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

3. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 3 Business Executives for National Security (BENS) is a national non-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 DoD microgrids BENS has only one special interest: to help make America safe and secure

4. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 4 Overview  Background and Context  Report Findings and Observations  Report Recommendations

5. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 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. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 6 The reliance of DoD installations on the commercial electric power grid is 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 “Panetta: US Vulnerable to ‘Cyber- Pearl Harbor’” “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”

7. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 7 In August 2011, DoD encouraged the BENS microgrid study, with specific 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 efficiency and renewables integration)

8. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 8 “Smart Microgrids” are a potential solution to the energy security 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 Smart Microgrid Able to Island Renewable Energy Capable Sustainable for Weeks or Months Cyber Secure

9. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 9 Overview  Background and Context  Report Findings and Observations  Report Recommendations

10. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 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 | PAGE 10

11. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 11 Significantly greater savings are possible with new approaches and stronger 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. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 12 Significantly greater savings are possible with new approaches and stronger 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. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 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. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 14 Overview  Background and Context  Report Findings and Observations  Report Recommendations

15. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 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 S TART I MPACT I MMEDIATE M EDIUM -T ERM S TART I MPACT I MMEDIATE N EAR -T ERM

16. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 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 S TART I MPACT N EAR - TERM M EDIUM - TO L ONG -T ERM S TART I MPACT M EDIUM -T ERM L ONG -T ERM

17. 2013 ADC INSTALLATION INNOVATION FORUM | PAGE 17 DoD should pursue 6 to 8 at-scale microgrid development projects Two goals: 1)Gain key insights into influence of technology choices on business models 2)Develop multidisciplinary capabilities needed to envision, analyze, negotiate successful microgrid with full range of industry partners Joint Base McGuire-Dix- Lakehurst, NJ MacDill AFB, FL Redstone Arsenal, AL Fort Bliss, TX Camp H.M. Smith, HI California