Thursday, June 14, 2012

Hockey Sticks, Ink Drops and Schlieffen: Two Approaches to a Gigawatt Goal

Not representative of anything other
than a tough row to hoe.  
This week I attended the Joint U.S. Army – U.S. Air Force Renewable Energy Industry Day held at the Crystal Gateway Marriott in Crystal City, VA.  The purpose of the conference was to:
“bring together government and industry leaders to discuss opportunities for public-private collaboration in renewable energy development.”

The low cost, high content event was attended by about 800 industry, utility and government professionals…and me.   I point out the low cost, because similar events, hosted by nongovernmental agencies, are in the four figure range to attend; nice if you are major player, but tough on the little guys.  Thanks, Army/AF!

It was good to see my friends from the Edison Electric Institute, the Southern Company and other utility, co-op and munis in attendance as well.  DOD’s energy effort requires the active participation by government, industry and utilities.  If you can’t create a win-win-win, then it is lose-lose-lose.  We can’t afford that outcome, financially, security-wise or environmentally. 

Before the conference,  I spoke with a number of the attendees and asked them what their expectations were.  To a man (and woman) the answer was more information on the much maligned Army/Huntsville RFP for Power Purchase Agreements.  From the Air Force perspective they wanted to know what the impact of the consolidation of the AFCESA, AFRPA and AFCEE into a “super Field Operating Agency” would be. 

I caught up with Deputy Assistant Secretaries for energy Kidd (Army) and Geiss (Air Force) as the conference was about to begin.  You would think that a former Soldier and former Marine would know better than to be within five meters of each other, where one interviewer could get you all, but there they were.  They were engaging and open and I hoped that set the tone for the day. 

Rather than a blow by blow, let me give you my impression of the two Services approach to the same goal: bring on 1 gigawatt (8760 gw-hrs?) of capacity, each, by  2016.  Given their current RE capacity, the graph of what must be brought on in capacity over time looks like a hockey stick.  So, how can they get there from here?

The Army has created a centralized scheme, with a carefully scripted approach.  I am reminded of a certain soup vendor from the TV show Seinfeld.  But remember, it was very good soup!   Huntsville District office of the Corps of Engineers will issue an RFP for Power Purchase Agreements which will be awarded to “all qualified proposers”.   This will be preceded by the publication of a list of Frequently Asked Questions (FAQ) based upon the some 900 comments provided from Industry to the draft RFP earlier this year.  The award of this Multi Award Task Order Contract (MATOC) is not a license to hunt.  It is a license to get in line for what is on the menu. 

The next phase in the Army’s program is to identify the projects themselves (the menu) and that is the mission of the Energy Initiative Task Force (AEITF).  The AEITF is evaluating 180 sites and 4 technologies to determine the right project to bring forward at the right time to be bid on the MATOC.  This means the ascent up the hockey stick is all on the AEITF.  The projects will be metered out a few at a time so that the TF is not overwhelmed by the anticipated interest by Congress.  They expect that, for each project, the “Congressionals” (inquiries from members of Congress) will take up ALL their time until answered.  Presumably, any base could bring forward a project, but those developed by EITF will most likely get the priority for the MATOC.  The submission of unsolicited proposals for other “good ideas” was highly discouraged. 

This approach is based upon a highly structured and closely controlled plan. The Army will take on the NEPA and land use issues and I bless them for that.  I assume they will be working with local utilities as well as the DOD Site Clearance Board to clear projects.     Industry, well, MATOC holders, must get in line, select the project from the menu, submit the bid, and move down the line.  Send in an unsolicited proposal and it is “No Soup for YOU!”.   One word of caution for the Government in this Schlieffen plan for energy: no plan survives first contact with the enemy.  Stay flexible.    

The Air Force is taking a different approach.  Theirs is a much more open, flexible and ambiguous. More the reverse ink drop in a bucket of water plan (many droplets coalescing to form the whole drop, rather than the drop spreading out).   Since the efforts of both Services are dependent on public-private partnerships, the AF is putting the onus on Industry.  Air Force Real Property Agency, soon to be part of a super FOA, has responsibility for enhanced use leases.  Those wacky guys at AFRPA want to hear Industry’s ideas; bring on the unsolicited proposals! The PPA necessary to support those kinds of deals will be facilitated by the AF, but it is up to Industry to make it work.  It was not clear if, like the Army, the AF would require the interconnect to be on their side of the meter to provide energy security.   

The AF will continue to surface opportunities through other 3rd party financed deals like ESPCs and UESC, but those appear to be legalistic and centralized decision authority based process.  Their path up the hockey stick is not clear and the plan is to exercise existing authorities and past experience. Hmmm..could the Air Force use the Huntsville MATOC???  If so, the Army might have to add some ceiling to the proposed $7.1B.

The bottomline is that the USAF and USA are working hard to meet their announced goal of a gigawatt production each, but with very different approaches.  The Army might have reasoned that the fact that 800 people showing up was somehow related to the RFP and they needed to be ready to address questions, not kick the can down the road.  Even if they just had the top 10 FAQs ready to go, that would have been something.   The Air Force has a “business as usual” attitude with AFRPA serving the function of the AEITF and an installation level effort instead of a centralized methodology.  Still not sure how DLA-Energy fits into the scheme, other than do what they have always done, purchased energy for the Services.  Standardization of procedures would help Industry, but Title X will presumably get in the way and each Service will have its own way.  Title X and the lawyers might be the biggest challenge.    Don’t get tree’d by a Chihuahua.   Lawyers should work for you. 

Finally, how about some case studies?  The success of the one gigawatt goal for each Service using third party financing should be informed by past performance.  To quote a respected industry maven,” PPAs have been used by many federal agencies - analyze four or five case studies with Industry and address lessons learned; TTPs; and how to streamline decisions and actions. Ultimately, the EITF should get Congressional assistance to make PPAs a win-win-win and expand legislative and regulatory boundaries in a deliberate and disciplined approach”.  Seems a reasonable suggestion.  Maybe get some B-Schools folks to do the analysis or get the gang over at the EEI to help out.  Perhaps this has already happened and just has not been visible.

So our next named area of interest is the FAQs.  That will be the indicator of an imminent RFP.  But that is only the beginning of the process.  The production of the list of locations/technologies is the real call to action for Army projects.  Or just go to any Air Force base.  Your call.  Dan Nolan


reduceCnow said...

Dan, some great insights. I think the lack of connection of policy to acquisition (to wit your ongoing struggle to help us all better understand the words "energy security") is still a problem area. While I admire that the services want cheap power, the reality is that anything with controls and an ability to interconnect to a bigger infrastructure is subject to cyber attack today. Failure to address that, AND failure to develop a system that can adapt to their vision of the future (islanding, storage, etc) will spell long term disappointment and an inability to achieve a major mission (one of the 5 S's - security) area that Mr. Kidd and Mr. Geiss both foot stomped in their concluding remarks. And as one gentleman astutely pointed out, the expectation is that capability [security, ability to embrace future plug ins, etc] gets added on for free??!! As they say in TV land, stay tuned...

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