Defense Department Needs Investors to Buy into Its Renewable Energy Goals
Magnuson, Stew, National Defense
NEW ORLEANS--Some defunct coal burning power plants can still be found on U.S. military bases. They stand as a reminder of the days when power was once generated inside the fence lines.
Today, most bases rely on local utilities to supply them with the vital energy they need to function. The Defense Department wants to turn the clock back, but not with fossil fuels. It is looking to alternate sources of energy--solar, wind and waste--to help it meet some lofty goals.
The Air Force, Army and Navy have committed to 4 producing 1 gigawatt each of renewable energy by 2025. And they want private companies and Wall Street investors--or third parties--to fund the projects out of their pockets. One gigawatt is enough to power about 400,000 homes for one year.
The department has a variety of mechanisms that allow these investors to build renewable energy projects on U.S. bases so they can reap financial rewards later. Power purchase agreements and energy savings performance contracts are two of the more popular means. Ideally under these contracts, the facility gains a less expensive and more reliable source of energy without upfront costs. The companies sell the energy generated to the base, and possibly local utilities if there is excess capacity
"We are not going to enter into renewable energy projects if they don't make business sense," Terry Yonkers, assistant secretary of the Air Force for installations, environment and logistics, said at a National Defense Industrial Association conference.
This is about energy security, he said. Bases need reliable, uninterrupted power. But they aren't going to pay more than local utilities charge for it.
"Fundamentally, this is going to come down to dollars. This is the thing that is going to make it work. Or it's the thing that's not going to make it work," he said at the Environment, Energy Security and Sustainability Symposium.
That's good news for the private sector. Companies want to see a return on their investment, too. The ones that specialize in managing and developing solar fields, wind farms and such must go to third parties--most often large Wall Street investment firms--to convince them that they have a viable and potentially profitable project.
The problem so far has been the uncertainty of dealing with the federal bureaucracy.
Paul Bollinger, director of Boeing Energy, said getting a renewable energy project off the ground currently is a years-long process that involves complex federal contracting.
"And the information on how this will work is unclear," he added.
These factors are not attractive to the Wall Street investors who are being asked to provide capital for the projects.
On top of that, negotiations often must include the local utilities. Bases are often their largest customers. If a military facility's power consumption goes down, so will the amount of money they collect. And these plans sometimes call for them to purchase any excess energy.
Utilities might rightly ask: "How does this add value to our shareholders?" Bollinger noted.
This may explain in part why renewable energy projects are occurring at only a handful of bases, Bollinger said.
Dorothy Robyn, deputy undersecretary of defense for installations and environment, said facility energy costs totaled $4.1 billion in fiscal year 2011. These costs are expected to rise as more personnel return from overseas deployments, she added. Most of these facilities depend on local electrical grids, which are not seen as secure or reliable in times of emergency. They are vulnerable to weather disruption, physical attacks and cyber-assaults, she said. Meanwhile, there are many personnel working in domestic military buildings that are providing direct support to troops in the field, she noted.
These critical buildings do have diesel generators as backups, but in the case of a catastrophic event such as widespread natural disaster, that calls into question how bases will resupply this fuel once it runs out after a day or two. …