As explored in Part I of this Article (Global Renewable News Volume 4, Issue 4), over the past two years, the United States Army (“Army”) has established а dedicated Energy Initiatives Office Task Force (“EITF”). It kicked off а novel procurement program (the “Army Renewables RFP”) for a proposed $7 billion in power purchase agreements (PPAs) intended to stimulate private investment in the build-out of greenfield renewable power projects at Army bases across the continental U.S.
The EITF and the Army Renewables RFP are the Army’s solution to the looming set of federal laws and mandates requiring the Army to meet certain renewable energy benchmarks in the coming years. The Army Renewables RFP should be understood as a response to the somewhat idiosyncratic policy objectives underlying the renewables requirements and their context in the broader network of policies to which the Army is subject. This part examines the extent to which these underlying objectives are inconsistent poses problems for the implementation of the RFP.
Energy Security
The Army consistently describes its actions to increase its renewable energy consumption as critical to achieving the larger goal of improving ‘energy security,’ meaning the availability of energy to allow the Army to carry out its mission uninterrupted, even if the civilian power grid is unavailable. The EITF “will help the Army build resilience through renewable energy...,” according to Secretary of the Army John McHugh.1
There seems to be some dissonance in the Army’s promotion of intermittent resources at Army bases while citing as the rationale the urgent need to enable installations to ‘island’ with reliable power upon a failure of the grid. The definition of ‘renewable energy’ under the EPAct 2005 and the statutory requirements that half of the energy consumed by a federal agency in a fiscal year come from ‘new renewable sources’ (placed in service after January 1, 1999) and from renewable energy on agency property means, practically, that the on-base choices for Army installations will largely be confined to solar and wind, or the generation of electricity by burning biomass and waste. The obvious problem with reliance upon solar panels and wind turbines, however, is that, even assuming that a large number of bases benefit from significant sun and wind, not even the Army can control when the sun will shine or the wind will blow.
The Army has provided the explanation that renewable energy, as ‘an intermittent resource... means that we are looking for energy to help reduce our peak power and give us the ability to operate longer should power disruptions occur...’2 Implicit in this statement is the idea that the intermittent resource in question will work in tandem (and at moments of peak load) with other, more reliable, forms of back-up power that are independent of the grid. However, upon questioning at Army Renewables RFP-related conferences, Army representatives have clearly stated that large-scale energy storage technology is not sufficiently proven or commercially viable in the Army’s view. Still, in a further sign that the Army continues to grapple with the renewables vs. reliability trade-off, the Army Renewables RFP indicates that ‘grid isolation technology will likely be required’ as an optional price component of individual proposed projects ‘so that а continuously operating plant will self-isolate and remain functional upon external grid power failure.’
Cost and Budget
Arguably, the choice to combine the Army’s energy security objective with its renewables goals will result in additional cost in the implementation of its Renewables Program. Consider the finding by the Pacific Northwest National Laboratory, in relation to the cost of small scale wind projects, that ‘bids to install a single large turbine were two times the average cost quoted by industry for a wind farm of 60 MW or larger.’3
Another restriction on Army flexibility to embrace renewables in the most cost effective manner relates to the DOD’s 25 percent renewables by 2025 goal in combination with the Army’s Policy on Renewable Energy Credits (“Army REC Policy”).4 The Army REC Policy indicates that there must be а direct link between the RECs the Army purchases and the energy the Army consumes by providing that the Army’s renewables mandates can be met only with the purchase and retention of RECs created by projects in which the Army will:
- Construct, convert or renovate a renewable energy generating asset owned by the Army
- Purchase, under an agreement, energy output from a system under (1) or output from another system
- Grant use, under an agreement, of Army land for the purpose of generating renewable energy.
In other words, a REC generated by a non-Army-owned facility must be bought by the Army directly from a renewable energy generating asset and in connection with the purchase of the energy output of that renewable energy generating asset or from a renewable project that happens to be located on Army land.
Knowing what we now know, it seems quite predictable that the Army Renewables Program represents a more costly form of procurement than the Army’s current procurement at retail rates through utility service contracts; the issue then is what the Army is willing to pay. After all, the Army is seeking small-scale, dedicated, new-build plants using all new renewable technology, likely requiring grid-free back-up, while being unable to monetize carbon credits and subject to high financing costs (if regulatory and contracting risks are left unresolved, as suggested in Part 1 of this Article). The Army has since acknowledged that its lowest-cost energy objective may not be compatible with its renewables goals and has said that it will buy renewable energy project output at a ‘fair and reasonable premium’ over the retail utility rates it would otherwise be paying.5 Most recently, however, Hammock explained, “we are not looking to pay more for electricity, we are looking for parity, or the price point with the private sector that will enable us to have reliable resources for the long term within our current budget...”6
The reference to the Army’s current budget relates to another area of uncertainty at the core of the Army’s Renewables Program: namely, how to treat a PPA for federal budget purposes. The appeal of a PPA approach as a means of renewable energy procurement is that it will attract private capital expenditure to fill in the Army’s budget gap relative to its renewables mandates.
Conclusion
In sum, it seems that the issues of budgeting, pricing and security are bound to impinge on the momentum of the Army’s Renewables Program. The Army’s roll-out of the EITF and its framework for $7 billion in procurement of renewable energy herald an exciting opportunity for renewable power project developers and investors. However, the uncertainties discussed in this Article can be expected to cause reluctance on the part of private parties to commit the resources the Army hopes to attract. If the Army is to turn this opportunity into a reality, it will need to build confidence by addressing such issues head-on. Only then will it be possible for the Army to inspire a mutually beneficial public-private partnership that will have a meaningful impact on the achievement of the Army’s renewables goals.
1 News Release, U.S Dep’t of Def., Army to Establish Energy Initiatives Office Task Force for Large-Scale Renewable Energy Projects (Aug. 10, 2011).
2 Rob McIlvaine, Army commits to security through renewable energy, Army News Service, May 22, 2012, https://www.army.mil/.../.
3 W.M. Warwick, Purchasing Renewable Power for the Federal Sector: Basics, Barriers, and Possible Options, Pacific Northwest National Laboratory 19 (2008).
4 Memorandum from the Department of the Army, Department of the Army Policy for Renewable Energy Credits (May 24, 2012), https://www.armyeitf.com/...Policy.pdf
5 Chuck Ross, Army working with industry in renewables initiative, Electrical Contractor, Feb. 28, 2012, https://www.ecmag.com/...ranks
6 Rob McIlvaine, Army commits to security through renewable energy, Army News Serv., May 22, 2012, https://www.army.mil/...energy/
About the author
Maura Goldstein, a Partner in the Global Projects Group of the law firm of Baker Botts L.L.P., represents developers, equity investors and lenders in connection with major infrastructure projects, including power projects, worldwide. Maura has extensive experience structuring gas and coal-fired, solar, wind, energy storage, and biomass power projects, and negotiating power purchase agreements, project site leases, construction contracts, technology procurement, and project financing arrangements for power projects. Baker Botts’ energy and transactional associates Katrina Smith, Yuefan Wang, and Kyle Wamstad, provided valuable assistance in the research and development of this article. Contact Maura at Maura.Goldstein@bakerbotts.com
