United States: Department Of Defense And Federal Energy Procurement Programs Remain Attractive

Taite R. McDonald is a senior policy advisor and Stephen Robert Bolotin is a public affairs advisor in Holland & Knight's Washington, D.C., office

HIGHLIGHTS:

  • Even though the Trump Administration has proclaimed an "all of the above" energy strategy, many of the Administration's actions have seemed to favor coal and fossil fuels at the expense of clean and innovative energy solutions.
  • However, one market segment in which an integration of the two is clearly favorable is the federal energy procurement market.
  • Although it is still not clear what traction the Trump Administration's budget proposals to cut funding for many federal agencies will get in Congress, the U.S. Department of Defense's energy initiatives and federal energy procurement programs continue to prove the most attractive of all federal energy initiatives.

The Trump Administration promotes an "all of the above" energy strategy, but many of the Administration's actions to date seem to favor coal and fossil fuels at the expense of clean and innovative energy solutions. Although that does not need to always be the case, the complex interplay between market dynamics can make it necessary to favor one over the other in certain scenarios. Nevertheless, one market segment in which an integration of the two is clearly favorable is the federal energy procurement market. This has not been outwardly publicized, but it seems apparent in the Trump Administration's actions and is likely to be demonstrated by the incoming Administration appointees.

In President Donald Trump's Executive Order (E.O.) on energy independence released in March 2017, the Administration kept key U.S. Department of Defense (DoD) energy initiatives intact and asserted: "It is in the national interest to promote clean and safe development of our Nation's vast energy resources" – including electricity that is "affordable, reliable, safe, secure, and clean" and that can be produced from "coal, natural gas, nuclear material, flowering water, and other domestic sources, including renewable sources." While the President's 2018 budget proposal takes aim at a swath of federal agencies, including the Department of Energy (DOE), Department of Agriculture (USDA) and the Environmental Protection Agency (EPA), it also seeks to expand DoD funding. Even though it is still not clear what traction the Trump Administration's budget proposals will get in Congress, DoD and federal energy procurement programs continue to prove the most attractive of all federal energy initiatives.

Accordingly, the DoD's energy program offices continue to solicit proposals for innovative energy solutions that enhance energy resiliency and promote mission assurance. The 2017 funding authorized for defense energy resiliency and infrastructure – along with Defense Secretary James Mattis' strong support for renewable and alternative energy (see Holland & Knight's Government Energy Finance Blog, " Trump Transition and Sustainable Energy: Department of Defense Positioned to Untangle the Tether of Fuel" and " 2017 Defense Energy Funding for Energy Resiliency and Infrastructure") – suggest the DoD is well-positioned to maintain momentum from prior years in fostering innovation in energy. In addition, nominations for key DoD leadership positions – after extended delays – have recently started moving forward, including that of Lucian Niemeyer for Assistant Secretary of Defense for Energy, Installations and Environment, a key policy post that oversees defense energy programs.

Holland & Knight's Government Energy Team continues to monitor the market of federal funding opportunities for innovative energy technologies. We still expect that the federal market will not only survive present-day uncertainties but ultimately continue to grow dynamically due to an increased appetite for more comprehensive energy procurement and energy privatization at government installations. An overview of DoD-related energy policy developments and energy opportunity updates by service and opportunity type follows.

Energy Policy Developments

The Trump Administration's E.O. entitled "Promoting Energy Independence and Economic Growth" aims to promote energy independence, spur conventional fossil energy resource development and dismantle the Clean Power Plan (CPP), which was created by the Obama Administration. However, what is noteworthy and has gone largely unpublicized is that President Trump's E.O. does not rollback the Obama Administration's E.O. 13693 from 2015 entitled "Planning for Federal Sustainability in the Next Decade," which directed federal agencies to reduce GHG emission by 40 percent by 2025 among other climate-related performance targets. As we noted in early December (see Holland & Knight's Government Energy Finance Blog, " Trump Transition and Sustainable Energy: Department of Defense Programs Provide Strong Foundation for Energy Independence"), were the Trump Administration to roll back E.O. 13693, a patchwork of Bush-era and Obama-era statutes from 2005, 2007 and 2010 would remain intact, including a 7.5 percent GHG emissions reduction target for federal agencies by 2013 and a 25 percent target for the DoD by 2025. As such, President Trump's E.O. does not derail the pipeline of upcoming DoD energy opportunities. (For an in-depth review of President Trump's E.O., see Holland & Knight's alert, " A Closer Look at President Trump's Executive Order on Energy Independence.")

Although his E.O. did not mention the Paris Climate Accord of 2015, President Trump formally announced on June 1, 2017, that the U.S. would withdraw from the agreement. Despite opposition within the Administration and externally from many in the business community, including a number of Fortune 500 companies, the President ultimately stuck to his conviction that the agreement was bad for America and fulfilled one of his top campaign promises. Given the implicit link between climate and renewable energy, this development appears at least on the surface to be a step in the wrong direction for innovative energy technologies. Nevertheless, the decision to withdraw has already caused some governors, mayors and congressional representatives on both sides of the aisle to pledge that their states and communities would continue to fulfill many of the Paris agreement's goals. As such, this decision might take the wind out of Congress' already-limited appetite to cut funding for energy programs within the federal government.

DoD Energy Program Offices

As the federal government's largest consumer of energy, the DoD has led efforts to deploy innovative energy technologies that can enhance its strategic capabilities and provide mission assurance through the Navy's Resilient Energy Program Office (REPO), the Army's Office of Energy Initiatives (OEI), and the Air Force's Office of Energy Assurance (OEA). An update on the program offices follows.

Navy: On Dec. 31, 2016, the Navy renamed its "Renewable" Energy Program Office to the "Resilient" Energy Program Office and moved it from the Office of Energy, Installations, and Environment (EIE) to merge it with the Naval Facilities Engineering Command (NAVFAC) Headquarters Energy Office. The new REPO executes energy resilience, alternative energy and renewable energy projects. Since President Trump's inauguration, REPO has released four Enhanced Use Lease (EUL)1 solicitations for developing energy resiliency systems on installations in Southern California, including:

  • Marine Corps Base (MCB) Camp Pendleton – 123.5 acres
  • Naval Base (NB) San Diego – 5.08 acres
  • Naval Base (NB) Coronado – 5.12 acres
  • Naval Weapons Station (NWS) Seal Beach, Detachment Norco – 18.8 acres

In addition to the opportunities set forth above, REPO is evaluating a new pipeline of energy-related opportunities that will incorporate energy storage and microgrid systems. Moreover, REPO program officials remain open to having creative project concepts brought directly to them, with the understanding that all projects are awarded in fully competitive, open solicitations.

Army: In January, the Army OEI held an Army Energy Security Projects Industry Day, where the service highlighted its ongoing efforts to develop energy resiliency projects on its installations. Recently, OEI followed up on this effort with a Request for Information (RFI) to solicit feedback from industry, specifically around energy storage combined with smart control systems to provide "islanding" capabilities at military installations. The RFI sought input on specific ways to leverage third-party financing to develop such systems. Both the Industry Day and RFI highlight that the Army is ramping up efforts to deploy energy resiliency technologies at its most critical facilities through various contracting vehicles beyond just the Power Purchase Agreements (PPAs) and EULs traditionally deployed through this office.

Relatedly, OEI has continued to update its project pipeline, as reflected in its recently updated Projects & Opportunities Map. Specifically, two installations have received greater project definition:

  • Rock Island Arsenal in Illinois is being targeted for 8.5 megawatts (MW) of hydropower with access to storage and a microgrid to provide contingency generation.
  • Fort Benning in Georgia is being targeted for 13 MW of solar power generation in addition to storage and a microgrid to provide contingency generation. This will specifically be the second project at Fort Benning, aiming to provide energy resiliency not procured in the first 30 MW solar project, which sold the power offsite.

Both of the above projects must still receive internal clearance prior to a solicitation being released. However, two other projects have recently received internal clearance and solicitations could be issued shortly:

  • Joint Forces Training Base (JFTB) Los Alamitos in California will seek 16 MW of solar power generation in addition to storage and a microgrid to provide contingency generation.
  • Fort Sill in Oklahoma will seek 20 MW of solar and 50 MW of natural gas power generation in addition to a microgrid to provide contingency generation.

With near-term procurement opportunities ready for release and others to follow, the Army OEI is showing every indication of gaining momentum in 2017. Furthermore, the office has indicated that it will consider resiliency solutions that do not necessary include renewable energy assets such as combined heat and power (CHP) systems but that deliver on energy security.

Air Force: The Air Force OEA just got off the ground in 2016. As such, they have collocated their offices with the Army OEI to leverage the Army's best practices in moving projects forward, including joining as a party to the Army's RFI referenced above.

Moreover, the Air Force is also moving forward on a separate but parallel effort to procure "energy as a service," or in other words, comprehensively address energy supply, conservation and resiliency via a long-term arrangement with a single entity. To this end, the Air Force is expected to release an RFI in the near-term that aims to present existing contracting authorities and barriers to solicit industry feedback on a holistic approach to installation energy. Two installations have been identified for this pilot effort, including Hanscom Air Force Base (AFB) in Massachusetts and Altus AFB in Oklahoma. These installations were strategically chosen to address both the regulated and unregulated markets. Furthermore, the Air Force seeks to identify any gaps in existing authorities that might stymie this effort and pursue congressional authorization to combine and/or expand contracting authorities accordingly.

Energy Privatization Opportunities

In addition to the energy opportunities set forth above, the Trump Administration will present an increased array of opportunities associated with energy privatization that includes a broader set of capabilities and offerings. This aligns with the Air Force's efforts referenced above, which seek to more comprehensively address energy supply, conservation and resiliency in an affordable manner by incorporating renewable energy, demand energy response and frequency regulation solutions.

In recent weeks, two new utility privatization opportunities have emerged:

  • Privatization of utility systems at Yuma Proving Ground in Arizona, which includes electric, water and wastewater. There was a related source sought notice, which was due in mid-June 2017. The official solicitation opportunity is expected in the August 2017 timeframe. For more information, see the FedBizOpps synopsis.
  • Privatization of utility systems at Fort Buchanan in Puerto Rico, which includes electric, water, and wastewater. A pre-proposal conference was held in late June. Proposal packages are due at 3 p.m. ET on Aug. 28, 2017. For more information, see the FedBizOpps synopsis.

In addition to these opportunities, Army officials have stated that they plan to issue a total of eight new utility privatization opportunities this year, 10 new opportunities in 2018 and 12 new opportunities in 2019. Accordingly, renewable energy, microgrid, battery storage and energy management providers should be looking at utility privatization in the federal market during the coming years.

General Services Administration

Although the General Services Administration (GSA) has yet to make any public statements about its posture with regard to energy procurement under the Trump Administration, E.O. 13693 also applies to the federal agencies that procure power through GSA. Although the Trump Administration will not be prioritizing renewable energy projects, it is open to project ideas that save federal facilities money. Considering that GSA has recently completed one of its pilot projects that aggregated solar procurement across facilities and that this aggregated approach is less expensive than conventional energy solutions in many markets, there are likely to be solar energy opportunities that align with the Trump Administration's objectives in the coming months and years. Furthermore, Utility Energy Savings Contracts (UESCs) – which are executed under GSA Areawide Contracts and can incorporate cost-competitive renewable energy, demand response and energy management solutions in a cost-competitive manner – represent another opportunity for companies.

Conclusion

Federal procurement opportunities for clean and innovative energy solutions will look vastly different in the coming months and years due to the Trump Administration's desire to provide energy security and energy resiliency in a more comprehensive manner.While some opportunities will be publicly solicited, many will require outreach to and partnering with leading government contractors, energy efficiency providers and utilities.

Footnotes

1 In an EUL contract, the selected developer can provide an in-kind consideration (IKC) that enhances the energy security posture of the installation (such as a microgrid, storage or backup generation) in lieu of cash payments for land. The developer can construction renewable energy generation systems on the land, which can be power marketed into the utility grid for profit. In general, these agreements specify that the military gets "first dibs" on power generated at these systems in the event of a utility grid failure.

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