Yesterday, President Obama released an Executive Order entitled “Planning for Federal Sustainability in the Next Decade.” In short, the order mandates that heads of agency take action to promote energy conservation and efficiency, but more importantly, the order establishes binding targets for the use of clean electric and thermal energy at government buildings. As a result, this order has the potential to spur major investments in renewable energy, clean heat and power, and fuel cell technologies.

Policy

First and foremost, President Obama’s order reinforces that U.S. policy continues to require increased efficiency and improved environmental performance from federal agencies. While environmental protection is a key part of the policy, the resiliency of federal facilities is also a priority. Engaging in efforts to reduce energy consumption through efficiency measures is ostensibly the first priority, and the order requires annual federal building energy intensity reductions of 2.5 percent through 2025 as measured against their respective 2015 baseline. However, the clean energy targets will nevertheless impose a material obligation on federal agencies and will present significant opportunity for the renewable and alternative energy industry.

Power Mandate; Eligible Technologies

The order establishes firm targets for the overall use of clean electric and thermal energy as a percentage of building electric and thermal energy, starting in 2016 and ratcheting up through 2025, as follows:

(i) not less than 10 percent in fiscal years 2016 and 2017;
(ii) not less than 13 percent in fiscal years 2018 and 2019;
(iii) not less than 16 percent in fiscal years 2020 and 2021;
(iv) not less than 20 percent in fiscal years 2022 and 2023; and
(v) not less than 25 percent by fiscal year 2025 and each year thereafter.

Of the overall percentage that represents electric energy, the following percentages must be renewables:

(i) not less than 10 percent in fiscal years 2016 and 2017;
(ii) not less than 15 percent in fiscal years 2018 and 2019;
(iii) not less than 20 percent in fiscal years 2020 and 2021;
(iv) not less than 25 percent in fiscal years 2022 and 2023; and
(v) not less than 30 percent by fiscal year 2025 and each year thereafter.

Technologies that are eligible to meet the mandated renewables targets include solar, wind, biomass, landfill gas, ocean (including tidal, wave, current, and thermal), geothermal, geothermal heat pumps, microturbines, municipal solid waste, or new hydroelectric generation capacity achieved from increased efficiency or additions of new capacity at an existing hydroelectric project.

The order places an express priority on installing agency-funded renewable energy on-site at federal facilities, followed in preference by contracting for the purchase of energy that includes the installation of renewable energy on-site at a federal facility or off-site from a federal facility. In both cases, the agencies must either retain the renewable energy credits (RECs) produced or obtain equal value replacement RECs. At a minimum, agencies also have the option to simply purchase RECs in order to satisfy the targets.

Next Steps

The mandated clean energy requirements should provide significant opportunities for developers, utilities, energy investors and contractors across the country. Given the priority for installing agency-funded renewable energy on-site at federal facilities, distributed renewable generation developers and contractors may have the most to gain from this executive order. Since the development of on-site solutions will necessarily take time, parties long on RECs (including those vintaged in the previous 10 years) may also take advantage in the interim to help agencies meet initial deadlines.

It is also worth noting that, as currently defined, eligible renewable technologies include mircoturbines, without reference to feed gas requirements. As a result, natural gas-fired microturbines appear to qualify as renewables. That said, the requirement to concurrently procure RECs likely cabins this potential loophole.

With the federal government as offtaker and the potential to use federally owned or controlled property, risks associated with the more costly and time-consuming hurdles to energy project development should be greatly mitigated. Anticipating not only the planning process of federal agencies but also federal investment and other unique federal government contracting requirements, such as those found in the Federal Acquisition Regulations (FARs), will be important to taking advantage of this opportunity.