Fighting for Innovation: How DoD Can Advance Clean Energy Technology... And Why It Has To

$3.6 billion to power facilities and $9.6 billion for fuel.

That’s what the United States military spent on energy in 2009¹—and its energy intensity is only expected to rise.² The military’s energy bills are greater than the GDP of 80 countries around the world.³ Even worse, our armed forces’ reliance on conventional energy for troops in the field and on the civilian grid for domestic military facilities poses significant security risks. While the Pentagon’s civilian and military leaders are moving in the right direction to switch from expensive—and sometimes unreliable or dangerous—fossil fuels, much more can and must be done. By deploying clean energy and investing in next-generation innovations, the U.S. military can meet the operational needs of our fighting forces, while also realizing significant cost savings in an era of tight budgets.

The United States military consumes more energy than any other single organization in the world. In 2008 alone, the Department of Defense (DoD) used 889 trillion site-delivered British thermal units (BTU), which is more than the entire consumption of Israel or Denmark.⁴ Whether it’s fuel for forward-operating bases, ships, aircraft, and ground vehicles, or electricity for domestic military facilities, the overwhelming majority of the military’s energy comes from fossil fuels. This has left our forces vulnerable to a variety of security concerns: attacks on fuel convoys in theaters of operation, threats from oil-supplying nations, an unsecure civilian electricity grid, and escalating costs that strain already tight budgets.

The Pentagon can significantly reduce the threats posed by its reliance on conventional sources of energy. But, as the Department noted in its June 2011 Operational Energy Strategy, this will require fundamental changes to current energy supply and delivery systems, including an emphasis on demand reduction and on-site production of clean energy both at domestic installations and in theater.⁵ An effort of this magnitude requires long-term vision, integration of new energy goals into the Pentagon’s culture, support from congressional and military leaders, and investments in the development of advanced technologies to transform DoD’s energy practices.

Technological innovation has played a key part in many of the U.S. military’s operational successes. DoD’s role as a demanding customer for innovation, combined with smart investments in private and public sector research, development, and demonstration, has spurred the creation of revolutionary weapons systems, communications, and energy technologies. These innovations—such as GPS, nuclear energy, microprocessor chips, and even the Internet—have not only improved the military’s ability to carry out its missions, but led to the rise of numerous new commercial industries in the United States. While clean energy innovation will require a certain level of investment on DoD’s part, the payoffs for the Pentagon are clear: long-term cost reductions that make more money available for war-fighting and reduced vulnerability to threats posed by its current energy systems. It also holds the potential to drive the development of new businesses that will dominate the global clean energy economy, just as the military helped give birth to civilian aviation and information technologies.

The Problem

The Military’s Current Energy Use is Costly and Unsecure

The Department of Defense faces budgetary and security challenges as a result of its energy practices. Reliance on oil for forward-deployed operations leaves the military vulnerable to supply shortages, attacks on fuel convoys, and volatile swings in the cost of petroleum. At home, its bases are tethered to a civilian grid that cannot provide the security or resilience needed to defend against interruptions from natural disasters, or, even worse, intentional attacks on the transmission system.

Oil: Imperiling Missions, Costing Lives, Busting Budgets

The military’s reliance on oil from unstable and often unfriendly parts of the world creates a significant security threat. Like most consumers, the Pentagon purchases petroleum on the global market. Some of the largest suppliers in this market are Middle Eastern and North African nations, many of which are prone to internal political instability and/or tenuous relationships with the American government. The ten countries with the largest oil reserves, for example, include the likes of Libya, Iran, Nigeria, Venezuela, and Iraq. This leaves the U.S. vulnerable to petroleum price fluctuations influenced by the Organization of Petroleum Exporting Countries (OPEC), which currently is chaired by Iran.⁶

Supply concerns are particularly acute in forward-deployed military locations, like Afghanistan and Iraq, which rely on the safe transportation of fuel through volatile regions to power vehicles and generators. Military operations account for 75% of all DoD energy consumption, requiring immense amounts of fuel to be brought to theater.⁷

U.S. and allied fuel convoys have been targeted by militants in Iraq, Afghanistan, and Pakistan, resulting in military and civilian casualties, as well as disruptions in energy supply to critical operations. In April of 2011, the Taliban warned of a “spring offensive” that would include attacks on “logistical convoys of the foreign invaders” within Afghanistan.⁸ And in May, militants damaged or destroyed over a dozen fuel tankers taking 15 lives in the process.⁹ It is estimated that over 3,000 American troops and contractors have been killed while protecting supply convoys in Iraq and Afghanistan.¹⁰ As Navy Secretary Ray Mabus has said, “Fossil fuel is the No. 1 thing we import to Afghanistan, and guarding that fuel is keeping the troops from doing what they were sent there to do, to fight or engage local people.”¹¹

Reliance on oil can also make the military less responsive and flexible in its operations. For instance, the Defense Science Board notes that if the Abrams tanks used in operation Desert Shield had been 50% more fuel efficient, there would have been a greatly reduced need for fuel and related infrastructure which, in turn, would have cut the military’s build-up time by 20%.¹²

Between 2000 and 2008, DoD’s oil expenditures increased by almost 500%, peaking at nearly $18 billion.¹³ And estimates show that every $10 increase in the cost of a barrel of oil adds another $1.3 billion to the Pentagon’s fuel budget, swelling the national deficit and diverting resources from critical defense priorities.¹⁴ The rise in spending on fuel by DoD is not solely due to skyrocketing oil prices. The wars in Afghanistan and Iraq, combined with ever-more energy hungry weapons systems, vehicles and communications devices have increased demand to historic levels. Transporting fuel to military operations sites, often via heavily-protected convoys, also contributes significantly to the cost. Unless DoD makes significant strides to reduce its demand and promote innovative methods of generating and distributing energy, it is on course to spend over $150 billion over the next decade on fuel and electricity. That’s up from the roughly $107 billion the Pentagon spent on energy between 2000 and 2009, at the height of two overseas conflicts.¹⁵

In reaction to these growing expenses, DoD is beginning to pay closer attention to the actual cost of fuel once transportation and security expenses are included. This is commonly referred to as the fully burdened cost of fuel (FBCF). Estimates show that the FBCF of a gallon of gasoline can easily reach ten times the commodity price and can be far greater under more challenging conditions.¹⁶

Electricity: Military Needs but a Civilian Grid

Domestic military installations face their own unique energy vulnerabilities that could compromise DoD missions. As much as 85% of the energy infrastructure that the military relies upon in the U.S. is commercially owned, and 99% of the electricity used by domestic DoD installations is generated offsite.¹⁷ The nation’s private, public, and cooperative power suppliers do a tremendous job providing reliable electricity to civilian customers in the industrial, commercial, and residential sectors. However, it is neither their mission nor necessarily within their capabilities to provide the level of security to the grid that military installations require.

Simply put, utilities are not always able to prevent or immediately respond to damage or interruptions of power caused by terrorist activity or natural disaster. For example, a tornado in April of 2011 left Redstone Arsenal in Alabama in the dark for a full week¹⁸ until the statewide grid system could be repaired.¹⁹ In 2007, the Department of Homeland Security and Idaho National Laboratory simulated a cyber attack that triggered the self-destruction of an electric generator, showing the vulnerability of the civilian grid system to cyber terrorists.²⁰ In both of these cases and in the case of any future disaster or attack, on-site or nearby energy generation at DoD facilities would allow for a greater level of security, preparation, and restoration of critically needed power.

In 2009, the Pentagon spent $3.6 billion on electricity for domestic military facilities.²¹ It could reduce this expense simply by more broadly implementing efficiency programs. Congress has already moved DoD in this direction by requiring it to reduce its energy demand by at least 30% at domestic facilities by 2015. Yet additional steps are possible and necessary to improve security and control costs at these sites.

The Solution

Making Clean Energy Mission Critical

Over the past decade, the Pentagon and the individual branches of the military have intensified their efforts to reduce energy consumption, integrate clean energy technologies, and incentivize the development of new technologies to improve war-fighting capabilities and save money that is being spent on non-combat related activities.²² While these actions have shown immediate benefits, there is more that the Department of Defense can do to make troops in the field more secure and further reduce the burden of energy on its budget. There are four steps the Pentagon should take to better integrate adoption of clean energy innovation into its mission across all branches of service:

• Prioritize and integrate clean energy adoption across all services and commands;
• Inventory all domestic DoD facilities to determine their energy use and needs, as well as their capacity to advance DoD’s energy goals;
• Utilize procurement to encourage American innovation and the development of new technologies; and
• Leverage savings from efficiency and alternative financing to pay for innovation.

Prioritize and Integrate Clean Energy Adoption Across all Services and Commands

Each service within the Department has unique and immediate energy needs. However, DoD has noted in its Operational Energy Strategy (OES) that the type of policy overhaul needed to substantively address energy security and cost challenges will require a long-term roadmap with common goals set at the departmental level. DoD must develop a detailed implementation strategy for an enhanced energy system based on the priorities it identified in its OES. This strategy should maximize the potential for innovation breakthroughs that will enhance the military’s war-fighting capabilities, make its facilities more secure from power disruptions, and/or reduce DoD’s soaring energy costs. By keeping its focus on only the most urgently needed goals, DoD will be able to maximize limited resources during this era of austerity and increase its chances of success.

The Defense Science Board warned in 2008 that DoD lacked a “strong, sustained focus by senior leadership to change the culture that assumes readily available energy or to create a culture that inherently recognizes the clear linkage between energy productivity and combat effectiveness.”²³ Deputy Secretary of Defense William Lynn similarly noted in his introduction to the OES that DoD “tends to treat energy as a commodity that will always be readily available, regardless of the strategic, operation, and tactical costs.”

These statements highlight a critical need for civilian and military leadership in the Pentagon to provide guidance and accountability throughout all commands in order to meet DoD’s clean energy goals—starting at the very top. Incoming Secretary of Defense, Leon Panetta, made energy conservation a priority as Director of the Central Intelligence Agency and has acknowledged the immense potential that he will have in his new assignment at DoD to implement forward-thinking energy strategy. As Secretary, Mr. Panetta should play an active and visible role in efforts to modernize the military’s energy generation and distribution systems.

The Government Accountability Office (GAO) has suggested in multiple reports that an immediate step to ensure stricter adherence to the Pentagon’s energy directives would be to provide DoD’s energy managers with additional training.²⁴ A separate GAO study highlighted a lack of incentive for officials to undertake energy improvement projects in forward-deployed locations, which consume three quarters of DoD’s energy. Since the savings and benefits generated by such projects are rarely returned to these sites by the Department, officials instead choose to dedicate their time and resources to other needs.²⁵

To address this shortcoming, DoD could create incentives for energy efficiency and clean energy adoption at all levels of the organization. At the facility manager or “mayoral” level, identification of efficiencies and adoption of clean energy technologies should be a factor in career advancement and performance reviews. At the budgeting level, DoD could develop systems to allow units to recapture a portion of the savings generated by energy enhancements they have undertaken. And at a policy level, senior managers could recognize and award units that develop or adopt innovative solutions.

The Department could also incentivize energy efficiency and clean energy generation at domestic installations by including consideration of energy enhancements when making decisions regarding Base Realignment and Closure (BRAC). If grid reliability and the potential for islanding were added as criteria for an effective installation, base leaders and the greater community might place more emphasis on making investments in energy enhancement, such as demand reduction and the use of smart grid technology.

Inventory Domestic DoD Facilities to Determine Energy Use, Needs, and Capacity to Advance Energy Goals

With 25 million acres of land and 620,000 buildings and other structures across the United States,²⁶ the Department of Defense could serve as the ideal platform for the development and deployment of new clean energy technologies, as well as the use of existing clean energy generation to reduce reliance on the civilian grid. Unfortunately, the Pentagon does not have a precise accounting of the energy demands of their facilities or the potential of their land and facilities for the development or generation of clean energy.²⁷

DoD should conduct a full inventory of all sites within its jurisdiction, identifying the potential for each site to help the Department meet its energy goals. As Third Way honorary co-chairs Senator Mark Udall (CO) and Rep. Gabrielle Giffords (AZ-8) have proposed in the DoD Energy Security Act of 2011, this assessment of potential renewable energy sites should also identify any environmental, security, technical, or economic concerns associated with energy activities on each property, as well as the other government agencies at the state, federal, or local level that may have jurisdictional concerns with such projects.²⁸ Not only will these details aid in the planning of energy projects, it will also help to identify common barriers to these projects and the technologies that will be needed to overcome them. As an example, wind projects that had stalled due to DoD’s concerns that turbine noise would interfere with radar were given the green light after technological fixes were discovered to mitigate interference.²⁹

With a concise accounting of its resources, the Department also could make better use of its land and facilities for pilot programs for the generation of clean energy, grid security and efficiency, testing new clean energy technologies, and implementation of demand reduction initiatives. For example, in the summer of 2010 the Marine Corps constructed an experimental forward-operating base at Camp Pendleton in California in order to test innovative energy technology in an environment meant to simulate Afghanistan. One successfully demonstrated technology was a lightweight portable solar panel that has since been used by a Marine company in Helmand Province, Afghanistan to reduce the fuel needed for their generators, and has the potential to reduce fuel demand by up to 50 percent.³⁰ A detailed inventory of its real property would allow DoD to more frequently and efficiently conduct similar trials to promote vital innovation in the energy sector.

Congress should also revise the current law that provides DoD with authority to develop geothermal power on its facilities, while excluding other forms of clean energy generation.³¹ Such limitations unnecessarily restrict the potential for clean energy innovation on military facilities. The Defense Department should have the flexibility to develop any clean energy technology that it determines meets security, mission, and cost imperatives, including nuclear, solar, wind, smart grid, and energy storage technologies.

Use the Procurement Process to Promote Innovative Energy Technologies

The DoD has over $400 billion in annual purchasing power, which means the Pentagon could provide a sizeable market for new technologies. This can increase a technology’s scale of production, bringing down costs, and making the product more likely to successfully reach commercial markets. Unfortunately, many potentially significant clean energy innovations never get to the marketplace, due to a lack of capital during the development and demonstration stages. As a result, technologies that could help the military meet its clean energy security and cost goals are being abandoned or co-opted by competetors like China before they are commercially viable here in the U.S.

By focusing its purchasing power on innovative products that will help meet its energy goals, DoD can provide more secure and cost-effective energy to the military—producing tremendous long-term savings, while also bringing potentially revolutionary technologies to the public. Currently, many of these technologies are passed over during the procurement process because of higher upfront costs—even if these technologies can reduce life-cycle costs to DoD. The Department has only recently begun to consider life-cycle costs and the “fully-burdened cost of fuel” (FBCF) when making acquisition decisions. However, initial reports from within DoD suggest that the methodology for determining the actual FBCF needs to be refined and made more consistent before it can be successfully used in the acquisition process.³² The Department should fast-track this process to better maximize taxpayer dollars. Congressional appropriators—and the Congressional Budget Office—should also recognize the savings that can be achieved by procuring advanced technologies to promote DoD’s energy goals, even if these procurements come with higher upfront costs.

Even if the Pentagon makes procurement of emerging clean energy technologies a higher priority, it still faces real roadblocks in developing relationships with the companies that make them. Many clean energy innovations are developed by small businesses or companies that have no previous experience working with military procurement officers. Conversely, many procurement officers do not know the clean energy sector and are not incentivized to develop relationships with emerging clean energy companies. Given the stakes in developing domestic technologies that would help reduce costs and improve mission success, the Pentagon should develop a program to encourage a better flow of information between procurement officers and clean energy companies—especially small businesses.

Leverage Savings From Efficiency and Alternative Financing to Pay for Innovation.

In an age of government-wide austerity and tight Pentagon budgets, current congressional appropriations are simply not sufficient to fund clean energy innovation. Until Congress decides to direct additional resources for this purpose, the Defense Department must leverage the money and other tools it already has to help develop clean energy. This can take two forms: repurposing money that was saved through energy efficiency programs for innovation and using alternative methods of financing to reduce the cost to the Pentagon of deploying clean energy.

For several decades the military has made modest use alternative financing mechanisms to fund clean energy and efficiency projects when appropriated funds were insufficient. In a 2010 report, GAO found that while only 18% of renewable energy projects on DoD lands used alternative financing, these projects account for 86% of all renewable energy produced on the Department’s property.³³ This indicates that alternative financing can be particularly helpful to DoD in terms of bringing larger and more expensive projects to fruition.

One advanced financing tool available to DoD is the energy savings performance contract (ESPC). These agreements allow DoD to contract a private firm to make upgrades to a building or other facility that result in energy savings, reducing overall energy costs without appropriated funds. The firm finances the cost, maintenance and operation of these upgrades and recovers a profit over the life of the contract. While mobile applications consume 75% of the Department’s energy,³⁴ DoD is only authorized to enter an ESPC for energy improvements done at stationary sites. As such, Congress should allow DoD to conduct pilot programs in which ESPCs are used to enhance mobile components like aircraft and vehicle engines. This could accelerate the needed replacement or updating of aging equipment and a significant reduction of energy with no upfront cost.

To maximize the potential benefits of ESPCs, DoD should work with the Department of Energy to develop additional training and best practices to ensure that terms are carefully negotiated and provide benefits for the federal government throughout the term of the contract.³⁵ This effort could possibly be achieved through the existing memorandum of understanding between these two departments.³⁶ The Pentagon should also consider using any long-term savings realized by these contracts for other energy purposes, including the promotion of innovative technologies to further reduce demand or increase general energy security.

In addition to ESPCs, the Pentagon also can enter into extended agreements with utilities to use DoD land to generate electricity, or for the long-term purchase of energy. These innovative financing mechanisms, known respectively as enhanced use leases (EULs) and power purchase agreements (PPAs), provide a valuable degree of certainty to third party generators. In exchange, the Department can leverage its existing resources—either its land or its purchasing power—to negotiate lower electricity rates and dedicated sources of locally-produced power with its utility partners.

DoD has unique authority among federal agencies to enter extended 30-year PPAs, but only for geothermal energy projects and only with direct approval from the Secretary of Defense. Again, limiting incentives for clean energy generation to just geothermal power inhibits the tremendous potential of other clean energy sources to help meet DoD’s energy goals. Congress should consider opening this incentive up to other forms of clean energy generation, including the production of advanced fuels. Also, given procurement officials’ lack of familiarity with these extended agreements and the cumbersome nature of such a high-level approval process, the unique authority to enter into extended 30-year PPAs is very rarely used.³⁷ DoD should provide officials with additional policy guidance for using extended PPAs and Congress should simplify the process by allowing the secretary of each service to approve these contracts. Congress should also investigate options for encouraging regulated utility markets to permit PPA use by DoD. Finally, when entering these agreements, the Department should make every effort to promote the use of innovative and fledgling technologies in the terms of its EULs and PPAs.

Conclusion

The Defense Department is in a unique position to foster and deploy innovation in clean energy technologies. This has two enormous benefits for our military: it will make our troops and our facilities more secure and it will reduce the amount of money the Pentagon spends on energy, freeing it up for other mission critical needs. If the right steps are taken by Congress and the Pentagon, the military will be able to put its resources to work developing technologies that will lead to a stronger fighting force, a safer nation, and a critical emerging sector of the American economy. The Defense Department has helped give birth to technologies and new economic sectors dozens of times before. For its own sake and the sake of the economy, it should make clean energy innovation its newest priority.