Large, utility-scale US Department of Defense (DoD) renewable energy projects, which have not been pursued by the DoD for more than six years, may finally be back. The Defense Innovation Unit (DIU) is actively seeking solutions that would allow the US Department of the Air Force to deploy renewable energy systems and accompanying energy-resilient projects (including energy storage projects) quickly and cost-effectively. The Air Force is seeking a large lead sponsor to provide energy solutions that will meet the demand for on-base utility systems that are resilient, carbon-free, efficient and economical. The DIU and Air Force want to work with an entity that can adequately address these demands at an enterprise scale.
Through this solicitation, the Air Force expects interested parties that respond to the solicitation to be able to (1) reduce, if not eliminate, the Air Force’s up-front installation capital investment; (2) minimize the Air Force’s costs over the life of the asset due to predictable financing, operation and maintenance expenses that are equal to or lower than their existing costs; and/or (3) enable partnerships with vetted developers to provide turnkey design, construction, operations, maintenance and system ownership.
Initial sites for consideration in the solution concepts may include, but are not limited to, Joint Base Andrews and Arnold Air Force Base in Maryland.
THE AIR FORCE’S DESIRED FEATURES
The Air Force anticipates that the selected project sponsor will develop a plan that includes a business model with resilient energy solution concepts, a financial pro forma and the proposed rate, terms and conditions for a long-term solution. The solution provider must optimize aspects of project development, construction and management to achieve program goals and eliminate unnecessary costs through innovative financing techniques and structures and technology employed to meet its objectives.
Notably, the Air Force will show a preference for solutions that are owned and operated by the solution provider, will be executed rapidly (with low to no up-front costs) and minimize the life of asset cost commensurate with the credit strength of the US government. Further, the Air Force will authorize the solution provider with the requisite authority to manage project stakeholder relationships and define project concepts as the Air Force ideally seeks to provide input only where inherently governmental decisions are required by law, such as environmental permitting and leasing.
What does this mean in practice and what should project sponsors focus on in their proposals? Historically, the DoD has used both its leasing authority and its authority to enter into power purchase agreements to provide essential revenue streams for energy projects. We predict solutions that emphasize power purchase agreements, with elements of both a capacity payment and an energy payment, will be favored over proposals that rely on energy savings (such as energy savings performance contracts). An exemplar of a project that has worked historically is the Fort Hood project, which had an on-site solar energy component, off-site wind and an energy balancing component. Energy storage will now need to come into play.
If a project sponsor or syndicate completes a prototype that the government deems acceptable, the government may award a sole-source, follow-on production agreement to that investor or group.
The deadline for submission is April 7, 2023, at 11:59 EDT. The solicitation will be awarded in accordance with the Commercial Solutions Opening process detailed in HQ-S-C, which was posted to Sam.gov in March 2020. The full solicitation and submission information can be found here.
McDermott has extensive experience with energy projects and energy storage projects involving the DoD, having been involved in the most significant DoD energy projects constructed to date. Please reach out to Christopher Gladbach with questions about the solicitation.