A recent white paper from Arizona State University notes that, with more than 300,000 buildings and two billion square feet of building space, the Department of Defense ("DOD") consumes more than three-quarters of the energy used by the federal government (by comparison, the white paper notes that Wal-Mart has only 4,200 buildings and approximately 700 million square feet of space in the United States). According to DOD, buildings and fleet vehicles represent roughly 40 percent of DOD's greenhouse gas emissions.
In this context, the United States Government Accountability Office ("GAO") issued a report in April 2012 on renewable energy project financing at DOD. The GAO report comes as DOD continues to push for ways to improve energy efficiency. For example, DOD intends to produce or procure from renewable energy sources not less than 25 percent of the total energy consumed within its facilities during fiscal year 2025 and each year thereafter.
The GAO reviewed DOD's current approach to financing renewable energy projects and recommended that, among other things, DOD provide additional guidance for considering the business case for each project as well as the costs and benefits of different financing approaches. According to the GAO report, DOD should develop guidelines for choosing between "up-front appropriations" that rely on government funds versus "alternative financing" options that tap private capital.
The GAO report suggests that alternative financing, such as Energy Savings Performance Contracts and Utility Energy Service Contracts, have been used primarily for energy-efficiency projects rather than renewable energy. In the past, DOD has used a limited number of Power Purchase Agreements to fund projects such as the 14-megawatt solar array located on Nellis Air Force Base. Alternative financing also includes "enhanced-use leases," where the military services enter into long-term leases with private entities. For example, at Fort Irwin, the Army has proposed to lease land to a contractor to build a 500-megawatt solar array.
DOD has embraced a majority of the GAO report's recommendations, pledging to develop comprehensive guidance on the full range of financing options, public and private. Moreover, DOD's Strategic Management Plan aims to expand the use of private capital for energy efficiency and renewable energy projects by 15 percent in 2012 and 2013. To put this goal in context, in fiscal 2010, DOD awarded $323 million in contracts for energy efficiency and renewable energy projects financed with Energy Savings Performance Contracts and Utility Energy Service Contracts.
"Project SolarStrong" represents another avenue for private capital to finance renewable energy installations for the military. The project, which is led by SolarCity and proposes to build $1 billion in solar power projects for privatized U.S. military housing communities, has recovered from the U.S. Department of Energy's decision to cancel a conditional loan following the Solyndra LLC bankruptcy. In March, SolarCity joined with U.S. Bancorp to launch a renewable energy tax equity fund to support SolarStrong. This comes on top of $350 million in debt financing SolarCity already has received from another large commercial lender.
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