Renewable Portfolio Standards and Military Bases in 2013
The biomass industry, like almost all sectors of the economy, has been deeply affected by the recession and slower-than-expected economic recovery. Some biomass projects were put on hold in 2012 due to the changes in natural gas supply and price; others were scrapped as a result of inability to attract necessary financing. Often, these two factors went hand-in-hand.
In 2013, it will continue to be challenging to attract financing. There are, however, areas for potential growth in states with aggressive renewable portfolio standard (RPS) requirements, and at military bases, as a result of military energy security initiatives. Additionally, there will be investor interest in technology that promises to increase the efficiency and reliability of biomass production, especially for technology that has additional applications outside of the biomass industry.
While utilities in states without an RPS may not be pressured to turn to renewable generation, or are turning to other renewable sources such as wind and solar, the U.S. military is not as cost-sensitive and has a far greater concern for energy independence from a national security perspective. The military, which measures the fuel efficiency of its tanks in gallons per mile, may look like an energy nightmare at first glance, but the Pentagon is pursing ambitious goals for renewable energy. As a result of identifying fossil fuel dependence as a strategic liability, the U.S. Department of Defense is pursuing energy efficiency and energy independence as national security necessities. This drive for energy independence could be a substantial opportunity for the biomass industry, especially in states that lack other renewable resources such as wind and solar.
The DOD consumes over three-quarters of the total energy consumption of the federal government, which accounts for approximately one percent of total U.S. consumption. The military alone is therefore one of the world’s largest consumers of energy. Under the Army’s Net Zero Strategy, for example, contracts totaling $7 billion will be awarded over the next 10 years to businesses for the purpose of developing renewable and alternative power generation projects at Army bases. Many large Army bases are located in states that lack renewable resources that otherwise would compete with biomass, such as solar and wind. For example, in the southern U.S., which is home to many military bases, wind is not a viable energy resource—except perhaps for offshore on the coast—and solar is not ideal, at least compared to solar in the Southwest. Biomass feedstocks are abundant in the South, however, including both crop residue and timber residue.
Another significant energy security development is California’s recent passage of the Energy Security Coordination Act, which aligns the state’s and DOD’s energy independence plans. The law encourages collaboration with the military and furthers commercialization of clean energy technologies. California has long been a leader in clean energy and this law helps to further cement its position as the go-to state for energy technology companies. Biomass developers may have significant opportunities under the new California law.
The biomass industry is and will continue to be significantly impacted by the price and availability of natural gas. The development of technology that allows us to access and extract significant natural gas deposits has resulted in unprecedented and unexpected prices. That said, continued modest growth may be possible in the industrial space, as manufacturers seek alternatives to cut historically high coal-based emissions from their existing boilers by repowering to less-regulated feedstocks including natural gas and biomass. Industrial users of power are also motivated by a desire to break away from the power cost structure imposed by their serving utilities.
Repowering with biomass will most likely occur at plants that produce a feedstock that can be plowed into a bolt-on biomass facility. Given the historically low price of natural gas, plants that do not self-produce their feedstock or otherwise have low-cost feedstock access are much less likely to pursue biomass generation, unless other economic factors are at play. Chief among such factors would be aggressive, unmet RPS, such as exists in California and a few other states, essentially creating a market for renewables such as biomass.
Authors: Kate Bechen
Attorney, Michael Best & Friedrich LLP
Attorney, Michael Best & Friedrich LLP