Moving Renewable Energy Forward
The cost benefit analysis of renewable technologies has reached a point that is driving increased adoption and consideration globally, but there remains much to perfect in determining the appropriate renewable solution and procurement methodology for each project.
By B. Scott Canada, LEED AP BD+C, and Erin Valentine, LEED Green Associate, M.SAME
Utility scale power generation from renewable sources requires specialized capabilities from contractors. Planning the acquisition and contracting approach to best minimize risk to the owner is key to assuring successful project outcomes. PHOTO BY MCCARTHY BUILDING COMPANIES INC.
Increasing power costs, combined with government incentives, mandates and cost reductions in natural gas and renewable energy, have spurred an increased focus on renewable and onsite power generation within the engineering, architecture, construction and facility management industries. As the nation’s number one consumer of energy, the U.S. federal government is particularly attentive to fluctuations in power costs and the importance of energy reliability to mission assurance. Federal agencies continue to seek ways to increase energy security and reduce their energy consumption while strategically incorporating renewables into their facility portfolio.
Mainstream acceptance and viability of renewable energy is established. Projects are being considered in broader circles beyond the traditional large utility providers and industrial owners. Municipalities, hospitals, universities, government and corporate clients are all seeking new and better ways to power facilities, drive down costs, and gain more control over energy resilience.
In the federal sector, executive orders and legislative action are driving installations toward renewable energy. With energy security and independence being key considerations for the federal sector, owners are challenged to determine an appropriate means to meet both legislative and internal mandates. Agency goals, such as the Department of Defense’s goal of 1-GW of renewable energy for the U.S. Army, U.S. Navy and U.S. Air Force must be balanced with the overall priorities of the service and individual installation requirements—all against the backdrop of an austere funding environment.
TRACKING INDUSTRY GROWTH
The U.S. Energy Information Administration’s Annual Energy Outlook 2014 indicates a growth in the availability and use of renewables and onsite distributed generation. This increase is driven by competitive costs and legislative changes at the federal, state and municipal levels. Overall, the agency predicts the energy use from renewables will increase in future years—from 9 percent in 2012 to 12 percent of the total energy mix by 2040. The capacity additions to meet the increasing demand and replace outdated facilities will primarily be sourced with natural gas and renewables for the foreseeable future. Both of these sources are well suited for onsite generation.
The U.S. Energy Information Administration’s Annual Energy Outlook 2014 report, released in May 2014, provides insights into energy utilization and sourcing. The increasing demand is predicted to be met with renewable and natural gas. EIA IMAGE
For federal owners, renewable energy is defined by the Energy Policy Act of 2005 as "electric energy generated from solar, wind, biomass, landfill gas, ocean (including tidal, wave, current, and thermal), geothermal, municipal solid waste, or new hydroelectric generation capacity achieved from increased efficiency or additions of new capacity at an existing hydroelectric project."
The goal of energy security and independence can be further advanced by leveraging this renewable power generation through a microgrid, enabling the power to be distributed independently and disconnected from the utility connection.
Due to the nature of the resources for renewable power generation, the effectiveness of each technology is heavily dependent upon additional environmental factors, particularly geography and weather. The Department of Energy’s Federal Energy Management Program, particularly the Office of Energy Efficiency & Renewable Energy, provides valuable tools to help in the initial investigation of renewable viability to the public and federal sector alike. Many agencies have developed additional offices focused on these efforts as well, such as the Army’s Office of Energy Initiatives and the Navy’s Renewable Energy Program Office, which support the extensive screening and diligence required to achieve their agency-specific goals.
Once the potential viability of a renewable project has been determined, the economics quickly follow. While many owners have the potential for a renewable energy project, proceeding can be restricted by several factors, including integration with existing renewables and onsite generation, coordination with local utilities and limited capital to competitively procure and manage the growing realm of technologies available. Partners can be found to audit facility needs and provide flexible options to provide less costly and more sustainable energy sources that align with an owner’s business model and needs.
If a federal owner may not be able to generate onsite renewable power it can instead purchase Renewable Energy Certificates, which provide the site with the environmental attributes of power generated from renewable technology. Conversely, a Power Purchase Agreement can take the full power generation asset off an owner’s liability and limit its exposure to an agreed upon rate of power generation for its facilities. These contracts generally span 20 to 25 years. A traditional Engineer, Procure, Construct contract also can be utilized to source the energy when an owner wants to own and operate the asset.
The biggest benefit of these contract formats is the transfer of risk away from the owner to the contractor. By having a large, financially stable partner manage the design, purchase the components, and install, start-up and turn-over the system to the owner, the contractor accepts and manages the procurement and performance risk. A well-established firm can bring significant buying power and technical resources to the project, driving out inefficiencies in cost and performance while reducing owner risk.
A successful arrangement requires thoughtful upfront planning. When evaluating an alternative contracting approach, there are several key criteria an owner should consider when hiring a contractor.
Established Component Supply Chain. With the unique components of renewable technologies, a proven supply chain is critical to success. The solar component costs account for almost 50 percent of the plant costs.
Extensive Self-perform Capability and Deep Subcontractor Network. Renewable energy projects require significant man-hours to fabricate and install. To minimize costs and risks, the contractor needs to have a thorough understanding of the local labor rates and rules. The contractor should also have experience mobilizing large labor forces to remote areas, including a plan for how to manage transportation, housing and labor rates to get the crews to the site.
Developed Risk Management and Project Controls Procedures. Renewable projects often have aggressive schedules with material being procured from around the globe. The contractor needs to have established project controls to minimize project delays. This might include experience with a production-line fabrication approach to improve installation quality.
Operations and Maintenance Capability. When required, these must be critically evaluated in the selection process to verify the team possesses capabilities to assure continuous, undisturbed operations of the facilities.
The biggest benefit of these contract formats is the transfer of risk away from the owner to the contractor. By having a large, financially stable partner manage the design, purchase the components, and install, start-up and turn-over the system to the owner, the contractor accepts and manages the procurement and performance risk.
ACHIEVING BEST VALUE
Contractors should be asked to take responsibility for performance issues they control in design and construction. In order to balance cost of risk with cost competitiveness, there are several areas an owner can specifically address in the procurement.
Subsurface Investigations. Subsurface soil conditions present significant design and cost risks associated with solar projects. Owners can keep risk premiums to a minimum by doing a professional and thorough soils investigation, including driven pile load testing.
Utility Interconnection Design and Permitting. Connecting to the utility grid can be a lengthy process, especially at higher voltages. Owners can reduce the schedule risk for the project by starting the interconnection process early.
Balanced Performance Guarantee Damages and Requirements. With the relative youth of renewables, the damages associated with plant delivery schedule and performance are often significantly higher than the value of associated lost power generation. These high damage levels often result in additional cost premiums added to proposals. Damages should be balanced to match the actual project risks:
- Energy underproduction damages should match the value of the energy not produced.
- Include reasonable tolerances in measurement uncertainties of generation and weather input measurements.
- Limit areas where contractors are asked to manage risks associated with areas they do not control including maintenance, soiling and other similar issues.
Navigating the world of renewable and alternative energy potentially can be a daunting task. There are many partners and mechanisms from which a federal owner can select and source power.
It is important to be aware of the options, current mandates and practices for a specific geographic area or industry that could make or break a renewable or alternative energy project. Making the decision to go “green” is only the beginning.