DRAFT_Statement_of_Objectives_-_Alternative_Financing_for_Energy_Resilience_Projects.docx

Title: Alternative Financing for Energy Resilience Projects – Establishment of a Defense Energy Resilience Bank for National Security

Requiring Activity: Office of the Deputy Assistant Secretary of Defense, Installation Energy (ODASD(IE))

1.0 Purpose: Through the Massachusetts Institute of Technology, Lincoln Laboratory (MIT-LL) energy resilience framework and tool development, the Office of the Secretary of Defense (OSD) and the Military Departments have identified cost-effective energy resilience projects that can be pursued through alternative financing with financial and lending institutions. The energy resilience business case framework allows for stakeholders and decisions makers in government and the private sector to consider wide scale adoption of alternative financing for energy resilience projects on Department of Defense (DoD) military installations.

This study will use the results of the MIT-LL energy resilience framework, and the associated tool development, data, and information, to better translate DoD mission requirements to financial and lending institutions. It will consider alignment of DoD mission requirements, assumptions, and metrics to inform project development, schedules, and risk ratings. The study will use data and information representing DoD mission requirements to inform the development of a financing tool that will provide key DoD and financial institution stakeholders metrics needed to make risk-informed decisions for lending and accelerating adoption of alternative financing for defense energy resilience projects that support national security objectives.

2.0 Scope: The study’s scope includes partnering with MIT-LL to review data and information on DoD energy resilience projects to inform a financial tool development. The tool will include information, data, and metrics required by lending institutions to appropriately determine risk ratings and decisions for alternative financing.

The study should also review the current impediments to accelerate adoption of alternative financing for defense energy resilience projects, and the establishment of a Defense Energy Resilience Bank (DERB). There are various examples which will be reviewed to determine an appropriate “bank” structure. As an example, one vision is a deregulated market where various lending institutions can provide capital investment commitments to businesses or government agencies that have established the appropriate processes to deliver predetermined and verified project requirements, project schedules, and project ratings. The recommendations that result from this study will be used to inform the vision for a DERB.

The study will document areas that DoD, businesses, and lenders can focus on to lower the overall costs and risks of lending. It will also investigate the advantages of developing market and government structures/processes to effectively continue to share and translate DoD mission and project requirements to enhance the efficiency of lending for project development.

Finally, the study will review current legislation and DoD authorities. It will provide recommendations on changes (if necessary) to current legislation and DoD authorities to accelerate the adoption of energy resilience projects, and the establishment of a DERB. The study should investigate areas such as (but not limited to): lowering lending rates to achieve national security objectives; increasing or broadening energy incentives (e.g., demand response); and updating or developing new authorities for defense energy resilience projects.

3.0 Period and Place of Performance: The period of performance on the study will be one year from date of award with a target award date of Q4FY2017/Q1FY2018. The work will be performed at the contractor’s facility. The contractor will be required to travel to military installations to verify and validate information and data, and will be requested to meet with DoD stakeholders on an as needed basis in the Washington DC area. The contractor will deliver the final tool, report, and brief to the Office of the Deputy Assistant Secretary of Defense, Installation Energy and other DoD stakeholders participating on the study.

4.0 Background: In recent years, natural events such as Hurricane Sandy and reliability issues such as the lack of maintenance or testing of emergency backup systems have caused energy disruptions on military installations leading to impacts on critical missions. In the future, man-made issues such as physical and cyber events could accelerate energy disruptions, hindering the ability of the DoD to conduct critical missions on its military installations. To remediate these energy resilience risks, DoD is pursuing energy resilience as a priority. DoD has defined energy resilience as the ability to prepare for and recover from energy disruptions that impact mission assurance on military installations. For further information on DoD’s Energy Resilience Program, please see http://www.acq.osd.mil/eie/IE/FEP_Energy_Resilience.html. The MIT-LL study and other policy and requirement documents are located at this website.

Historically, DoD energy resilience was provided through “generator-by-generator” purchases that backup a specified critical mission or facility. Strategic or integrated solutions were not always considered. These integrated solutions could include distributed or renewable energy sources; diversified or alternative fuel supplies; and even movements to alternative locations, or mission-to-mission redundancies that include risk-informed decisions. Holistic solutions across a military installation would allow for consideration and review of upgrading, replacing, maintaining, and testing current and future energy generation systems, infrastructure, and equipment on military installations and facilities. These broader, holistic solutions allow DoD the capability to ensure available, reliable, and quality power to continuously accomplish DoD missions from military installations and facilities.

Through the MIT-LL study, the traditional “generator-by-generator” approach was found to be a more costly and less reliable approach than other solutions at sampled military installations. For example, distribution system upgrades and consolidated power generation were opportunities which could more feasibly provide cost effective solutions to increase installation energy resilience. The energy resilience framework in the MIT-LL study has allowed for a more strategic and comprehensive review of energy resilience across military installations and the DoD. The framework also has allowed DoD to make risk and cost determinations based on the DoD’s unique mission requirements that would impact an installation’s energy resilience project.

The DoD has issued policy to remediate energy resilience risks within DoD Instruction (DoDI) 4170.11. DoDI 4170.11 captures DoD’s energy resilience requirements. Other requirements which the study will support are reflected in the FY2017 National Defense Authorization Act, which requires the DoD to report on the establishment of energy resilience metrics, and plans to replace or improve emergency power generation on military installations. This study also supports the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD(AT&L)) Better Buying Power initiatives.

5.0 Performance Objectives: The following are the performance objectives of this project:

5.1 Reviewing important financial, economic, and technical metrics needed for the pursuit of alternative financed projects, and determining risk ratings for energy resilience projects to include:

1. Life cycle costs: Evaluating a project based on its full economic life, including all costs arising from owning, operating, maintaining, testing, and disposing of a project. Metrics could include cost of operating, maintaining, testing, and fuel costs.

1. Technical metrics: Availability, reliability, and quality of current and future energy systems to meet the desired capability or requirement of an energy resilience project.

0. Recommending improvements in current DoD tools and methods to include:

0. Considering financial industry metrics needed for alternative financing and lending.

0. Describing and recommending data inputs necessary to reduce risk for projects.

5.3 Documenting & reviewing the current impediments to accelerate alternative financing and lending to include:

a. Financial, business, and private sector challenges.

b. Legislative, regulatory, and DoD authority considerations.

0. Project challenges (e.g., lack of project level details such as economic or reliability data, minimal details associated with project schedules, key stakeholders unwilling to make firm execution or performance commitments, etc.).

5.4 Documenting & recommending the appropriate processes needed to overcome challenges to accelerate broad adoption of alternative financing for energy resilience projects and the establishment of a Defense Energy Resilience Bank which address:

a. Is a deregulated or regulated structure appropriate?

b. What processes and procedures should DoD establish?

c. Can projects be bundled for more efficient and effective execution?

0. What current or new authorities are required to maximize execution of projects?

0. Building a risk rating tool for energy resilience projects to include:

1. Comparing, contrasting, and translating DoD requirements to the financial sector.

1. Reviewing, validating, and coordinating the tool’s development with all the appropriate stakeholders (e.g., installation, Command/region, Service, OSD, financial industry, etc.).

1. Including actual project data across various DoD energy resilience projects into the tool.

0. Delivering the final tool, report, and brief to the ODASD(IE) & the appropriate stakeholders.

0. Delivering a draft Quality Assurance Surveillance Plan (QASP) to monitor the quality of the Contractor’s performance to ensure service levels reach and maintain required levels throughout the project term. The QASP will be finalized immediately following award with a copy provided to the Contractor after award, and is a living document that may be updated by the Government as necessary.

0. Delivering a Monthly Progress Report (MPR) outlining the expenditures, billings, technical progress, status, and any problems / issues encountered in the performance of the project.

6.0 Operating Constraints: The contractor should be prepared to protect for official use only or technical information described in the following documents: DoD Directive 5205.02E, DoD Manual 5205.02M, and DoDI 5230.24.