NCPPP and the Association of Defense Communities: Federal Guidance on the Development of Energy Projects on Federal La

1. NCPPP and the Association of Defense Communities: Federal Guidance on the Development of Energy Projects on Federal Lands December 10, 2013 Timothy D. Unruh PhD, PE, CEM Program Manager DOE FEMP

2. Agenda

3. Mission FEMP works with key individuals to accomplish energy change within organizations by bringing expertise from all levels of project and policy implementation to enable Federal Agencies to meet energy related goals and to provide energy leadership to the country.

4. FEMP Renewable Energy Works to increase the proportion of renewable energy in the Federal government’s energy mix The program does this by providing: • Web-based Knowledge and Tools • Direct Project Technical Assistance • Interagency Coordination • Renewable Energy Guidance and Reporting Requirements Direct Technical Assistance supports: • Distributed-scale RE projects (smaller than 10 MWs) • Large-scale RE projects (larger than 10 MWs) • Renewables in green building construction or major renovations

5. Federal Market for Large-Scale RE Projects Federal goals: • 7.5% of total electricity must come from renewable electricity by 2013 and beyond • 20% consumption of renewable electricity by 2020 • 28% reduction in greenhouse gas emissions by 2020 DOD goal: Produce 3 GWs of renewables by 2025

6. Methods to Accomplish Federal Facility Energy Projects Appropriations Energy Savings Performance Contracts (ESPC) Utility Energy Service Contracts (UESC) Enhanced Use Leases (EUL) Power Purchase Agreements (PPA) Federal and State energy incentive programs FEMP strives to: • Make performance contracting business as usual • Develop the ESPC Enable program for small projects • Automate processes, reduce process delays • Consolidate project data • Standardize documents

7. Appropriations Agency direct investment • Military Construction (MilCon) • Sustainment, Restoration, and Modernization (SRM) • Energy specific programs like the Energy Conservation Investment Program (ECIP) RDT&E – demonstration and evaluation projects Cooperative agreements / Memorandums of Understanding • DOE/DoD MOU • AFFECT grants

8. Study on Funding Sources Effective Use of Appropriations and Alternative Finance to Fund Energy Efficiency Projects, John Shonder, Oak Ridge National Laboratory, 2012 Each appropriation dollar used to fund short-payback ECMs reduces total investment by $2.83 Private financing possible No private financing possible

9. Energy Savings Performance Contracts (ESPC) Purpose: Achieve energy savings & ancillary benefits Funding by any combination of private financing & appropriated funds is authorized No agency payments until new equipment is operating Cost savings are guaranteed to exceed payments Performance of energy conservation measures (ECMs) is guaranteed ESCO is responsible for maintenance and repair of installed equipment Measurement & Verification is required Maximum term 25 years • Agencies may not arbitrarily limit terms for their sites to under 25 years, per EISA 2007, Sec. 513

10. Utility Energy Service Contracts (UESC) • Utility Energy Service Contract is a broad term for a collection of contracting mechanisms which allow utilities to provide to their Federal customers: • comprehensive energy and water efficiency improvements; and • demand reduction services • The Utility: • assesses the opportunities • designs and implements the accepted Energy Conservation Measures • MAY provide financing for the project • The Agency repays the Utility: • from appropriations at acceptance; or • over time when projects are financed • May include energy, water and renewable energy measures • May be any size • May include commissioning • May not be available to all facilities • Utility is a long term partner Jan 1993 – Jan 2011

11. Enhanced Use Lease (EUL) Military authority under 10 USC §2667 Leverage assets that are currently available, but not excess to military needs Short or long term leases of land and/or buildings Must receive full market value income or services in kind Must be of direct benefit to the United States, promote the national defense and/or be in the public interest, and must be compatible with current and anticipated future military activities at the installation. Generally must use competitive procedures to select a lessee for any lease. The leases provide the exclusive right to possess and use specified real property for a specified period of time in exchange for fair market value consideration.

12. Power Purchase Agreements (PPA) On-site renewable PPAs allow Federal agencies to fund on-site renewable energy projects without up-front capital costs. A developer installs a renewable energy system on agency property with agreement that the agency will purchase the power. The developer owns, operates, and maintains the system for the life of the contract. Agency benefits: • No up-front capital costs • Ability to monetize tax incentives • Typically a known, long-term energy price • No operations and maintenance responsibilities • Minimal risk to the agency http://www1.eere.energy.gov/femp/financing/power_purchase_agreements.html

13. Introduction to the Large-Scale RE Guide The Guide provides a general resource that: • Develops Federal employee and private sector awareness and understanding of each other’s operating environment, goals, language, and process • Creates a methodology to: • Build strong business cases • Define and mitigate risks • Establish good project characteristics So that the private sector will: • Respond to the Federal competitive process • Invest in and develop the projects

14. Use of the Large-Scale RE Guide DOE is applying the Guide in its implementation support to the DOE Pantex 11.5 MW ESPC wind farm Army • Energy Initiatives Task Force (EITF) has adapted much of the process for Army-specific practice (the Guide is a companion document to the EITF process and internal Army guidance) • Committed to partnering with FEMP to meet 1 GW goal • EITF supporting Fort Irwin (15 MW PV), Fort Detrick (15 MW PV), Fort Drum (28 MW Biomass), and Fort Bliss (20 MW PV) projects Navy • Incorporated many elements of the Guide into its project development process • Looking for FEMP assistance to fine-tune its process

15. A Common Goal With Varied Perspectives Federal agencies and private developers both want to deploy significant amounts of large-scale renewable energy projects on Federal lands using private financing. Federal perspective is often limited to the specific authorities granted by the law and regulations. Private sector perspective often seeks do accomplish something that is not strictly prohibited by the law or regulations.

16. Project Fundamentals and Project Development Framework Concept Approval Acquisition Approval Solicitation LUA Award Acceptance Payments NEPA PPA Project Implementation Contract Management ID Opportunity Project Validation Project Acquisition ID Opportunity ID Opportunity Project Validation Project Validation Project Acquisition Project Acquisition Federal Agency Construction Operations Market & Portfolio Analysis Pre-Development Development Pre-Development Pre-Development Development Development Market & Portfolio Analysis Market & Portfolio Analysis TIME Screening Developer Commercial Operation Date (COD) Financial Close (FC) Project Fundamentals Project Development Framework

17. Common, Reliable, Repeatable Process Identifiable stages Award Acceptance Acquisition Approval LUA Transition Process (RFP) Solicitation Concept Approval Payments NEPA PPA Project Implementation Contract Management ID Opportunity Project Validation Project Acquisition ID Opportunity Project Validation Project Acquisition Federal Agency • Consistency = lower risk = attractive projects • Iterative, disciplined process for investing Construction Operations Market & Portfolio Analysis Pre-Development Development Pre-Development Development Market & Portfolio Analysis Screening TIME Common understanding of important project characteristics Developer Financial Close (FC) Commercial Operation Date (COD) Incremental Investment Decision Incremental Investment Decision Incremental Investment Decision Incremental Investment Decision Incremental Investment Decision Incremental Investment Decision Incremental Investment Decision Site Resource Off-take Permits Technology Team Capital Federal investment in early stage development Private investment in later stage development Developer completes and operates project Iteration Iteration Iteration Iteration Iteration Iteration Government leads investment to ID good projects Solicitation and developer selection

18. Project Finance: The Third Perspective Concept Approval Acquisition Approval Solicitation LUA Award Acceptance Payments NEPA PPA Project Implementation Contract Management ID Opportunity Project Validation Project Acquisition Federal Agency Construction Operations Construction Operations Market & Portfolio Analysis Market & Portfolio Analysis Development Pre-Development Development TIME Screening Screening Developer Developer Developer Federal Agency $ Construction Finance Re-Finance or Permanent Financing Development Equity Financier Financial Close (FC) Commercial Operation Date (COD)

19. A Process that Acknowledges Risk Risk: An important driver of project development. The Guide acknowledges risk; a framework and process for managing projects in a risk environment is introduced. Acceptance Solicitation Payments Project Implementation Contract Management ID Opportunity Project Validation Project Acquisition Federal Agency Construction Operations Market & Portfolio Analysis Pre-Development Development TIME Screening Developer Construction Finance Re-Finance or Permanent Financing Development Equity Financier Financial Close (FC) Commercial Operation Date (COD) Unknowns Developer $ Risk Construction $ Risk Asset $ Risk Government $ Risk

20. Cash Flows in Time Federal Agency $ Development Costs Financial Close (FC) Commercial Operation Date (COD) Cash Flows and Tax Benefits Capital Investment Construction Finance Re-Finance or Permanent Financing Develop-ment Equity Financier Year

21. Guide Structure Section I: Language and Terms Section II: A Reliable Repeatable Development Process • The Commercial Process • Project Fundamentals • Project Development Framework Section III: Application of Project Development by a Federal Agency - The Federal Process Appendices

22. Assisting Federal Facilities with Energy Conservation Technologies Will provide direct funding to Federal agencies for capital projects. Agencies are expected to significantly leverage FEMP funds using agency-appropriated funds or alternative financing mechanisms (ESPC, UESC, PPA, etc) Two topics Combined Heat and Power Renewable Energy A Notice of Intent has been distributed widely. FEMP is offering technical assistance to all Federal agencies in anticipation of the funding opportunity to identify opportunities Award Levels Target Award for CHP is $500K Total available funding: $5.0M (FY13 and FY14) A New Opportunity for Agencies: AFFECT

23. Notice of Intent: July 9, 2013 FOA Issued: November 5, 2013 Submission Deadline for Letter of Intent: December 10, 2013 Submission Deadline for Full Applications: February 18, 2014 Expected Date for EERE Selection Notifications: April 29, 2014 Expected Date for Award Initiation: June 10, 2014 AFFECT Schedule

24. Federal Energy Management Program Questions? Contact Information Dr. Timothy Unruh Timothy.Unruh@ee.doe.gov 202-586-5772

25. Backup

26. Project Fundamentals

27. Project Development Framework