Leveraging the Marketplace

The Air Force is utilizing public-private partnerships to finance, develop, and operate and maintain energy efficiency and renewable energy projects to meet Congressional mandates requiring federal agencies to reduce their energy intensity 30 percent by 2015 and procure or produce 25 percent of their energy from renewable sources by 2025.

 

By David J. Bek, P.E., M.SAME 

  


solar field at Air Force base

The U.S. Air Force is the largest consumer of energy in the armed forces, spending $9 billion in 2013. Over $1 billion of that cost was for facilities energy. This facility energy is consumed to support a diverse set of critical mission requirements, including broad categories of global vigilance, reach and power to project and protect American interests worldwide.

In an effort to be a world leader in energy conservation and to reduce dependence on fossil fuels, Congress mandates all federal agencies reduce their facilities energy inten­sity 30 percent by 2015, and procure or produce at least 25 percent of their energy from renewable sources by 2025. In the past, the Air Force relied heavily upon direct government investments to make progress towards these goals. However, due to current and expected future budget constraints, federal agencies must find creative ways to meet missions with smaller budgets. While budgets have decreased in recent years, energy mandates remain.

In response, the Air Force Civil Engineer Center (AFCEC) has adopted innovative strategies to pursue its energy goals. By forg­ing public-private investment partnerships, specifically Power Purchase Agreements (PPAs), Energy Savings Performance Contracts (ESPCs), and utilities privati­zation, AFCEC leverages the capital and expertise of industry to meet Air Force goals and modernize energy infrastructure.

SECURING PREDICTABLE POWER

Davis-Monthan AFB, Ariz., is home to the Department of Defense’s largest operational solar farm. The 16.4-MW array covers 170-acres, generating enough electricity to satisfy 35 percent of the base’s power needs. At $500,000 in annual energy cost savings, the project is a financial and technological success. This clean energy power plant was built with no out-of-pocket money from the Air Force. Neither is the service responsible for the maintenance and operation of the facility.

The arrangement at Davis-Monthan is a PPA, a public-private business relationship where the Air Force partners with indus­try to leverage the competitive spirit and expertise of the marketplace while avoid­ing the cost of building and maintaining power generation facilities of its own. By collaborating with the private sector, the Air Force acquires modern renewable energy technology to meet its production goals without needing to dedicate its own increasingly limited resources.

The standard PPA is 20 to 25 years. Under the deal, the Air Force allows a developer to build and maintain a renewable energy facility on part of a base’s non-excess or underutilized land. The base then becomes a long-term paying customer, buying elec­tricity generated by the developer at a fixed, negotiated rate for the term of the agree­ment. The developer gains a large, stable customer and the Air Force receives secure, predictably priced energy for a generation. Many PPAs also stipulate that the developer may collect and sell any Renewable Energy Credits generated by the project, further incentivizing its involvement.

Businesses compete for PPA opportuni­ties. Requests-for-proposals are issued by organizations like the Defense Logistics Agency and define the general scope of the projects. Participating companies are then encouraged to offer their best ideas for how they would use the land to accomplish that scope.

This open approach fosters competition among interested companies not only over price, but also regarding which technologies and innovations should be used to execute the projects. The Air Force benefits from this competition, ensuring the latest and best ideas are offered—and that the full value of these partnerships is realized to support mission goals.


At 67 years of age, the Air Force is the nation’s youngest military service. However, many of its bases are decades old and have undergone multiple mission changes. The result, from a utilities perspective, can mean electric, water, natural gas and sewer systems that are in various states of development or disrepair.


 

PERFORMANCE GUARANTEED

Upgrading and recommissioning exist­ing facilities is another part of the Air Force’s energy savings strategy. These projects range from updating HVAC and insulation systems to heat plant decentral­ization to complete “fence-to-fence” energy overhauls. The cost of projects like these routinely exceeds $50 million.

AFCEC uses ESPCs to address many of the requirements. Like PPAs, ESPCs leverage private industry capital to take advantage of the latest technologies and technical guidance, while transferring the financial risk and project operation and maintenance costs to the developer.

The largest ESPC in the Air Force, at $93 million, is at Tinker AFB, Okla. Central steam heating plants on the base that were over three decades old were decommissioned and, in their place, high-efficiency, natural gas-fired boilers were fitted for 56 individual buildings. The upgrade is projected to save $6.4 million a year in utility and operation and maintenance costs, with a 30 percent reduction in natural gas consumption. 

Under an ESPC arrangement, private businesses (Energy Savings Companies) bid to finance, design, construct and manage the projects, and maintain the systems over the long term. The Air Force utilizes cost savings garnered by the higher efficiency equipment to pay the Energy Savings Company back over the life of the contract, ranging from 10 years to a maximum of 25 years. The Air Force is currently pursu­ing potential ESPC opportunities valued at approximately $416 million by the end of CY2016.

 

UTILITIES PRIVATIZATION

At 67 years of age, the Air Force is the nation’s youngest military service. However, many of its bases are decades old and have undergone multiple mission changes. The result, from a utilities perspective, can mean electric, water, natural gas and sewer systems that are in various states of development or disrepair. As-built records for these systems are often difficult to locate. Maintenance, monitoring and trouble­shooting efforts are inefficient or sometimes impossible.

Historically, Air Force civil engineers operated and maintained base utility systems. But, due to fiscal realities, maintenance and repair programs to sustain this infrastructure to industry standards were underfunded. The problem was exacerbated by increased consumption, while the number of avail­able base utilities technicians decreased.

Air Force utilitiesIn December 1998, Defense Reform Initiative Directive #49 mandated that all military departments develop plans to privatize utilities on military bases. The Air Force uses a utilities privatization program to accomplish this mandate. Privatization of utility systems involves a “bill of sale” conveyance (with specific points of demarcation on the installation) of entire base utility systems to a third party, referred to as a system owner. Third-party system owners include municipal, private, regional, district or cooperative utility enti­ties. The system owner agrees to operate, maintain and recapitalize the systems for a specified period of time, not to exceed 50 years. After the term expires, the Air Force will enter into another long-term contract with that system owner. Projects are evaluated for fiscal and operational viability. Because of the length of the relationship (up to 50 years), utility provider solvency must be demonstrated. Once awarded, 50-year utility services contracts become a “must pay bill.” This means funds will always be used for utility system maintenance, operation, renewals and replacements.

To alleviate mission readiness concerns, Air Force civil engineer craftspersons receive training on the privatized systems. A core number of personnel are maintained at some installations to fill wartime require­ments in each utility specialty. Utility systems are only conveyed when the long-term benefits and cost avoidance outweigh the price of continuing in-house utilities operations. When benefits exceed cost, divesting the Air Force of these utili­ties allows active duty, Guard and Reserve installation commanders to focus on opera­tions and core defense missions and func­tions—rather than on repairs and upgrades to utility systems. By turning utilities over to a third party, the Air Force gains long-term operational stability, cost avoidance and improved reliability and energy security.

To date, 66 utility systems have been privatized—at a cost avoidance of $511 million for the Air Force. There are another 82 systems in vari­ous phases of evaluation for privatization, and 138 awaiting evaluation.

 

INTO A WILD, BLUE TOMORROW

The Air Force has been challenged with reducing energy intensity at its bases across the world, while continuing to support ever-diverse mission requirements. 

Though funding to meet this challenge has become increasingly restrained, there are solutions out there.

 

By forging cooperative agreements with private industry, and leveraging creativ­ity, capability and commercial financing, AFCEC will reach its goals to reduce energy consumption and increase renewable energy production.

 


 

David J. Bek, P.E., M.SAME, is Director, Energy Directorate, Air Force Civil Engineer Center; Tyndall AFB, Fla.; 850-283-6341, or This email address is being protected from spambots. You need JavaScript enabled to view it..