Economics of Military Energy Use

1. Economics of Military Energy Use Michael E. Canes Presentation to The Nonproliferation Policy Education Center September 24, 2012

2. Topics • The military operational energy economy • DoD operational energy initiatives • Analyzing the initiatives • Biofuels and Small Modular Reactors (SMRs) • Implications & Conclusions

3. Operational energy context – fuel delivery in Afghanistan

4. Operational energy context – fuel convoys are subject to enemy action

5. Operational Energy Context – Cost of fuel at the front lines can be high • 2001 Defense Science Board (DSB) Report: “More Capable Warfighting Through Reduced Fuel Burden” • Message: In-theater energy costs a great deal more than its purchase price – DoD should use a ‘fully burdened cost of fuel’ in assessing investment alternatives • DoD Response: Dust collection • Marine Corps Major General Richard Zilmer – Iraq, July 2006 • "By reducing the need for [petroleum] at our outlying bases, we can decrease the frequency of logistics convoys on the road, thereby reducing the danger to our marines, soldiers, and sailors….Continued casualty accumulation exhibits potential to jeopardize mission success.” • DoD Response: Initial activity to attack problem

6. Operational Energy Cost Becomes a Focus of Attention • 2008 DSB Report – “More Fight, Less Fuel” • Repeats 2001 DSB message – criticizes DoD for lack of response • Calls for institutional change within DoD to deal with energy challenges • Identifies vulnerability of DoD installation critical infrastructure to long-term grid outage – for example, from long-term damage to or destruction of large transformers

7. Grid Transformer – Guarded by Chain Link Fence

8. DoD/Congressional Response • Congress directs DoD to establish leadership position for energy • Assistant Secretary of Defense for Operational Energy Plans and Programs is created – (Sharon Burke) • Office of the Undersecretary of Defense for Acquisition, Technology and Logistics accepts responsibility for decreasing the vulnerability of installation critical infrastructure – (Frank Kendall)

9. OEPP Approach • Operational Energy Strategy • Demand Reduction • Supply Expansion • Strategic Energy Planning • Operational Energy Strategy Implementation Plan • Schedules & objectives • Services undertake Operational Energy Initiatives (OEIs) • Currently 357 separate OEIs among the 4 services • OEPP Certifies Service OEI budgets

10. Some Operational Energy Initiatives Photo voltaics UAVs Trailer mounted support systems Advanced generators

11. Installation Vulnerability to Grid Disruption • FERC & local PUCs oversee grid • Services seeking to diversify sources of power • DoD goal: 25% of power from renewable sources by 2025 • As much as possible from local sources (islanding) • Other goals involved – e.g., curbing GHGs • Variety of technological alternatives considered • Solar • Wind • Geothermal • Biomass • Ocean thermal or wave generated power • Small modular nuclear reactors

12. Analyzing alternatives • Approach 1: Set an energy-related goal and measure progress towards meeting it • E.g., DoD is committed to reducing GHGs from non-combat activities by 34% by 2020 • Pro: • Military customarily sets goals and tries to meet them • Can measure whether on path to achieve goal and adjust policy/programs over time accordingly • Can seek least cost method of achieving goal • Con: • No regard to cost of goal relative to gains • Failure to reach a goal carries little or no penalty

13. Analyzing alternatives • Approach 2: Investment alternatives should enhance operational effectiveness, and energy alternatives should be judged by their ability to meet this criterion • Pros: • DoD’s objective is to prevail in conflict, not to save on energy use or broaden energy alternatives • Lives are at stake • All logistics are costly to deliver to the front – that is the nature of conflict • Cons: • Costs not considered, but resources are limited • Not necessarily straightforward to measure gains in operational effectiveness

14. Analyzing Alternatives • Approach 3: Assess the cost effectiveness of energy alternatives against one another • Example: DARPA approach to investment in geothermal technology - $4/kWh the hurdle rate • Pros: • Allows judgment whether a potential energy investment is viable or not • If an energy alternative is cost effective, it will increase operational effectiveness because resources saved can be used for other military purposes • Cons: • Not always easy to compare energy investment alternatives – e.g., what is the fully burdened cost of fuel across the battle space?

15. Military use of Biofuels • E.g., Navy goals: • “Great Green Fleet” to sail in 2016 – use 50-50 blend of ‘drop-in’ biofuels & conventional fuels – about 3,360,000 gallons of each • 50% of total Naval fuel consumption in 2020 to come from alternative sources

16. Military use of Biofuels • Some issues: • Congress concerned about cost (Navy since has modified goals to incorporate cost competitiveness as a condition of future drop-in biofuel use) • CRS points out: Availability of fuel not at issue; vulnerability of supply is • How sustain fleet biofuel supply when away from U.S.?

17. Installations & SMRs • A way to ‘island’ energy supply to U.S. military installations & surrounding communities • Reduce dependence upon the grid • Scale to installation/community size • Can be protected by military personnel • Navy experienced with nuclear reactors

18. Installations and SMRs • Some Issues: • What about the cost? • Analysts assert natural gas would have to reach $7-8/mcf for SMRs to be cost effective • How cost effective are SMRs relative to other alternative power sources? • Safety issues similar to those of large nuclear reactors • Spent fuel disposal still a political issue • Community acceptance (U.S. & elsewhere) after Fukushima?

19. Implications & Conclusions • Question: Where are the largest & most cost effective energy gains likely to come from for DoD? • Answer: Investment to replace legacy capital equipment • DoD underestimated the cost of fuel for decades • Acquired systems under wrong set of assumptions • More fuel efficient platforms always made sense and still do now • Example: AMMPS generators – save about 25% fuel (also lighter, less maintenance, etc.) – highly cost effective • Look to engines, other major components, body designs, materials

20. Implications & Conclusions (con’td) • Cost effectiveness the appropriate criterion to apply to DoD energy investment • Cost effective energy-related investment will increase operational effectiveness • Drop-in biofuels & SMRs (and other DoD energy investments) should meet that test • DoD’s objective should be to prevail in armed conflict, not to advance the nation’s broad energy objectives • DOE serves the latter role

21. Comments & Questions? Questions?