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Microgrids to Play a Major Role in Federal Government Energy Strategy

Posted By Lou Hutchinson, Constellation Energy, Friday, March 14, 2014

Our nation’s ability to defend and protect itself is directly tied to our nation’s ability to secure stable and reliable sources of energy.  For this reason, federal agencies are focused on investing in long-term energy strategies that include microgrids, localized energy systems that can sustain energy independence separate of the grid by connecting and disconnecting when needed.

Recently, during the Association of Climate Change Officers’ Defense, National Security & Climate Change Symposium, I joined energy leaders from the U.S. Department of Defense (DOD), U.S. Department of Energy (DOE), the U.S. Environmental Protection Agency (EPA) and McKenna Long & Aldridge LLP to participate in a panel discussion on energy resiliency and the role of microgrids. The clear takeaway from the discussion was that microgrids provide an incredible opportunity for the federal government to help meet their energy goals and public-private partnerships are central to these efforts.

Federal agencies face major challenges today as they must meet energy efficiency, renewable energy and water conservation mandates while achieving their overall mission. The federal government must significantly reduce energy consumption by 2020 and adding to this pressure is the fact that federal agencies are working with limited budgets and fewer resources.

While the panelists all agreed that the benefits of deploying microgrids are vast, the challenges in executing a well thought-out and comprehensive plan with limited budgets are just as great.

Many of the challenges related to microgrid implementation are not on the technical side of the project but in the procurement process. The contracting vehicles that allow for these projects to be built are complex and hard to navigate. In order to create a secure and energy efficient microgrid, energy contractors must work cross-sector and get approval from many different departments, all of whom use and consume energy differently, and bring them together under one holistic microgrid strategy.

That is why it is essential to engage all stakeholders, from the financers, to private sector partners, to the energy contractors, early on in the process. In fact, from the perspective of a private sector partner for the federal government, it is best to approach these energy contracts as a marriage because we must look at the long-term goals of the project with a holistic approach versus the short-term goals of one-off projects. These longer term public-private partnerships have a renewed importance today, as the federal government faces leaner budgets and the need to look outside the government for funding options.

One of the more popular funding options for implementing innovative energy technologies like microgrids is a Purchase Power Agreement, which provides the government up to 30 years to pay back its private investors. Purchase Power Agreements along with Energy Savings Performance Contracts and Utility Energy Service Contracts (all long-term contract options) allow for more creativity and flexibility in how funds are used and ensure that the microgrid operates at its most efficient and secure capacity.

These long term contracting vehicles are in the government’s financial best interest. The DOD’s Siting Clearing House estimates that on average, after about 7 years, the cost of the performance based contracts and the savings from the installed microgrids are about equal. More importantly, after 8-20 years (post payback period) the government actually starts saving money.

Other inherent savings comes from a properly designed infrastructure, where the equipment and operation systems in place outlive the contracts and continue to provide cost and energy savings long after the contract is over. In fact, a recent study by the Oak Ridge National Lab that was cited during the panel saw that the ancillary benefits associated with performance contracts tend to be about 1.75 times the actual contract value.

It is this long-term savings ability that makes microgrids such an appealing solution to government agencies, especially when you examine both sides of the energy balance sheet: conservation and revenue generation. Microgrids provide energy savings because they harness the collective power of distributed generation and can thoughtfully distribute energy back into the network. More than that, microgrids with proper storage capabilities can even sell their access energy to other utilities or save for the future. It is this ability to maintain a constant, independent, and reliable supply of energy that not only makes for a more efficient energy system, but also makes for a more secure infrastructure.

Every energy project Constellation works on for the federal government must be weighed against the yardstick of defense and security; every improvement and efficiency measure we take must also make the system more secure and resilient to attacks. There are three tiers to ensure resiliency: shoring up the existing grid infrastructure, providing the capability to be independent as a grid and managing other independent secure generation assets from private partner entities (like Constellation).

While there are many challenges to deploying microgrids in the federal government, the benefits for the government are clear. Microgrids are providing the public sector the ability to sustain energy independent of the electrical grid, posing a solution for the many energy challenges they face.

As a stable and reliable source of energy, microgrids are the future for the government.

Tags:  Energy  Grid  Purchase Power Agreement  Technology 

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