Assistant Secretary of the Army (Installations, Energy & Environment)

UNCLASSIFIED

Privately Financed Projects -Keys To Success

Ms. Kathy AhsingAugust 12, 2015

Office of Energy Initiatives 1

Assistant Secretary of the Army (Installations, Energy & Environment)

Keys to a Successful Deployment

2

1. Strategy, Goals, & Principles

2. Understand the Deal

3. Manage the Process

4. Garner Stakeholder Support

The Office of Energy Initiatives (OEI) serves as the central management office for partnering with U.S. Army installations to implement cost-effective, large-scale renewable energy projects, leveraging private sector financing

Office of Energy Initiatives UNCLASSIFIED

Assistant Secretary of the Army (Installations, Energy & Environment)

Strategy, Goals, & Principles

Office of Energy Initiatives UNCLASSIFIED 3

• Two of five strategic goals under the Army’s Energy Security and Sustainability Strategy are supported by privately financed renewable energy projects

• Within the strategic goals, all privately financed projects must meet at least two of three underlying principles

that is clean, reliable, and affordable

Energy Security & Sustainability• Assured Access

– Diversify and expand resource supply – Maximize flexibility in system design– Reduce vulnerability and risk

• Build Resiliency– Maintain continuity of operations – Foster adaptability

Renewable Goals

• NDAA – 25% renewable energy by 2025• EPAct – 7.5% renewable energy by

2013 and beyond• EO13693 – 30% renewable electricity

and 25% clean energy by 2025 • 1 GW Commitment

InstallationEnergy

• Priced at or below grid energy

• Predictable energy bills

• Cost avoidance

• In-kind / lease revenue

Economic Benefits

Securing Army Installations with energy

• The challenge is developing a balanced portfolio that supports all three principles

Assistant Secretary of the Army (Installations, Energy & Environment)

Market Analysis Technology Capacity Economics Regulatory/Legislation Offtake

Installation Drivers Highest Cost High Demand High Value Energy

Security Sites Reliability & Volatility

Stakeholder Input Army Leadership Commands Installation Industry Community Partners

Army Land150+

installations

Resource Drivers

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Finding the Balance Point

Office of Energy Initiatives UNCLASSIFIED

New Opportunities

Assistant Secretary of the Army (Installations, Energy & Environment)

Basic Economics: Is there a deal

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• Projects must deliver financial returns to investors to be financeable by private capital

• Under a energy purchase agreement, the Army is purchasing a service over time and relies on third party developers to obtain financing from debt and equity investors

• The terms in the energy purchase agreement along with other project agreements and developer obligations provide for a credit sufficient to make the transaction bankable

• Price is also important for projects that use Army lands but do not have a energy purchase agreement– if the price of power from the project to consumers is not competitive, revenue is not available to the developer and the project will not be financed

Office of Energy Initiatives UNCLASSIFIED

Assistant Secretary of the Army (Installations, Energy & Environment)

Project Price: Is there a deal• A viable project:

• Provides good internal rate of return (IRR)

• Is priced below the Army’s ceiling, or

• Is price competitive in the market

• The price ceiling is calculated by first fully understanding the details of the installations utility bills including:

• Energy, demand, and other charges

• Energy profiles

• Tariff stand by charges

• If the price of power for the project to consumers is not competitive, revenue is not available to the developer and the project will not be financed

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Projected Price

Army Price Ceiling

Energy Price Project IRR

12%

8%

Flawed project: Project price to produce a marketable IRR is higher than the Army price ceiling

Projected Price

Army Price Ceiling

Energy Price Project IRR

12%

8%

Financially viable project: Project price is below Army price ceiling and provides a project IRR in the marketable range

Off Peak Demand

Peak Demand

Peak Energy Charge

Fuel Charge Adjustment (FCA)

Off Peak Energy

34%

32%

22%

9%

3%

Tota

l Ele

ctric

Bill

Assistant Secretary of the Army (Installations, Energy & Environment)

• Strong Project Fundamentals– 8 risk areas that “make or break” projects– Beware interconnection between risks– Develop mitigation strategies

• Process Discipline– Resource allocation & managing project risk– An iterative process – Focus on low risk, high value projects

• Timing– Align with market conditions– Understand comprehensive timeline– Deploy resources with speed & agility

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Manage the ProcessProject Risk Assessment

• How does project enhance energy security on host/surrounding installations?• What are the possible impacts to Installation operations or tenant missions?• Has the project been approved by Installation, Army HQ, and DoD staffs?

Mission/ Security

• What is the estimate of the baseline capital cost?• What is the value of any RECs or other incentives?• What is the predicted resource? Has it been validated?• What are existing utility rate and alternative tariffs?• What are the impacts of the project to the POM?• How much cost avoidance will this project provide?

Economics

• What is the real estate approach, and what authority is being used?• Identify/mitigate real estate, siting, constructability, access, land-use.• Is the project consistent with the Installation Master Plan?

Real Estate

• What are the regulatory limits for interconnection, net-metering?• What is the status of getting required PUC approvals?

Regulatory and Legal

• Will the installation consume all electricity generated?• What is the status of state RPS and other incentives to drive demand?• If power is to be sold off the installation, have off-takers been identified?• Can the utility wheel power to other potential off-takers?

Market / Off-Take

• Is there sufficient line and substation capacity? What upgrades required?• Are flow studies required? What it the status?• System upgradeable for smart-grid and energy storage technologies?

Technical / Integration

• What are the major environmental issues?• Which parties will perform ECP and NEPA requirements and when?Environment

• What is acquisition strategy and timeline to implement?• What performance risks are there with the developer or other partners?Procurement

Suspending projects in favor of others is essential to overall program success, and should not be considered a failure. Suspended projects can be continuously reconsidered in light of changing market conditions and the composition of the Army portfolio of projects at a given point in time.

Assistant Secretary of the Army (Installations, Energy & Environment)

Engage & Garner Stakeholder Support

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• A project can have numerous stakeholders including:

- Installation staff and leadership- Headquarters leadership - Environmental and community

advocates- Contract and real estate partners - The servicing utility and public utility

commission- State and local governments regulators

• Proactively managing risks and seeking comments and input turns key stakeholders into strong project advocates

Office of Energy Initiatives UNCLASSIFIED

Photo from Warren Gretz, NREL/PIX 03604

Ground breaking at Fort Stewart, GA

Assistant Secretary of the Army (Installations, Energy & Environment)

Keys to a Successful Deployment

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• Clear Strategy, Objectives, & Principles– Anchors the project – Assists in finding the balance point

• Understand the Deal’s Value Proposition– Army and developer motivations– Economic conditions

• Manage the Process− Strong project fundamentals− Process Discipline− Timing

• Engage & Garner Stakeholder Support

Biomass facility at Fort Drum, NY

Solar PV installation at Fort Huachuca, AZ

Office of Energy Initiatives UNCLASSIFIED

Assistant Secretary of the Army (Installations, Energy & Environment)

Stay Connected with the OEI

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The OEI engages with industry stakeholders, the media, and our local communities

• Join us for major events and milestones including ground breakings industry days, RFPs, contract awards, ribbon cuttings, and more.

• Follow our progress by signing up to receive our bi-monthly newsletter and OEI email blasts at www.oei.army.mil

• Learn more about our process by reading the Army Guide: Developing Renewable Energy Projects by Leveraging the Private Sector

• Engage with our leadership attending the Energy Exchange

Amanda Simpson – Executive Director

Erich Kurre – Project Director

George Robitaille – Project Director

Keep Current Stay up to date with the OEI through your favorite social media outlet

www.oei.army.mil

Office of Energy Initiatives UNCLASSIFIED

Assistant Secretary of the Army (Installations, Energy & Environment)

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