Tuesday, July 5, 2011

Chumming the Water: Army Looks for Big Fish for PPAs

Several times in these postings, I have chided the government over the issue of vision without resources. It appears that the Army is now putting its money where its mouth is. Last week the U.S. Army Corps of Engineers (USACE), Huntsville office released a request for information for “Sources Sought: Renewable and Alternative Energy Power Production for Army Installations”. The estimated value of the proposition is between $50 million and $900 million.

Before we go popping champagne corks, we need to review the bidding. A Sources Sought notice is simply a summary posted by an agency so that they can see what is out there in support of a project possibility. It is not a solicitation for work, nor is it a request for proposal. (Reference the Federal Acquisition Regulations, Subpart 7.3 and OMB Circular A-76). If there are sufficient “sources”, the government may develop a scope of the work they require that can be later refined into a statement of work (SOW). The SOW would then be included in a request for proposal or quote (depending on specificity) for discrete project requirements. This is akin to chumming the water to bring the big fish in.

In this particular case the USACE “intends to solicit and award multiple, indefinite delivery, indefinite quantity (ID/IQ) contracts for use in competing and awarding Power Purchase Agreement (PPA) task orders”. They are looking for contractors to come build renewable and alternative energy production facilities for Army use that are on or near Army installations. The contractor will be responsible for financing, building, operating and maintaining energy production facilities. The reason a contractor would do this is for a guarantee that the Army and/or local utility (depending on the local laws) would purchase the power on a long term basis. According to the announcement, “the length of contract for the sale of the energy to the Army cannot exceed 30 years”. WHAT??

Ok, this is going to get a little legally nerdy. For a long time, only one of the Services felt that they had the authority to enter into long term power purchase agreements for renewable energy other than geothermal. U.S. Code 2922A says that the Service Secretaries can enter into energy or fuel contracts up to 30 years, but only for (1) “under section 2917 of this title” (geothermal) ; and (2) “for the provision and operation of energy production facilities on real property under the Secretary’s jurisdiction or on private property and the purchase of energy produced from such facilities”. Unless waived, it still requires the SecDef’s approval, so who is really calling the shot? Secretary Panetta! If you want to know what others think the new SecDef thinks, check out this Annie Snider NYT article. No direct statements from Sec Panetta, but much hopeful musings.

For some time the Navy has interpreted piece of Code differently. At the 2011 Association of Defense Communities, CAPT Clayton Mitchell presented NAVFAC Energy Offices view. In their opinion, Section A(2) is the operative statement, but applies to all energy, not just geothermal. This provision has never been used; the Navy’s Miramar Land Fill Gas project could be the first to test the water.

At last week’s USAF Alt Energy Symposium in Tuscon it was stated (by person unknown), that DOD was intending to move forward on the use of 2922A for energy other than geothermal and now we have the Army hinting that they will do likewise. All they have said is that it cannot exceed 30 years, not that they would do 30.

The big deal here is that 30 year power purchase agreements are a big deal. Banks like 30 year income streams guaranteed by the U. S. Government. Absent the default of the USG, this is money in the bank. It is also a way to energy security via third party financing and public/private partnerships. I hope that lots of companies submit for this “Sources Sought” and lots of great partnerships are established. I also hope that the scope of this is closer to the $900M than the $50M (Congress, are you listening?).

DOD has to have energy security and it is worth paying a nickel extra for clean, economic and secure energy. I have cautioned that DOD should not be looked to as the driver of the clean energy market. DOD’s mission is to fight and win the Nation’s wars, not stimulate the economy or open markets. That being said, a significant investment for energy the Army already needs, in renewable technologies cannot help but have a positive effect on those industries. We still have a long way to go. Dan Nolan

2 comments:

Jon G said...

Dan and Andy,
Have a link to the RFI? I know quite a few folks who would be thrilled to submit to this.

Dan Nolan said...

Hotlink to FedBizzOps page for solitication added. Click "Sources Sought". Thanks to Jon G for the catch!