Tuesday, September 14, 2010

Making the Numbers: From Energy Goals to Business Cases

The following is an attempt to translate the energy goals and mandates for the DoD in to units of energy in order to define the business case and opportunities that can bring the public and private sectors together in the name of energy security. It is a bit dense and I do not usually do math in public, but I believe it is worth the effort to get the conversation started.

At a time when America is recovering from an energy disaster on our shores, the DoD is taking bold, measurable steps toward energy conservation and efficiency as well as creating a portion of their energy needs from renewable sources. The Department of Defense is taking these audacious measures because they provide for energy security, reduce cost and improve the environment. Oh, and they have to, by law.

In the past five years, DoD, the Executive Branch and Congress have issued dozens of policies, Executive Orders, and mandates requiring the Department to reduce energy demand and produce more of their energy from renewable and alternative sources for the billions of square feet of installation real estate owned.

The Congressional Research Service’s Anthony Andrews published an excellent report (http://www.fas.org/sgp/crs/natsec/R40111.pdf) In February 2009 on the Departments policies and spending in regard to energy. In the report, there is a comprehensive review of “energy conservation legislation and Executive Orders that apply to the Department of Defense, directives and instructions to the military departments and agencies on implementing the legislation and orders, Defense spending on facility energy over the last decade, annual Defense appropriations that fund energy-conservation improvements, and Defense energy conservation investments.”.

For example, the Energy Policy Act of 2005 (EPACT 2005) required “that the federal government offset its electric energy consumption with an increasing percentage of “renewable energy” from 3% starting in 2005 to not less than 7.5% by 2013 and each fiscal year thereafter.”. The Energy Independence and Security Act of 2007 requires “a 30% energy reduction in federal buildings by 2015 relative to a 2005 baseline.”. Executive Order 13423 amplified this stating that all federal agencies would reduce the production of greenhouse gases by a “reduction of energy intensity (3% annually through the end of FY2015, and 30% by the end of FY2015, relative to each agency’s baseline energy use in FY2003).”. So, 30% reduction in energy by 2015, relative to 2003 and production of 7.5% of that energy from renewables.

Here’s where it gets fun. In the same report it states that DoD consumption in FY2007 was 218,062 billion BTUs (BBTUs). It has steadily come down from FY2003 number of 242,240 BBTUs. Based on this report I have done a couple of back of the envelop calculations. By the way, I did not graduate in the bottom hundred in my class, but I knew all of those guys by their first names, so check the math.

Averaging the reductions since FY1999, we should anticipate a reduction of about 6,300 BBTUs annual. That reduction will achieve the 30% reduction required by 2015 in EO13423. That’s only 31,500 BBTUs to go. But the question is – and I think we all know the answer – have we already picked all the low hanging fruit? To compute the renewable energy required by 2013 in EPACT 2005 let’s use that 6,300 BBTUs reduction assumption. By 2013 the total energy requirement for DOD should be 179,193 BBTUs. In 2009 DoD reported that 2.9% of its energy was derived from renewable energy and/or renewable energy credits. Given that, by 2013 DoD will have to produce 7,512 BBTUs from renewable energy. That equates to 2,200 Gigawatt-hours of production. In the past DoD has used renewable energy credits to meet RE goals. With shrinking budgets, this may not be an option. Those same budgets will probably not be able to afford the 2.2 Terawatt-hours of capacity, much less the 31,500 BBTUs of energy conservation.

The only way to meet these requirements (not goals) is going to be through innovative third party financing. DoD will have to get serious about enhanced use leases, energy saving performance contracts, utilities energy services contracts and other innovative financing mechanisms . All of these vehicles are viable tools to achieve the statutory requirements and business is ready to go. This could have the effect of increasing energy security, simulating the economy, bring done the cost of RE, and protecting the environment all in one effort. Now that is a DoD size goal.

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