To Know.

6. Patton Boggs. (2012). http://www.jdsupra.com. Retrieved October 2, 2012, from JD Supra: http://www.jdsupra.com/legalnews/what-is-a-small-business-under-the-arm-31922/

7. The White House . (2012, April 11). Fact Sheet: Obama Administration Announces Additional Steps to Increase Energy Security. DC.

8. U.S. Army . (n.d.). Solicitation View for W912DY11R0036-0007. Retrieved October 2, 2012, from Army Single Face to Industry (Acquisition Business Website) : https://acquisition.army.mil/asfi/solicitation_view.cfm?psolicitationnbr=W912DY11R0036




Tags: federal incentives, renewable energy, Department of Defense, project developers, RFP, DOD, Power Purchase Agreements, PPAs