E&E: Agencies Push to Lift Cap on Power-Purchase Deals

May 17, 2010

Courtesy of Environment and Energy Daily*

Dina Fine Maron, E&E reporter    

Federal agencies struggling to meet renewable energy mandates are pressing for legislation to lift a 10-year contract limit for power purchase agreements.

The goal, agency officials say, is to promote a program that reduces agencies' steep up-front costs for power projects and also lock in favorable electric rates. Extended power purchase agreements, or PPAs, they say, will entice companies into government deals because there will be a longer period for developers to recoup equipment costs.

"I suspect that a whole range of interesting projects haven't even been initiated because that 10-year limit has a dampening effect," said Richard Kidd, who directs the Department of Energy's Federal Energy Management Program, or FEMP.

An interagency working group -- including DOE, the Defense Department, the Justice Department and the General Services Administration -- has put lifting the 10-year cap at the top of its list of legislative priorities, Kidd said in an interview. Eighteen other agencies that are big energy users are also involved in the discussions, according to FEMP.

Kevin Ahern, the Defense Energy Support Center's director of installation energy, said the Pentagon, unlike most federal agencies, is authorized to enter into such energy contracts for 30 years but that such moves require getting multiple approvals. The center buys fuel for DOD and other agencies. It too has called for legislation that would extend contracting authority for federal agencies hoping to work with private developers on large-scale renewable energy projects. It is also hoping to streamline the DOD contracting process.

"We are trying to get [the need for the DOD authority] recognized as the general rule, not an exception to the rule," Ahern said. "This is going to be an all-the-time necessity."

A proposal to lift the contract cap to 30 years for all federal agencies is included in the "Improving Energy Efficiency and Renewable Energy Use By Federal Agencies Act of 2010," S. 3251, which was introduced last month by Sen. Tom Carper (D-Del.). Another avenue for the proposal could be the fiscal 2011 Defense authorization bill, according to Ahern.

The fate of Carper's proposal may rest with how it fares in an analysis by the Congressional Budget Office, a Carper aide said. While PPAs are designed to save the government money -- because the electricity sold to agencies under such agreements would typically be cheaper than if it were purchased otherwise -- extending such deals could be seen by CBO as a liability because it would commit the agency to purchasing energy, the aide said.

Despite PPA limits, there have been successful federal efforts to boost renewable power. Among the eight listed by FEMP are a 2 megawatt photovoltaic array at the Army's Fort Carson in Colorado and a 14.2 megawatt solar facility at Nellis Air Force Base in Nevada. There have been smaller-scale projects with other federal agencies.

But earlier this year there was a tale of frustration and in the coming years there could be many more, officials say.

The Defense Energy Support Center negotiations for a 1-megawatt solar photovoltaic project at DOE's Princeton Plasma Physics Lab collapsed in February after a year's work because of PPA limits, Ahern said.

"We have other projects we think will have the same issue," he said, "but we haven't gotten to the final projects so we don't know for certain."

To make the Princeton project feasible for a private company, electricity prices would have been unaffordable for DOE, said Mike Williams, the lab's associate director for engineering and infrastructure.

"The bottom line is that it would have cost us two or three times more for the cost of electricity than we're presently paying," he said.

While the lab is still viewed as a possible site for a future deal -- especially because New Jersey offers healthy rebates for solar projects -- the project is dead, Williams said.

"The big stumbling block is this 10-year limit."

Another option
But there is at least one way around the limit, said Byron Krug, the co-founder and managing director of Clark Energy Group LLC.

Another government program, the Super Energy Savings Performance Contracts (SESPC), which aims to boost federal energy efficiency by allowing agencies to undertake multiple energy projects under one contract, would also allow a developer to craft a large-scale renewable energy project with a 25-year limit, Krug said.

Sixteen contractors are currently able to bid for such projects, and Krug's company is among them, he said.

The catch is that it can take a while to make it through the regulatory process, Krug said. Another pitfall, he said, is that the program is designed to have equipment ownership at the end of the lease default to the government, not the developer. There is a clause, he added, that would allow federal agencies to hand over the deed.

So far, however, this program has not been tapped for large-scale renewable energy projects, Kidd said. While he calls the program "an important tool," PPA reform is still needed.

"The federal government," Kidd said, "would like to have all options on the table to accelerate large-scale renewable energy."Copyright 2010 E&E Publishing, LLC.

Reprinted with permission from Environment and Energy Daily.