Challenges with Renewable Energy Projects

Challenges with
Renewable Energy Projects
Federal Bar Association
Acquisition Symposium
November 14, 2013
Margaret P. Simmons
U.S. Army Corps of Engineers
Huntsville, AL
*Disclaimer: The views herein are those of the author and not
of the Army or the Corps.
Renewable Energy
 Congress has mandated that the Federal Government acquire 25% of
its energy needs through renewable sources by 2025. For DoD, this
goal is codified at 10 U.S.C. 2911 (e).
 In response to these mandates, Secretary of Army McHugh
established the Army Energy Initiatives Task Force (EITF) in
September 2011. The EITF’s goal is to implement renewable energy
projects within the Army with a focus for projects that are 10MW or
 Due to budget constraints, Army is seeking to leverage third party
financing as part of the renewable energy initiative for these projects.
 The Federal Acquisition Regulations (FAR) do not address this type
of contractual relationship (third party financing).
Renewable Energy
 The U.S. Army Corps of Engineers, Huntsville Center, has awarded
approximately 60 base Multiple Award Task Order Contracts
(MATOCs) for potential renewable energy projects to be
constructed, operated and maintained by third parties on Army/DoD
lands with third party financing.
 The procurement was valued at $7 Billion, which is the amount of
energy that can be purchased over the next 30 years.
 There are 4 types of technology involved: Solar (22 contracts),
Biomass (13 contracts), Geothermal (6 contracts) and Wind (17
contracts). Awards were made between May 3 and Sep 23.
 This presentation will discuss some of the challenges associated
with this type of contractual arrangement.
Renewable Energy
 The authority for this action is 10 U.S.C. 2922a which states:
 Contracts for Energy or Fuel For Military Installations:
(a) Subject to subsection (b), the Secretary of a military
department may enter into contracts for periods of up to 30
years – (1) under section 2917 of this title; 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.
(b) A contract may be made under subsection (a) only after the
approval of the proposed contract by the Secretary of
(c) The costs of contracts under this section for any year may be
paid from annual appropriations for that year.
This 30 year authority is unique to the Department of Defense.
Renewable Energy
 Before awarding any of the base contracts to pursue energy projects under the
10 USC 2922a authority, the statute requires approval from the Secretary of
Defense. The DoD approval authority has been re-delegated to DUSD(I&E) –
which is Under Secretary of Defense (Installations and Environment).
 Since these were base MATOCs there was discussion on whether or not
approval was even required for the award of the base contracts. DoD determined
that the approval was required.
 The approval process took some time since there were no specific renewable
energy projects identified. The USD(I&E) office had previously reviewed and
approved contracts where a specific project was being awarded, and those
actions had more specificity - such as terms, prices, and land agreements. Base
MATOCs do not have this type of information, so there was much communication
on the base contract language before approval was granted.
 Moving forward, as specific renewable energy projects are identified and
solicited on a task order basis, each task order will also have to have this
approval before an award can be made. Mr. John Conger, the Acting Deputy, is
currently the approving official.
Renewable Energy
DoD Policy
 Financing of Renewable Energy Projects Policy, dated Nov 9, 2012, from
DUSD(I&E) – If you are working a renewable energy project, be familiar with
this policy. The policy addresses both enhanced-use leases found in 10
USC 2667 and “special agreement authority” provided by 10 USC 2922a.
 The policy does not apply to Energy Savings Performance Contracts
(ESPC) or to Utility Energy Service Contracts (UESC)
 Understand that the land interest currently being pushed is a lease
(although this policy says “an appropriate real property out grant”)
 There will have to be an appraisal of the lease for fair market value (FMV)
 The land/lease value will factor into the cost of the renewable energy being
Leading to a Project
 The EITF evaluates 8 factors in developing viable renewable energy
projects (over 10 MW):
 The project’s role in meeting a specific installation’s mission and
energy security
 Economic viability
 Real estate availability
 Regulatory factors
 The amount of power that an installation will be able to off-take
from a given project
 The utility integration and interconnection requirements for the
 Compliance with the National Environmental Policy Act (NEPA);
 Identification of the most suitable project acquisition vehicle
Leading to a Project
 Gathering the information required for economic viability is
complicated and can take significant time. Data could include
information such as how much wind or sunshine there was over the
past 2 years on a daily basis. This is important if you are considering
a wind or solar project.
 Once the information for above 8 factors have been compiled, there
are more steps and approvals that have to be obtained.
 To move forward, a business case is briefed to an entity called the
Realty Governance Board (RGB). The briefing is required for any
renewable energy project that will involve some type of interest in
Army land being granted to the contractor/developer.
Steps/Process cont.
 The RGB was established by the Assistant Secretary of the Army,
Installations and Environment (now Installations, Energy &
Environment), by memo dated 6 April 2010, subject: Real Estate
Business Clearance Process.
 This memo “establishes a mandatory Business Clearance Process
for actions, projects, and initiatives that involve the use, disposal or
acquisition of real property in business relationships between the
Army and private entities, non-profits or non DoD governmental
entities and have an estimated cumulative business value of greater
than $750,000.”
 The RGB is chaired by the DASA (I&H) – currently Mr. Paul Cramer
– and members are appointed on an ad hoc basis depending on the
project being presented.
 The memo contains guidance on what has to be briefed to the RGB.
Steps/Process cont.
 The RGB will be interested in project details, to include the potential real estate
involved. Within the Army, the local U.S. Army Corps of Engineers (USACE) District
Real Estate Office has the responsibility to provide the appraisal for the land being
considered. At this time, the Army has to receive fair market value for these projects.
That value has to be included in the potential cost of the project, and will have an
impact on the price of the renewable energy that the Army will be purchasing for up to
30 years.
 The Army’s intent is also to have the required environmental assessments completed
prior to soliciting a specific project. Army installations are using the Army
Environmental Command (AEC), their own environmental offices, and USACE offices
to help with the NEPA documentation.
 States have different rules and regulations in place regarding the utility industry. The
Army has to be knowledgeable of those different rules and how those rules will
impact an identified renewable energy project. For example, Texas passed a law that
limits a non-utility’s ability to provide a solar project greater than 2MW in an area with
a regulated utility. So at Ft. Bliss, we are working sole source with El Paso Electric to
try to develop a 20 MW solar facility.
Procurement Issues
 Things to be aware of:
 You need to include a draft lease (or other land agreement) in
your RFP. 10 USC 2667 requires “competition” for a lease.
There is still on-going discussion if the competition for the
contract satisfies competition for the lease.
 Estimate of project: Army is entering a contract to buy the
renewable energy only – not the assets. What is the true value of
the procurement?
 Since the Army is not going to own the facility, why do Davis
Bacon wages apply to the construction (on Army land)
 How much Quality Assurance should the Government perform?
 Should the Government ask for final “as-built” drawings?
Procurement Issues
 Renewable energy facility – Contract must
provide for the facility to be dismantled and
removed at end of contract – or allow
Government to purchase at Fair Market Value.
Failure to do this could result in scoring under
OMB Circular A-11 – or have negative impacts
on tax incentives for the contractor/developer
 Since tax incentives factor into the cost of the
project and have expiration dates, be aware of
timelines that could affect these incentives.
Renewable Energy Projects
 Focus is renewable projects 10MW or higher
Army Installations
 Can consider their own projects for projects
below 10 MW – but do not necessarily have
the resources to do this. There is some
discussion focused on contract assistance
from DLA/ACC/MICC/USACE, but these
projects require more resources than just
Task Order Process
 If a project is to be solicited under the USACE $7B MATOCs
 Task Orders:
 When a specific renewable energy project has been through the initial
approval stages, a solicitation (RFP) will be developed for that project.
The RFP will be issued to the set of contractors holding base contracts
for that particular technology. It will either go to the small business pool
of contractors or to the entire pool based on the size of the project in
accordance with the approved process set out in the contracts.
 It is anticipated that a site visit will be scheduled and that the contractors
will have at least 60 days overall to submit proposals for each specific
 The Army’s goal is to provide as much specific information as it can in
each RFP regarding each particular project. This would include
historical energy usage, the potential location for the project, draft lease
terms, environmental documentation, etc.
Task Order Process
 (continued)
 Once proposals are received, they will be reviewed and evaluated. The
Contracting Officer will have the discretion to determine if clarifications
or discussions are required, or if an award can be made from the initial
proposals received.
 Renewable Energy Credits (RECs) – will be addressed at the task order
level in accordance with Army policy. Army has a policy on RECs that
you also need to be familiar with. It was issued by ASA (IE&E) and is
dated May 24, 2012. The memo states that it establishes Army policy
regarding the retention, replacement and purchasing of RECs for
renewable energy generating facilities on Army installations for the
purposes of satisfying federal mandates.
 The policy recognizes REC swapping.
Other Procurement Matters
 Third Party Financing
 Tax Breaks – May require establishment of LLC’s who will actually construct,
own and operate the renewable energy facility. If this occurs, there is a
potential that the contract may have to be novated to the LLC – which could
take the contractor who holds the base contract out of the MATOC pool of
contractors. The RFP issued by the Huntsville Corps has outlined an
innovative approach to deal with this situation in order to keep as much
competition as possible for the various renewable energy technologies.
 Interconnection Agreements –
 Within the utility industry, most model interconnection agreements have
indemnification language. The Government views indemnification language
as a potential violation of the Anti-Deficiency Act, and generally will not sign
the standard agreement. There is currently on-going dialogue with the utility
industry on this particular issue. There is some indication that the developer
can enter into the interconnection agreement, in which case the
indemnification language would not be a problem.
 Land Access Agreements –
 The Army is required to provide the minimum real estate interest to meet the
need. The Army could allow a site license, an easement or a lease for these
types of projects. At this time it appears that a lease will be the preferred
land access agreement (per DOD policy).
Army Guidance – Look at the Army
Energy Page:
DOD Guidance (there are links from the
Army Energy Page)
Leases – We are working to have a base
Interconnection Agreements – We don’t
know all the challenges yet
General Information
The MATOCs awarded by Huntsville
Corps are only one acquisition tool
EITF is working on a “Renewable Energy
Service Agreement” template that could be
used for stand alone projects or with the
Everyone needs to get involved for DoD to
meet the 25% goal
Article: Contract Management Magazine,
November 2013: Shades of Green: New
Department of Defense Renewable
Energy Commitment Presents Significant
Opportunities (and Risks) for Developers,
by Ellen S. Friedman & Tiana M. Butcher
Website: DSIRE – Database of State
Incentives for Renewables & Efficiency (Do not use dEsire)
 Example of the information available on Alabama:
 Incentives/Policies for Renewables & Efficiency
 See Federal Incentives
 See All Summaries
 See Residential Incentives Only
 Financial Incentives
 Local Rebate Program
 Performance Based Incentives
 State Grant Program (Biomass Energy Program)
 State Loan Program
 Utility Loan Program
 Utility Rebate Program
 Rules, Regulations & Policies
 Related Programs & Initiatives
Renewable Energy
 Army is committed to attaining the goals established
by DoD to acquire 25% of its energy through
renewable sources by 2025.
 There are many ways to purchase energy.
 There are many challenges involved when seeking to
use third party financing to allow construction,
operation and maintenance of renewable energy
facilities within an installation’s boundary when Army
does not intend to take ownership of that facility.
 The Army views the utility industry,
developers/construction companies, and financial
institutions as partners in achieving these goals with
renewable energy.
Renewable Energy
 CONCLUSIONS (continued)
 Although there are some renewable projects that
have been executed on the “eaches,” this is the first
time Army has used a programmatic approach to
execute numerous renewable energy projects
 Army understands there will be challenges, but the
goal is to work through the challenges and meet the
renewable energy goals.
Not everyone is a fan of renewable
 Cherokee residents file suit to block wind
farm Cherokee County residents have filed a
lawsuit to block the proposed wind farm on
Lookout Mountain, according to official court
documents. (Gadsden Times Oct 21, 2013;
Huntsville Times Oct 27, 2013)
Energy Huntsville
There is an Energy Huntsville initiative
 See the solar panels at Airport Road and
Memorial Parkway
 Look at NASA and new energy exhibits
 Redstone Arsenal has used renewable
energy for 20 years (steam from household
 So – this is not really new – just a new focus!