The formation by the United States Army of the Energy Initiatives Task Force (EITF) as a central office to plan and execute large-scale renewable energy projects, with the stated goal of attracting over $7 billion in investment in renewable energy projects over the next 10 years, has raised hopes in the renewable energy industry that a pipeline of project development opportunities is about to come on tap.

Industry participants have provided extensive comments on a February 2012 release by the Army of a draft Request for Proposal for Large Scale Renewable Energy Production for Federal Installations (RFP) and further comments on a June 2012 release by the U.S. Department of Energy’s Federal Energy Management Program of draft guidelines for private investment in large-scale renewable energy projects at Federal facilities (FEMP Guide), and now eagerly await the release of the final RFP, promised for the end of this month. The final RFP is expected to be in the form of an Indefinite Delivery Indefinite Quantity Multiple Award Task Order Contract (MATOC), under which a number of applicants will be selected as Contractors based on a submission of qualifications and then, from time to time in the future, will receive specific “task orders” inviting bids on identified project opportunities. Only Contractors who have been selected through the initial RFP process under the MATOC will be permitted to submit proposals in respect of task orders.

Given this two-step process, we recommend that industry participants prepare to submit qualifications when the final MATOC is issued, and, in the mean-time, consider taking the preliminary actions outlined in the final section of this note.

The upcoming issuance of the MATOC will be the culmination of over a year of development by the Army of a centralized renewable energy procurement program. Even now, it appears that the procurement process and the core terms of the potential projects to be executed by the EITF are evolving. Nevertheless, we encourage interested industry participants to plan to submit qualifications once the MATOC is released and to join us in following developments in view of the following:

The imperative for the Army to buy renewable power in substantial amounts is “real” given drivers such as:

The Energy Policy Act of 2005 (EPACT 2005), requiring federal agencies to procure an increasing proportion of their total energy needs from renewable energy sources, culminating in a 7.5% requirement by 2013

Executive Order 13423, requiring that at least half of the statutorily required renewable energy consumed by the Army comes from new (i.e. placed into service after January 1, 1999) renewable sources

The 2007 National Defense Authorization Act (NDAA 2007), codifying the voluntary goal that the Department of Defense (DoD) produce or procure at least 25% of all facility energy from renewable sources by 2025

The draft RFP and public pronouncements of the EITF outline a structure for individual projects that is generally consistent with private project development and finance, including the following key terms:

  • renewable power is to be procured by way of power purchase agreements (PPAs), as distinct from existing DoD arrangements for various energy projects under Utility Energy Service Contracts, Energy Savings Performance Contracts and Enhanced Use Leases
  • although some PPAs will be substantially larger, each PPA will be for a minimum of 10 MW and PPAs may have terms of up to 30 years
  • renewable power sources include solar, wind, biomass and geothermal power generation facilities employing commercially-ready technology
  • projects may enjoy free use of DoD land for purposes of project siting (i.e., in exchange for power as payment-in-kind to the extent of fair market value)
  • each project will be in charge of “developing, financing, designing, building, operating, owning and maintaining the energy plant”
  • the counterparty on a PPA awarded to a Contractor may be a special purpose entity established for the relevant project
  • the Army will be initiating the NEPA/EIS process in advance of issuing specific task orders in order to lessen the burden on Contractors

However, a number of critical issues remain open and should be analyzed closely upon the publication of the form PPA and identification of specific task orders. For example, representatives of EITF have indicated that the Army intends:

  • for individual bases to pay prices for renewable energy no higher than the retail prices they would otherwise pay (although Army representatives have acknowledged that, in some cases, a “fair and reasonable premium” may be appropriate)
  • to retain all renewable energy certificates (RECs) associated with the renewable power purchased (although the use of replacement RECs may be permissible in certain circumstances)
  • to limit a project entity’s rights to the project site to the minimum legal rights necessary to support the project (clearly favoring the Army’s authority to license or grant an easement over real property over its authority to lease the real property on which a project is to reside)
  • to provide for compensation for a termination for convenience (e.g., upon a base closure) pursuant to a schedule with unclear relationship to the value of outstanding project debt or exposure of tax equity investors during the tax recapture period
  • to make PPA obligations subject to annual appropriation
  • to initiate discussions with local regulatory bodies and local utilities with respect to a proposed project, the ability to comply with constraints on retail competition and interconnection arrangements in advance of Contractor involvement

As issues such as these and the many comments received by the EITF on the draft RFP are resolved, interested industry participants may take action to facilitate a submission of qualifications following the issuance of the MATOC. In particular, such industry participants might:

  • Review the draft RFP, particularly the criteria for selection of Contractors, and sign up as an interested vendor to receive notifications here
  • Review the draft FEMP Guide for insight into the Federal project development process here
  • Fulfill requirements to be a government contractor, including (a) registering with the Central Contractor Registration, or CCR, (b) completing the Online Representations and Certifications Application, or ORCA and (c) obtaining a Dun & Bradstreet “DUNS Number” here
  • Prepare for ongoing compliance obligations including the need to adopt contractor codes of ethics (comparable to existing Sarbanes Oxley Act requirements), affirmative action plans, enhanced accounting and cost tracking procedures and conflict of interest procedures
  • Identify potential small and disadvantaged businesses that might be suitable subcontractors for compliance with subcontracting requirements
  • Keep an eye out for opportunities here
  • Communicate with DoD representatives and attend DoD industry days to learn about upcoming opportunities