Intermittent resources create unique challenges for 21st Century Utilities, RTO's and System Operators. The now infamous "Duck Chart" highlights a key element of the problem -- central station thermal plants cannot ramp efficiently, leading to "worst of all" scenarios where the benefits of renewables are not fully utilized and central station plants operate inefficiently for extended periods.
By contrast, fast-ramping distributed generation creates a path to the opposite result. With fast-ramping support, central station plants remain at an efficient "steady state" while intermittent renewables operate at maximum output, providing emission-free generation with no variable fuel costs. These efficiencies result in substantial and quantifiable economic benefits.
The U.S. Defense Department (DOD) seeks to procure renewable energy at or below market prices, and is not considering fast ramping generation in its current procurement plans. Because there is no economic incentive for DOD to invest in such resources, and because markets for fast-ramping generation and ancillary services are largely non-existent, the current policy framework lacks a vehicle for attracting investment in fast-ramping distributed energy and related technologies.
Manufacturers of fast-ramping generation equipment are studying issues relating to intermittent energy resources. Among other initiatives, they have developed economic models that demonstrate system-wide efficiencies produced by fast-ramping technologies. The models have been vetted by credible public and private sector organizations and found to be both accurate and insightful.
With their policy expertise and purchasing power, the Department of Energy and DOD can play a role in developing policies and markets that allow such technologies to take hold and proliferate.
On April 1, 2013, the Army Energy Initiatives Task Force (“EITF”) and the U.S. Army Mission and Installation Contracting Command at Fort Sam Houston in Texas published a template Renewable Energy Service Agreement Performance Work Statement (the “PWS”) for comment by interested stakeholders.
The proposed scope of the PWS is broad, covering everything from insurance and OSHA requirements to interconnection responsibilities and power prices. Thus, the PWS purports to be part power purchase agreement, part EPC agreement, and part operations and maintenance agreement. As discussed in my previous entry, this comment opportunity is important to all renewable energy developers that intend to contract with the Army. However, it should be of particular interest to teams that responded to the Army’s Multi-Award Task Order Contract (“MATOC”) last fall because the final PWS will likely be incorporated into each base-level RFP issued under the MATOC.
It is important to note that the template is not a “one-size-fits-all” document and contemplates quite a bit of input from individual bases at the time RFPs are issued. Thus, the PWS is malleable and the comments the Army receives through this request for information will not result in a final form of PWS that will be incorporated into every contract issued. Rather, the Army is looking for input to create a “clear, concise and understandable” PWS template that will reduce the need for discussion and clarification of provisions common to all contracts down the line.
For more information, attend the EITF webinar on April 11, 2013 from 1:00-2:00 p.m. EST. see Solicitation No. W9124J13EITF1, which can be found on the FedBizOpps website. To register for the webinar, go to https://www4.gotomeeting.com/register/518667447. Registration is limited to the first 500 participants.
As was the case with the MATOC, comments and questions must be submitted via Bidder Inquiry on the ProjNet website (https://www.projnet.org). Comments must be submitted no later than 5:00 p.m. EST on May 29, 2013.
On February 12, 2013, the U.S. Army Contracting Command announced that the Army Energy Initiatives Task Force ("EITF") is developing a standardized Utility Service Contract Performance Work Statement ("PWS") to be used for contracts executed under its long-term power procurement authority (10 U.S.C. 2922a). The intent is to have a PWS that is clear and understandable to both the renewable energy industry and the government. The EITF intends to publish a draft utility service contract solicitation at the end of this month-i.e., on or about March 29. Once published, they will accept comments for 60 days.
This comment opportunity will be important to all renewable energy developers that intend to contract with the Army, but it will be especially important for teams that responded to the Army's Multi-Award Task Order Contract ("MATOC") last fall. The comments received through this solicitation will likely be incorporated into the PWS that is included in base-level RFPs issued under the MATOC. And interestingly, the timing lines up pretty well. Assuming that the draft PWS is issued at the end of March (like the EITF anticipates), then comments will be due at the end of May. Last year, the Army was saying that it would announce awardees under the MATOC at (or near) the end of Q2 2013. If that goal becomes a reality, then the comment period on the draft PWS will close one month prior to awards under the MATOC, which would ostensibly give the Army enough time to incorporate the revised language into any base-level RFPs that would follow quickly on the heels of the MATOC awards.
For more information, see Solicitation No. W9124J13EITF1, which can be found on the FedBizOpps website.
From my colleague Chad Marriott, who is attending the RETECH 2012 Conference in Washington, DC:
Today at ACORE's RETECH 2012 conference in Washington, D.C., John Lushetsky, Executive Director of the U.S. Army Energy Initiatives Task Force ("EITF") announced that the Army expects to issue a request for proposals within the next 90 days for a 15-28 MW biomass project to be located at Fort Drum in New York. The Army will be seeking a long-term power purchase agreement under the authority granted to it in 10 U.S.C. 2922a. The Army will issue the RFP through the Defense Logistics Agency-Energy.
For those of you who are tracking the U.S. Department of Defense’s (“DOD”) efforts to procure electricity from renewable energy projects, here are some numbers to think about with respect to project financing:
According to a Government Accountability Office report released last month, the four DOD services (Army, Navy, Air Force, Marines) are known to have used power purchase agreements (“PPAs”) to finance a total of 11 projects, including all those that were in design, under construction, or currently in operation in Fiscal Year 2011. The Army has negotiated two; the Navy has negotiated one; the Marine Corps has negotiated one; and the Air Force has negotiated seven. Because none of these projects was financed through up-front appropriations, we can expect the same will be true for contracts entered into by the Army pursuant to its recent draft RFP for $7 billion in wind, solar, biomass, and geothermal energy- all of which are anticipated to be long-term PPAs (NOTE: The Army has said repeatedly now that the final RFP should be released by June 30). Thus, the $7 billion number is not a projected appropriation amount as many were led to believe. Rather, the $7 billion represents the amount the Army expects will be brought to the table through third-party financing arrangements in order to facilitate its total kWh procurement targets. That raises an interesting question: Since $7 billion will not be appropriated, how do we know how much the Army will spend per kWh for the power?
At the ACORE-AEE 2nd U.S. Military and Renewable Energy Industry Forum on May 9, Kathleen Ahsing, Director of Planning and Development for the Army Energy Initiatives Task Force (“EITF”) was clear that the Army wants to procure renewable energy “at or below brown power prices” and keep the renewable energy certificates (“RECs”) associated with that power. For most developers, “brown power prices” means the wholesale price of electricity- right now pegged to the price of natural gas, a low number. However, in this case the Army’s (and, in general, the DOD’s) interpretation of “brown power prices” differs. Because individual bases are retail customers, “brown power prices” means their current retail price and the base’s electric bill represents the bottom line for savings.
Before we get too excited, though, we need to remember that the DOD is given very favorable rates- especially in the West, where many may receive power from the Western Area Power Authority (WAPA) for less than 3 cents/kWh. Similarly, bases served by the Bonneville Power Authority (“BPA”) directly, or by a utility that is a full-requirements customer of BPA, get preferential rates, too, that may be under 5 cents/kWh. Those numbers may be tough to beat, especially if the Army retains the RECs and the developer is not able to rely on REC sales as a supplemental income stream.
Where a base’s bottom line for savings is its own utility bill, certain technologies, like biomass, will have a distinct advantage on pricing. Where an on-site solar project could displace the “energy” component of the utility tariff, it would not replace the “demand” component. Because the base still would be subject to backup power rates, the Army would likely include the cost of the backup power in the total cost of energy. A biomass plant would be able to offset both the energy and demand charges, thus avoiding the “tack-on” charge faced by intermittent resources.
Hopefully I’ll have the opportunity to catch up with some of you later this week at the Infocast Defense Renewable Energy & Military Microgrids conference in Arlington, VA.
Join E2 and Climate Solutions to hear from Congressmen Adam Smith and Jay Inslee, Ray Smalling from Naval Station Everett and E2 member and Navy SEAL (ret) James Marvin about the role the military is playing to move America toward a clean energy economy, the impact these initiatives will have in the civilian economy, and the response from Congress.
Thursday, March 15, 2012
Stoel Rives LLP