The military services want the private sector to design, build, own and operate the alternative energy generation capacity and sell the energy to the military services.
The Army's $7 Billion Renewable Energy Contracts
Robert Tritt | McKenna Long & Aldridge LLP
Why are the military services interested in alternative energy on military bases?
The Department of Defense and the military services are pursuing an ambitious plan to expand on-base alternative energy generation for three reasons: (1) it furthers energy security. Having generation capability on base makes military bases less susceptible to the impact of the grid being disrupted. (2) It responds to federal mandates. Congress has mandated that the military services obtain 25 percent of their electric energy from renewable sources by 2025. In 2011, that number was 8.5 percent. (3) It offers the opportunity to reduce costs over the long term. Some alternative energy sources can offer long term set prices, which can save money over the long term as compared to the cost of energy otherwise available.
What is the private sector's role in providing alternative energy to the military services?
The military services want the private sector to design, build, own and operate the alternative energy generation capacity and sell the energy to the military services. Military construction dollars are in short supply. Especially with the tax credits that only the private sector can use, the private sector can build alternative energy facilities less costly than the services could build them. Instead of having to fund construction projects, the military services will buy the energy that they would buy anyway.
What type of projects are envisioned?
First, the services want proven technology. This is not viewed as a research and development effort although technological advances may come from it. While not an exhaustive list, the military often speaks in terms of solar, wind, biomass and geothermal. Second, in terms of size, each service has been charged to add 1000 MW to its portfolio. I expect a typical size project will be 10-15 MW. This size is big enough to be worth the effort but under the size of utility scale projects that have added complexities.
Are these projects financeable?
Yes, the military services have the authority to sign power purchase agreement for up to 30 years. Transactions, such as the recent 13.7 MW solar project at NAWS China Lake, have closed and have been project-financed. There will be unique provisions in DOD power purchase agreements, but in my view banks and energy companies will work through those issues and the deals will happen.
Is preference given to "Made in the USA" projects and components?
"Buy American" requirements are present and evolving. Under existing law, Buy American provisions are easily met because it is the energy being sold, and that energy is being made right on base. However, there are continuing legislative efforts to require that components that are located on military bases, even if not bought by DOD, are made or at least assembled in the U.S. In planning for these projects it would be best to assume that the primary components will need to either be made in America or in certain trading partners.
Private investment on military bases? Has anything like this happened before?
Yes. The services are now completing the privatization of military family housing, which has transformed the housing for military personnel and their families. Even among its initial critics it is widely regarded as a highly successful program through which the private sector has invested approximately $30 billion on military bases.
Will the military services pay a premium for alternative energy?
Not yet. The value of energy security has not been monetized, and the services have yet to give any specific dollar credit for that feature. However, this may be considered on a case by case basis. The military services need the renewable energy certificates that arise from the projects, but also recognize that the developers need to sell the RECs separately to bring the cost of energy down to an acceptable level. The RECs are a negotiable issue. Further the military services are willing to consider the cost of the alternative energy over the long run as compared to the projected cost of energy otherwise available. It is not necessary that alternative energy be cheaper on the first day.
Are there any opportunities for "research and development" projects or components to be included within these projects?
This is not viewed as an R&D project, and only proven technologies will be deployed. DOD does have some capacity and funding for energy research, and they hope that their focus on this sector will help drive innovation and advances as has often been the case in the past. However, when it comes time to enter into a long term power purchase agreement, DOD will expect that both the party winning the contract and the technology to be used will have a proven ability to perform.
When is this happening?
It is happening now although the services are ramping up their efforts and are in the early stages. The services are approaching the issues separately and differently. The most visible procurement is the upcoming Army Request for Proposal, expected later this summer, through which the Army will select a pool of developers in each of the categories of solar, wind, biomass and geothermal. The purchasing authority under this RFP is expected to be $7 billion for long term power purchase agreement to be entered into over the next 10 years .
Does this RFP only include projects in the US or are internationally located military installations included?
The potential territory in the RFP is very broad---federal property located in all states, territories, provinces and other property under the control of the United States. However, I would expect most of the attention will be in the 50 states, plus perhaps Puerto Rico and Guam. A separate but important initiative for the military is renewable energy in theater, namely Afghanistan. But those problems are not addressed by long term, fixed location renewable energy generation, which is the subject of the RFP.
How does a company go about getting a list of and submitting proposals for these projects?
Most, but not all, of the projects will be public procurements, and the projects will be posted on FedBizOps. However, it is expected that the services will generally prequalify the companies that can compete. The Army RFP is such a prequalification process. To compete, companies will need to go through the prequalification process, and if selected, thereafter compete for the specific task orders. At present the services are still evaluating where their most viable projects will be The Army and Air Force have announced a joint industry day in Arlington, VA on June 12. More information will be available at that time.
About Bob Tritt
With more than thirty years of corporate, real estate and energy legal practice, Robert E. Tritt brings a broad spectrum of experience to public-private partnerships. He is Co-Chair of the Military Base and Communities practice of MLA. He is actively engaged in the representation of the private sector and local redevelopment authorities in the redevelopment of closed and realigned military bases. He has skill in assisting the private sector in investments in and around expanding military bases, including through enhanced use leasing authority available to the Department of Defense, Department of Energy, Veteran’s Administration and other Federal departments. He also represents on base renewable energy projects.
Mr. Tritt is experienced in complex real estate development and redevelopment and the financing of those efforts through private and public finance and through tax incentives.
Mr. Tritt has further extensive experience in project development in the energy field and has represented independent power producers in the development and financing of gas and oil fired merchant power plants and cogeneration facilities and is now engaged in renewable energy projects.
LL.M. in Taxation, Emory University, 1981
J.D., University of Georgia School of Law, cum laude, 1975
B.B.A., University of Georgia, magna cum laude, 1972
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