The Air Force is beginning to explore the idea of asking a single provider to take over the complicated web of business arrangements that power its bases and support its energy resiliency strategies, and replace them with a new model: Energy as a service.
Like the other military branches, the Air Force is heavily engaged in alternative energy endeavors involving enhanced-use leases and energy saving performance contracts to build microgrids and distributed energy plants on its own bases, mostly with the goal of keeping their own facilities lit if the public electric grid is disabled by a cyber attack or natural disaster.
It’s launched more than 300 renewable energy projects to date, but each of them has involved arduous base-by-base negotiations involving local electric companies, state utility regulators and private financiers, all of which rely in some part on a hodgepodge of legal authorities that permit DoD to partner with private sector energy companies, said Mark Correll, the deputy assistant secretary of the Air Force for environment, safety and infrastructure.
“It’s very piecemeal right now,” he said at the Association of Defense Communities’ annual conference in Washington Tuesday. “On one base, you’ll find privatized utilities, so I’ve got much better infrastructure than I had before, but there’s nothing with regard to distributed generation. If you go to another base like Nellis, there are two distributed generation systems, but only one of them is dedicated to us when we need it, the other one’s not. In most places I have several different folks providing me with what I hope is going to meet my energy need.”
The Air Force’s thinking on energy-as-a-service is still very preliminary, but Correll said the “provider” would most likely be some type of partnership between a traditional electric utility and a private or nonprofit energy service company (ESCO) with expertise in building renewable and other distributed generation projects.
“At least in the beginning, my personal assessment is that neither the utility nor the ESCO can do it alone,” he said. “We’re going to have to have a utility lead it because we’re going to have to have someone to deal with state utility commissions, and then we’re going to need an ESCO to bring together all the authorities we have.”
Some of those authorities include enhanced use leases in which the military provides unused land on its bases in exchange for something other than cash — for example, first dibs on the power generated from an on-base solar array, and energy savings performance contracts, where a vendor helps the Air Force reduce its overall energy demand and then uses the cost savings to fund other projects like extra storage capacity so that energy produced by a solar array can be used at night.
“The question we’re trying to answer is whether we can bundle all of that together,” Correll said. “If so, on one base with one service provider, I’ve got distributed energy generation, storage for whatever my renewable energy source is, better electric infrastructure and the ability to distribute that locally-generated load around the base.”
Correll said the Air Force would also consider making its own cash contributions, if necessary, to make a “bundled” approach to energy assurance financially feasible for a prospective vendor who would manage such a service.
Thus far, most of the military’s on-base renewable energy and resiliency projects have been financed with the promise that they’d either pay for themselves or lower a base’s overall energy bills with no net costs to taxpayers.
But a recent update to DoD regulations allows the military services to engage in alternative energy projects even when they’re not cost-effective compared to what they’re already spending on power, as long as they make a base more self-sustaining and independent from the public utility grid.
“It’s a major revision, and it gives us the ability to spend money to reduce our energy risk,” said Richard Kidd, the deputy assistant secretary of the Army for energy and sustainability. “Over the next two or three years, you will start to energy security projects connected to ESPCs and renewables and energy storage and other things that are paid for out of the military construction budget.”
Financing mechanisms like ESPCs and enhanced use leases are common throughout the federal government, but no agency thus far has tried to combine multiple techniques to buy various types of energy generation and services from a single provider.
Gerard Nolan, a senior director at EDF Renewable Energy said energy-as-a-service is fairly common in Europe though, particularly in the industrial sector.
“Ferrari and Fiat are doing it in Italy. You also see a lot of it with large industrials in Bulgaria and Spain,” he said. “And the pioneer in the United States is the University of Ohio. They’re piloting a program to combine onsite generation and offsite generation along with all of their energy efficiency initiatives under a 50-year deal where one vendor will provide everything.”
Nolan said the Ohio campus, with a daytime population of about 75,000 people, has electric needs comparable to a respectably-sized military base, and the university’s rationale for combining its energy portfolio into one “as-a-service” contract is similar to the one the Air Force is thinking about.
“Otherwise, you have five different contractors with different contract types, all with different timespans and incentives and motivations. If you got all those contractors in a room and told them you’d like to, for example, add a new microgrid on your base, they’d all say, ‘What? OK, pay me.’ It doesn’t work real well.”