Monday, May 28, 2012

Lion Taming and Arrogant Checkbooks: E2S2 in New Orleans

Not actual panel event.
Just returned from the NDIA-sponsored Environment, Energy Security and Sustainability (E2S2) Conference in New Orleans.  The Big Easy is a great place for a conference. At 7 P.M., the streets smell like stale beer and desperation. By 11, they smell like ambrosia and opportunity. I recommend you stay away from submariners and Sazeracs.

The conference itself was divided into three tracks and I attended the one on Energy Security. Vendors displayed their wares in about one quarter the space previously used and, although the organizers said attendance was up, the impact of a dwindling DOD budget was evident. This caused one industry participant to ask about the drop in attendance, “Is the industry losing interest or patience as the military struggles to make progress?”  If what appears to be happening is actually happening, government will never be able to achieve its mandates. It sorely needs industry.

There were numerous informational briefings, but not a lot of new information.  There was a promise that the Huntsville RFP would be on the street in six-to-eight weeks (Dr. Robyn) and the Army announced that it has finally gotten its Initial Capabilities Document for Operational Energy through the Joint Staff.  I first mentioned this in a post in October 2010.  Only a couple of more years until the actual Requirements are placed on the Acquisition Community to fulfill. 

One of the comments by the Army's COL Paul Roege was about a concept for something called “energy informed operations”.  The idea is that technology is a facilitator, but behavior is the sure way to energy efficiency and conservation.  I believe this to be true.  My experience with the Power Surety Task Force was that, after we implemented energy savings measures at FOBs, rather than take the savings, commanders were able to bring other facilities online (MWR, GreenBeans, etc.) with the energy they had now “freed up”.  This is Jevons paradox which states that a technology process that increase efficiency tends to increase the rate of consumption of that resource.  My energy guru, Amory Lovins dismisses the assertion that “energy efficiency generally triggers economic growth that devours its savings”, but the concept of behavior as the ultimate efficiency certainly is valid.

The best discussion that I attended was moderated by PaulBollinger of Boeing. Mr. Bollinger is a former DepSec Army and Air Force for energy, so he knows the system. Paul described his mission as:
To engage in an interactive discussion on the issue of 3rd party financing for renewable energy projects. The issue is that the military is not moving forward as quickly as the industry and, perhaps, the military would like.   
I say moderated much in the way a lion tamer “moderates” big cats with whip, chair and pistol.  In this case, the cats were government and industry representatives.  For the Government’s side: Honorable Terry A. Yonkers, Assistant Secretary of the Air Force for Installations, Environment and Logistics; Honorable Katherine Hammack, Assistant Secretary of the Army for Installations, Energy and Environment; and Tom Hicks, Deputy Assistant Secretary of the Navy for Energy.  From industry: Mr. Dave Buemi of Suniva, Mr. Scott Foster of Hannon Armstrong (finances infrastructure technology) and Mr. Baird Brown from the law firm of Drinker Biddle.

Although Mr. Brown spoke about utilities, there was no representation from that community on the panel. Pity. Without the utilities present, government and industry can chat, but they are only two legs of the stool.  Bollinger kept the big cats in line and provoked a lively discussion.  Judging by the occasional exasperated looks on the faces of the participants, I would say it went beyond lively.

Mr. Bollinger’s opening comments are worth including here because I think they frame the vital questions about how the Services will achieve the SecDef’s pronounced goal of three gigawatts of renewable energy by 2025.  Third party financing requires equal participation by industry, government and the utilities.  If a win-win-win situation cannot be created, it will be lose-lose-lose.  Here are Paul’s opening questions:

  • From a renewable energy company perspective the issue is: who will hold the contract and who will finance the work? 
  • From the finance companies' perspective the issue is whether they want to use their money to fund federal projects which are delayed, with contract language uncertain, and the details on how this will work quite murky. Is this a good risk and will they make any money?   
  • From the utilities perspective they are asking themselves, so…you want me to help you reduce the energy consumption of our largest customer, introduce large amounts of renewable energy that could make the grid more volatile and you want me to pay for any excess power you generate, and this adds value to our shareholders in what way? 
  • Of course this never happens because the PUC regulations won’t allow 3rd party financiers to build renewable energy projects without the approval and most likely, the partnership with the 3rd party. (Author note: See 3rd-Party Solar PPA Policies
  • Except for Nellis AFB, most if not all energy projects have been small on military bases.  How can we break out of this paradigm and still have our sanity and make money doing it?  Will microgrids be considered part of the solution or will they continue to be the poor stepchild waiting for adoption?
  • How do renewable energy projects compete against conventional power that is some cases is subsidized by the local community?
Each panelist got two minutes to say their piece.  Mr. Yonkers seemed to wonder why industry was dragging its feet on energy projects.  When industry folks challenged that assertion, Mr. Yonkers allowed that AF people at lower levels were not performing to standard, so his intent was to pull the authority to execute third party agreements to his level.  I can’t think of an example where elevating decision making authority has ever expedited a process, but I am sure there is one.

Despite this, each of the government reps allowed how things would go much better if the authority for PPAs could be pushed down from the Service Secretaries to their Ass't Sec level.  Agile organizations decentralize decision making and hold people ruthlessly accountable.  Seems like this would be a useful model for DOD.
Bollinger’s droll and acerbic moderation provided for an informative discussion that could have gone on for hours. The organizers had placed question cards on each seat and microphones for question from the gallery, but no time was available. Paul asked all of the questions. The bottom line is that the questions Mr. Bollinger asked in his opening remain open. DOD is the only institution that can set the conditions for success, but it must give up what I call the arrogance of the checkbook.  “I write the check, you dance to my tune.”

DOD is not writing the checks; they are simple buying the energy the utilities would sell them regardless.  Until DOD actually places a value on energy security, figures out how to decentralize decision making (ask Petraeus) and finds a way to work with the utilities in a cooperative manner, third party financing will only work within a very narrow set of circumstances. The southeast will continue to be a waste land for renewable energy and industry will continue to be frustrated with DOD’s unwillingness to recognize an altered state in how it must do business.   Dan Nolan

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