Contractors Eye Military's Energy Needs

 | Sep 12, 2011 | 3:15 PM EDT  | Comments
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The U.S. military has an energy problem. It's the nation's largest individual consumer of petroleum, has a mandate to consume less, has another mandate to use alternative fuels and has no money to conform to either mandate. As a result, the U.S. military is looking for a free lunch.

According to the Department of Defense (DoD), the federal government consumes approximately 145 million barrels per year of petroleum. Of that, the military consumes 92.5%, or approximately 135 million barrels per year. The DoD is the nation's largest consumer, but is not the market maker; its overall consumption represents less than 2% of the national demand.

Of the three branches, the Air Force consumes approximately 57% of DoD's fuel. Next is the Navy at 34%. Finally, the Army consumes the remaining 9%.

The Pentagon wants to buy less petroleum, natural gas and electricity. In their place, the military wants to take advantage of energy efficiency opportunities and use more renewable energy. There has been a collective awakening within the U.S. military. They have been aggressively seeking ways to become less reliant on petroleum and more on renewables.

Two drivers have become mandates for the nation's generals. One is a set of federal statutes and executive orders and the other is the result of experience in warfare, including lessons learned in transporting fuel in Iraq and Afghanistan.

Three statutes mandate energy efficiency and renewable energy. The Energy Policy Act of 2005 requires specific amounts of renewable energy to be the source of all electricity consumed by the military. The Energy Independence and Security Act of 2007 reasserts the requirement to use renewable energy for electricity, to include renewable energy sources for hot water, and to reduce the amount of fossil fuels in new and renovated buildings (fuel oil, coal and natural gas are fossil fuels). The National Defense Authorization Act of 2010 directs the Secretary of Defense to consider renewable fuels in aviation, maritime and ground transportation fleets.

Two executive orders from two separate administrations direct how energy is to be consumed in federal buildings and transportation fleets. Executive Order 13423 requires certain energy efficiency goals will be achieved, requires the use of renewable energy as a resource, and directs alternative fuel use in government vehicles. Executive Order 13514 directs the reduction in production of greenhouse gases, requires new federal buildings to achieve net zero energy, requires a reduction in net water consumption, and directs waste minimization on federal bases.

If the will of Congress and executive orders from President Bush and President Obama weren't enough to motivate the nation's generals, the nation's experience in war is the final straw. According to Sierra Magazine (http://tinyurl.com/3dspwm6), "The U.S. military is embracing alternative energy -- but not because of climate change. Up to half of the yearly American casualties in Iraq and Afghanistan have been incurred guarding fuel convoys, and the Pentagon will no longer tolerate oil's burden in blood."

Faced with declining revenues, the nation's government contractors are looking at the energy sector, seeing an opportunity, and are offering the military energy services. The low hanging fruit is energy efficiency.

According to Energy Daily, The Boeing Company (BA) and Siemens AG (SI) recently announced a strategic alliance for the joint development and marketing of "smart grid" technologies to improve energy access, energy security and energy efficiency for DOD.

Lockheed Martin (LMT), SAIC (SAI), Booz Allen Hamilton (BAH) and other federal integrators are competing in the same space. The problem is the Pentagon does not have extra funds for new projects, particularly energy projects.

One key to success with the Pentagon is a contractiaction of energy performance. The contractor has to invest money to save the government money and the contractor can share in the savings. Alternatively, the contractor may have to examine the military's items and prove that the proposed investment will save the government money or soldiers' lives year over year.

Until the Pentagon is willing to pay a premium for renewables, business opportunities in the military's energy sector may be thin. However, should petroleum prices exceed biofuel production costs, there could be a bonanza for government contractors.

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