Power the Fight: Capturing the Smart Microgrid Potential for DoD Installation Energy Security

2. Power the Fight: Capturing the Smart Microgrid Potential for DoD Installation Energy Security A Briefing of the BENS Report January 16, 2013

3. Business Executives for NationalSecurity (BENS) is a nationalnon-partisan organization • BENS mission is to apply best private business solutions to our most difficult national security challenges ranging from cyber threat and energy security to threat finance • BENS members come from a wide range of enterprises, most with no relationship to the defense industry • BENS assembled a study group from across industry to consider the question of DoDmicrogrids BENS has only one special interest: to help make America safe and secure

4. Overview • Background and Context • Report Findings and Observations • Report Recommendations

5. DoD owns and operates a large,diverse portfolio of bases • 500 Military installations, 300,000 buildings • Diverse building mix of various vintages: barracks, commissaries, data centers, office buildings, laboratories, aircraft maintenance depots • DoD’s facility energy strategy seeks to reduce energy costs and improve the energy security by:  • Reducing demand for traditional energy through conservation and energy efficiency • Expanding supply of renewable energy and other forms of distributed (on-site) energy • Enhancing the energy security of our installations directly • Leveraging advanced technology

6. The reliance of DoD installationson the commercial electric power gridis a growing vulnerability • Defense Science Board (2008) “Military installations are almost completely dependent on a fragile and vulnerable commercial power grid, placing critical military and Homeland defense missions at unacceptable risk of extended outage” • Since 2008, reliance of DoD installations on commercial grid has become more operations-critical • Increasing C4ISR sophistication • Remote combat operations • Homeland defense, humanitarian missions “Tornadoes knock out power to Redstone Arsenal and Marshall Space Flight Center” (4/2011) NYT: “Terrorist Attack on Grid Could Cause Broad Hardship, Report Says” “Panetta: US Vulnerable to ‘Cyber-Pearl Harbor’”

7. In August 2011, DoD encouragedthe BENS microgrid study, withspecific questions • Business model • Ownerships • Effects of utility privatization • Size and scope • Non-technical impediments to deployment “Micro-grid technology could be a potential ‘triple play’ for the DoD” (energy security, energy efficiencyand renewables integration)

8. “Smart Microgrids” are apotentialsolution to the energysecurity needs of DoD installations • Microgrid = integrated system of electricity generation, distribution infrastructure, and energy storage (as needed) to enable an installation to maintain power while disconnected from commercial grid • Smart Microgrid = added communications and control technology to drive greater value-generation (especially from energy efficiency and demand response) and renewable energy integration

9. Overview • Background and Context • Report Findings and Observations • Report Recommendations

10. Microgrids can be cost-effective,saving DoD at least $225M/year,increasing energy security • $4 B/yr installation energy budget • 25% of installations in States with high electricity prices, strong renewable incentives • 15-20% cost savings/installation • Achievement of savings is dependent on use of third-party financing and public-private approaches 2013 ADC INSTALLATION INNOVATION FORUM | pAGE10

11. Significantly greater savings arepossible with new approaches andstronger DoD capabilities • Fully utility-integrated microgrid (and other energy security solutions) maximize the economic benefits of on-base electrical resources (generation, distribution, management) • Requires specific local utility “discovery” and negotiation • Requires a more detailed understanding of installation energy use • “Bundling” generation, efficiency, and demand-response opportunities at individual installations would maximize third-party incentives, cost reductions • Complicated by utility privatization, lack of coordination of current installation energy programs (ESPC, ECIP) • Bidding portfolios of bases, with varying project economics, could most economically extend microgrid development to bases facing a “security premium” for power

12. Significantly greater savings arepossible with new approaches andstronger DoD capabilities (2) • DoD needs to increase the consistency and quality of data it has about installation energy management • To support effective decision making and dealmaking, DoD needs understand models, terminology, and approaches used by the private sector • Levelized Cost of Secure Energy • Open standards • Performance-based systems acquisition

13. Other Task Force Observations • Standard blueprint or template for how military installations purchase or distribute electric power does not exist • DoD has undertaken significant microgrid technology demonstration and prototype development efforts to increase understanding of the technical challenges and opportunities • Installation energy security does not require a technological breakthrough • There is no clear vision of energy management evident at DoD installations with respect to: • Allowable or “approved” components, generation, and control technologies • Design bases (spatial, temporal) for mission assurance objectives

14. Overview • Background and Context • Report Findings and Observations • Report Recommendations

15. Report Recommendations • DoD needs to establish energy security requirements for Defense installations • Define the “design basis threat” energy security solutions must meet (drives requirements for outage duration, fuel supply chain, etc.) • DoD needs an organizational approach for microgrid development that supports timely decision making and development of an enduring capability within DoD • Single technical authority for engineering analysis and design • Single point of contact for finance and electric power industries • Business capability in analytics and economic tradeoffs • Maximize discretion in acquisition procedures and regulations Start Start Immediate Immediate Impact Impact Medium-Term Near-Term

16. Report Recommendations (2) • DoD should begin a dialogue with leadership from the electric power and finance sectors to build model agreements that support microgrid design, operations, and investment • DoD should support legislative changes that would remove impediments to microgrid investment and expand the pool of investors • Eliminate requirement for DoD retention of RECs • Expand MLPs, REITs to allow for renewable generation, microgrids Start Start Medium-Term Near-term Impact Impact Long-Term Medium- to Long-Term

17. DoD should pursue 6 to 8 at-scale microgrid development projects Two goals: Gain key insights into influence of technology choices on business models Develop multidisciplinary capabilities needed to envision, analyze, negotiate successful microgrid with full range of industry partners Joint Base McGuire-Dix-Lakehurst, NJ California Redstone Arsenal, AL MacDill AFB, FL Fort Bliss, TX Camp H.M. Smith, HI