Using Federal Facilities to Drive Clean Energy Innovation (Not Just Clean Energy)

The U.S. government consumes more energy than New Zealand—a little over half of it to conduct military operations, and the rest to run federal buildings, the equipment used in federal buildings, and the federal vehicle fleet. Since the 1970s oil embargo, Congress and multiple presidents have imposed scores of energy-related targets and requirements on the latter activities, with the aim of shrinking the federal government’s energy and carbon footprint while bolstering the market for energy-conserving products and services.

With an eye to the growing climate crisis, clean energy advocates seek to extend and expand this requirements-based approach to federal energy management. Many of the policies being proposed target federal buildings, which account for 40 percent of all federal energy use. In keeping with past practice, these proposals would require the federal government to reduce the quantity of energy, or the carbon intensity of the electricity, used to operate buildings by a fixed amount and a date certain. One proposal calls for all federal buildings to use zero-carbon electricity 24/7 by 2030.

Before doubling down on this requirements-based approach to federal energy management, however, policymakers should consider its drawbacks. First, the imposition of a target is no guarantee it will be met: Federal agencies often fail to meet energy requirements, in considerable part because of budget constraints. Second, as with any top-down construct focused on compliance, federal energy requirements limit flexibility and can incentivize the wrong behavior. Third and most important, in the context of federal buildings, the requirements-based approach to energy management largely neglects the value of innovation, consigning federal agencies to be technology followers rather than leaders.

Innovation is the long pole in the climate tent, and the emerging technologies needed to decarbonize the building sector (like clean energy technologies, more broadly) face significant barriers to commercialization and deployment. As the owner of the country’s largest and most geographically distributed building portfolio, the federal government is uniquely positioned to address these barriers by serving as a test bed for and early adopter of next-generation building-energy technologies. (Federal support for research on these technologies is also critical but it is outside the scope of this post.)

This commentary looks first at the drawbacks to reliance on top-down requirements to manage federal energy use in the context of federal buildings. It then looks at what would be entailed in making innovation, as opposed to compliance, the organizing principle for federal building-energy management. These two approaches—one focused on using requirements to reduce carbon emissions from federal buildings, the other on using federal buildings to drive innovation that will curb emissions everywhere—are not mutually exclusive. However, in practice, the former crowds out the latter. The conclusion sets forth recommendations for developing, funding, and implementing an innovation-based strategy that leverages the government’s facility energy needs to advance next-generation building-energy technologies.

Federal Building Footprint

The federal government owns or leases some 350,000 buildings with a footprint of more than 3 billion square feet (sf), 6 times the commercial office space in Manhattan. With hundreds of military bases, the Department of Defense (DOD) accounts for 80 percent of the buildings and 70 percent of the space. Bases operate like small cities and contain a similar mix of industrial, administrative, commercial, and residential structures. The second largest portfolio belongs to the General Services Administration (GSA), which manages 380 million sf in 9,600 buildings that it rents to civilian agencies at commercial rates. GSA’s portfolio includes federal office buildings and courthouses, making the agency the largest operator of office space in the country.

Drawbacks of Top-Down Requirements

No Guarantee of Success

Federal buildings, which pay about $6 billion for electricity and natural gas each year, have been the target of dozens of statutes and executive orders aimed at improving their energy performance and environmental sustainability. The Obama administration’s first “sustainability executive order,” issued in 2009, included more than 20 facility-related requirements. Although policymakers tend to declare victory once a requirement is in place, many if not most requirements go unmet.

Consider the fate of the two directives with the most significance for federal building operations. The Energy Independence and Security Act of 2007 (EISA) required federal buildings to reduce their energy use intensity (EUI) by 3 percent per year, or a total of 30 percent, from 2005 to 2015. The 2005 Energy Policy Act (EPACT) required that by 2013 and thereafter, renewable energy must account for at least 7.5 percent of total electricity use. A 2015 Obama administration executive order essentially extended the EISA requirement and increased the EPACT target to 30 percent by 2025.

The federal government as a whole met EPACT’s 2013 goal, largely by purchasing renewable energy certificates (RECs). Although the Army, Navy, and Air Force deployed a large amount of utility-scale renewable energy (largely solar) on their bases for mission reasons (on-site generation provides increased energy resilience in the event of grid disruption), only the power consumed on the base (most is exported to the grid) was counted toward the EPACT goal. After the Trump administration revoked the 2015 Obama executive order, agencies reduced their REC purchases, and renewable energy as a share of federal electricity use dropped by a third, although it remains just above the EPACT target.

By contrast, the government failed to meet the EISA requirement: From 2005 to 2015, the energy intensity of federal buildings dropped by only 23 percent. In this case, DOD brought down the average, reducing its EUI by less than 20 percent, compared to 27 percent for civilian agencies. Among the strongest performers was GSA. GSA buildings not only outperform other federal buildings, they are significantly more energy efficient than comparable commercial buildings.

A key reason agencies fail to meet federal energy requirements is resource constraints: Requirements are “underfunded mandates.” While agencies can use their existing procurement budgets—say, replacing conventional fleet vehicles with electric ones—many requirements entail new spending. The resource problem is particularly acute when it comes to building- energy requirements, because of the chronic underfunding of federal infrastructure. DOD has long taken funds out of infrastructure to pay for operational exigencies, and over the last decade, Congress has diverted $9.3 billion in GSA rent receipts to cover non-GSA expenses. The neglect of federal facilities has resulted in a backlog of $165 billion in maintenance and repair projects.

To meet their EUI targets, agencies have relied heavily on energy performance contracting, an arrangement in which a contractor finances and installs energy-conserving equipment in exchange for a share of the utility savings. The Obama White House took the extraordinary step of “challenging” (i.e., directing) federal agencies to complete $4 billion in energy performance contracts—a form of federal borrowing—between 2011 and 2016. Of the $24 billion that federal agencies invested in facility energy improvements from 2009 to 2019, $9 billion, or 38 percent, took the form of Energy Savings Performance Contracts (ESPCs) or Utility Energy Service Contracts (UESCs).

This valuable tool comes at a price, however: Thirty percent of total project costs goes for financing (the equivalent of interest on a mortgage). Moreover, the contractors (energy services companies, or ESCOs) avoid new, innovative technology because of its higher cost and risk and because they are obliged to treat every energy conservation measure as a standalone investment decision. The clearest evidence comes from those ESCOs whose parent companies develop advanced building-energy technologies for the commercial market but who nevertheless use older, off-the-shelf technology in their ESPC projects. This is an enormous missed opportunity for the federal government to deploy advanced technologies.

Flawed Incentives

Like any top-down construct designed to foster compliance, federal energy requirements create flawed incentives. One challenge is the metrics themselves. For example, EUI is measured in British thermal units (BTUs) per square foot. This measure ignores space utilization, leading agencies to retain unneeded space because downsizing would drive up their EUI score. Even more problematic, EUI ignores the temporal aspect of energy use. As the penetration of intermittent renewable energy grows, building operators will need to shift and shed loads to support the reliability of the grid and respond to cost and carbon signals. Thus, the timing of electricity use, not just the magnitude, will be increasingly important.

The way in which the requirements are administered further incentivizes suboptimal behavior: Federal energy targets are applied uniformly and tracked on an agency-by-agency basis in the form of a “stoplight” (red, yellow, green) chart. This approach ignores differences among agencies and discourages multi-agency solutions, including mechanisms to allow agencies to trade carbon-reduction opportunities. For example, an aggressive renewable energy target might be achieved more cost-effectively by relying disproportionately on DOD, with its large land holdings and mission need for on-site generation.

A 2016 task force on federal energy management, commissioned by the Secretary of Energy, looked at the role of “federal energy goals.” The task force (of which the author was a member) could not reach a consensus on whether the goals were a useful tool for federal energy management. While recommending that the goals be maintained because of their simplicity and transparency, the task force called on the next administration to consider alternative mechanisms, perhaps introduced on a pilot basis, that would be more flexible and cost effective.

Neglect of Innovation

The requirements-based approach to federal facility-energy management does relatively little to advance innovation, except indirectly. Federal building managers lack the resources to take advantage of innovative technology, and they face resistance from risk-averse procurement officials. ESCOs eschew innovation for the reasons noted above. As a result, federal agencies, viewing federal energy requirements as an exercise in compliance, behave like technology followers rather than technology leaders.

This is a sin of omission twice over. First, innovation is essential to improve the operational efficiency of buildings, which consume 75 percent of U.S. electricity and drive 80 percent of peak power demand in some regionss of the country. Building efficiency requires advances on three fronts: continued improvements in the energy efficiency of individual elements and systems, such as lighting and windows; electrification of the systems still powered by fossil fuels (largely space and water heating); and the ability to make these systems both interoperable and interactive with the grid, allowing buildings to become a key demand-side mechanism for optimizing grid efficiency. Many of the technologies needed to achieve this vision face major impediments to commercialization and adoption. A key problem is the lack of data on life-cycle cost, performance under real-world conditions, and overall value to the customer.

Second, the federal government is positioned to drive significant innovation in this area through its own demand. As the largest U.S. consumer of facility energy, the federal government has a direct interest in seeing innovative building-energy technologies get into the commercial market. And as the owner of the country’s largest and most geographically distributed building portfolio, it is uniquely situated to address the barriers to commercialization by serving as a test bed for and early adopter of next-generation building-energy technologies. Although commercial customers will eventually dominate building-energy technology markets, federal purchases can provide a critical boost early in the process.

Making Innovation, not Compliance, the Focus of a Federal Facility-Energy Strategy

Key components of an innovation-based approach to federal building-energy management are already in place and moving the needle on technologies such as microgrids and large-scale storage that are key to decarbonization. However, with Congress and the White House focused on scorecards and bulk energy usage, this important work, described below, has gotten little attention and only a fraction of the funding needed to achieve scale. The Department of Energy’s (DOE) Building Technologies Office, which focuses on R&D and is itself severely underfunded, has likewise shown little interest in federal buildings as a staging area for innovation.

Technology Demonstration and Validation

In 2009-2010, DOD and GSA independently created programs to use their facilities as test beds to demonstrate and validate innovative new energy technologies for the built environment. The aim was to facilitate the commercialization and deployment of these technologies so the federal government could acquire them as a commercial customer. Since then, the Installation Energy Test Bed, run by DOD’s Environmental Security Technology Certification Program (ESTCP), and the GSA Proving Ground (GPG) have completed several hundred formal technology demonstrations, helping fill an important gap in the building-energy innovation process.

The demonstrations serve three functions. First, they reduce risk by allowing developers to test and refine their technology under real-world conditions. General Electric perfected its microgrid control system during a multi-year demonstration at a Marine Corps base in the Mojave Desert, leading directly to the product’s commercial release. Other companies now offering commercial microgrid solutions likewise cut their teeth doing ESTCP-funded demonstrations on DOD bases.

Second, to address the key reason new building-energy technologies are slow to deploy, demonstrations collect and disseminate granular data on technology performance and cost under operational conditions, including factors such as maintenance costs, the level of skill required to operate the technology, and tenant acceptance. ESTCP’s simulations of large-scale energy storage systems allow would-be buyers to assess the risks and value of costly new technologies that must operate in volatile electricity markets. The breadth of DOD’s installation footprint means the data collected will cover every energy market in the country. As another example, ESTCP and GPG have both done at-scale testing of electrochromic, or self-tinting, windows, which by reducing solar heat gain allow buildings to get by with smaller chillers. This technology has significant energy-savings potential, but it costs more than traditional window glass. The demonstrations seek to educate architects and engineers about cost and performance tradeoffs while also testing such things as the adequacy of the supply chain to install and maintain the windows.

Third, demonstrations allow users themselves to get direct experience with the technology in the field. Building operations and maintenance (O&M) staff, whose buy-in is critical, tend to be skeptical of new technologies because of the risk of failure. Hands-on experience is more likely to give them confidence than a laboratory-based technical report or vendor sales pitch.

The technologies that are key to decarbonization of the commercial building sector all require extensive demonstration and validation. While technologies to electrify space and water heating are relatively mature, even they face impediments to adoption, such as their high cost and lack of validated performance data. (For instance, maintenance costs are a make-or-break issue for many new building-energy products.) The biggest improvements in energy performance will come from technologies that connect buildings to one another and to the grid. As “one-company towns,” federal complexes are ideally suited to the experimentation these system-level innovations will require, much of it in cooperation with local utilities and independent system operators (ISOs).

Early Adoption

The technologies demonstrated by ESTCP are typically pre-commercial (“out of the garage but not yet on the shelf”), which means that when DOD goes beyond demonstration to become an early adopter, it can kick-start the market for a new technology. Among the startups for which DOD served as a launch customer was FirstFuel Software, which transformed the energy audit process by using advanced meter data and publicly available information to analyze a building’s performance remotely. And with technologies that are game-changers for the energy resilience of military bases, DOD will even bear many of the initial, nonrecurring engineering costs, which allows vendors to lower the cost to commercial customers.

The volume, as well as the timing, of federal demand can help make a market. DOD’s 500-plus active-duty bases will need at least 1 megawatt (MW) of storage, and bigger bases may need as much as 10 MW, which represents considerable demand pull in the emerging market for large-scale storage installations. Advanced microgrids, purchased alone or in conjunction with storage systems, are another must-have for active-duty installations as well as for hundreds of smaller National Guard bases, which play a key role in disaster response and other crises that coincide with widespread blackouts. If very small modular reactors (vSMRs) are shown to be an affordable source of baseload power for U.S. military bases, they too could benefit from DOD’s role as an early adopter and customer.

Early Deployment

By contrast to ESTCP, GSA’s GPG (formerly known as the Green Proving Ground) targets technologies that are commercially available but whose market penetration is limited. Following a successful demonstration and validation, GPG recommends one of three options to GSA staff:

• Retrofit: Introduce the new technology immediately;
• End-of-life replacement: At the end of the life of existing equipment, replace it with the new technology; or
• New construction: Use the technology only in new construction or major renovations.

GSA’s Pilot-to-Portfolio (P2P) program works with GSA property managers to identify buildings in which to deploy the technology, even helping write the specifications for a competitive procurement and gain information technology security approvals. GSA also pushes ESCOs to include GPG-validated technologies in GSA-funded ESPC projects, and it lists them on a Federal Supply Schedule, the government’s online shopping catalogue, to promote broader deployment.

Although this deployment effort, like GPG’s technology testing effort itself, receives negligible funding, it can provide a meaningful boost for products with limited market penetration. For example, in 2014, GPG tested a “maglev” chiller—a variable-speed compressor that uses magnetic levitation technology to eliminate heat, noise, and vibration—in a federal building in Pine Bluff, Arkansas. Based on the results (42 percent energy savings and a payback of less than 5 years), GSA recommended the product be deployed as an end-of-life replacement for rotary screw chillers in all of its facilities. More than 230 maglev chillers have been installed in 94 GSA buildings, and another 41 installations are pending.

Taking a page from GPG, ESTCP recently invited ESCOs to propose formal demonstrations of technologies that are commercially available but not widely deployed on military bases due to a lack of data on cost or performance, or other unknowns. The request highlights 18 technologies previously demonstrated by ESTCP but invites ESCOs to propose other technologies as well, as long as the technology offers significant benefits for energy efficiency or resilience and a demonstration would likely lead to its adoption by the ESCO in future ESPC/UESC projects.

Integrated Acquisition

Integrated acquisition refers to a collaborative approach to building design and operation that seeks to overcome the traditional segmentation of the process, which includes budgeting, design, construction, operations, maintenance, retrofit, and disposal. A major rationale for this approach is the ability to achieve enhanced energy savings.

The net-zero energy Research Support Facility on the campus of DOE’s National Renewable Energy Laboratory (NREL) is a model of integrated acquisition. NREL staff set performance-based energy goals for the proposed building and encouraged contractors bidding on the project to provide alternatives to the preliminary design. NREL and the design team then considered what natural resources were available to provide lighting, heating and cooling, resulting in a building whose work spaces are lit entirely by daylight and whose foundation, walls and floors function as a large thermal battery, storing and releasing free heat or extracting it in cooling mode.

GSA used integrated acquisition on a set of renovation projects funded by the 2009 American Recovery and Reinvestment Act (ARRA) to advance sustainability concepts and technologies. In one project, GSA restored a 100-year-old courthouse in Western Colorado, incorporating a geothermal system to make it the first net-zero energy building listed on the National Register of Historic Places. Another project transformed a high-rise federal building in downtown Portland, halving energy consumption and, by downsizing the mechanical systems, freeing up 12,000 sf of space with a view of Mount Hood.

The ARRA projects were successful in part because GSA took advantage of the synergy between energy upgrades and capital investment. An energy conservation measure (ECM) that does not “pencil out” on its own may make economic sense as part of a larger building renovation. Alternatively, aggressive ECMs may reduce the capital investment needed. GSA has used this same dynamic to achieve significant energy savings in a small number of ESCO-financed “deep energy retrofits.” For example, the deep-energy retrofit of an Internal Revenue Service facility in Maryland cut energy use by 60 percent even though the building was only 25 years old. Deep retrofit projects are also more likely to incorporate innovative technology, because the ESCO can spread the added cost/risk across multiple ECM investments.

Third-Party Financing and Service Delivery

Like many building owners, the federal government has turned increasingly to private entities (“third parties”) to finance and manage facility energy projects. The government’s extensive use of energy performance contracts to carry out energy efficiency upgrades was discussed above. Federal procurement of renewable energy relies on a variant of that arrangement: The developer installs, say, a 10-MW solar photovoltaics (PV) project on a military base in exchange for an agreement from the federal customer to buy a specified amount of power at an established price. In addition to avoiding the upfront capital investment, the agency is spared the O&M burden, and it can get the benefit of federal and state tax incentives it is not eligible to receive directly.

Federal agencies likely will opt for third-party provision of microgrids and large-scale storage systems as well. By, in effect, procuring energy resilience as a service, the government can take advantage of industry’s superior ability both to operate the sophisticated systems and to exploit the significant opportunities for revenue generation from grid services. At bases in Massachusetts and Oklahoma, the Air Force is exploring the concept of energy as a service (EaaS) even more broadly, with the goal of procuring all of its energy needs—including infrastructure, load management, and O&M—from a single private provider.

EaaS arrangements have the potential to accelerate the deployment of a wide range of innovative facility-energy technologies. While funding is not a major barrier—these arrangements are in part a response to federal budget constraints—other factors could impede their use to deploy advanced technologies. The federal acquisition community’s lack of familiarity with some of the newer EaaS arrangements is one such impediment. Another is cyber-concerns: Technologies that include a control system must receive cybersecurity approvals, allowing chief information officers to slow-roll EaaS procurements. Demonstrations of building-energy technologies that include a control system face the same challenge.

Recommendations

1. The Biden administration’s White House Office of Domestic Climate Policy should coordinate the development of a multi-agency, innovation-based strategy for federal facility-energy management. The strategy should seek to leverage the government’s facility-energy needs, including the need for energy resilience, to advance next-generation building-energy technologies through support for demonstration and validation, early adoption, and deployment of the technologies in federal facilities. The strategy should incorporate a five-year budget.
2. The budget should include a tenfold or greater increase in annual funding for ESTCP’s energy program and the GSA Proving Ground (currently funded at ~ $20 million and $1 million, respectively). The additional resources should go to support specific initiatives, such as:
   1. Large-scale energy storage systems sited on military bases both to enhance bases’ energy resilience and to increase commercial grid capacity and resilience. Initial demonstrations, carried out in cooperation with local utilities and ISOs, would use lithium-ion batteries. Subsequent demonstrations, done in partnership with DOE’s ARPA-E, would incorporate next-generation battery technology.
   2. Advanced technologies for grid-interactive efficient buildings (GEBs). GPG is currently testing four GEB technologies. Additional resources would allow GSA to expand this effort and integrate it with related DOD work on “connected communities.”
   3. Technologies that promise high energy savings but require a longer payback period (e.g., geothermal heat pumps and technologies for building envelope retrofits).
   4. Advanced solar photovoltaic, waste-to-energy, and other low-carbon energy generation technologies suitable for deployment on federal installations. (ESTCP did extensive testing of such technologies during the Obama administration).
   5. Expansion of the “ESTCP-ARPA-E Collaboration Pilot,” which supports the demonstration of past and current ARPA-E project teams working on technologies relevant to DOD installation energy needs. (This would require increased funding from DOE as well as DOD).
3. GSA’s Pilot-to-Portfolio program should receive a commensurate increase in its current, nominal budget, to ramp up the deployment of GPG-validated technologies in GSA and non-GSA buildings. GSA should create a Technology Incentive Fund that GSA property managers can draw on to cover the incremental cost.
4. DOD should establish its own “pilot-to-portfolio” program and Technology Incentive Fund, to deploy ESTCP-tested and other cutting-edge energy technologies in DOD facilities. The program should be administered by a DOD entity with energy procurement expertise, such as the Defense Logistics Agency. The first priority of this effort should be the deployment of advanced microgrids.
5. The White House should task DOE, working with the Office of Management and Budget (OMB) and the White House Office of Science and Technology Policy (OSTP), with addressing the failure of ESPC/UESC projects to take advantage of cutting-edge technology (the “ESCO problem”). Possible options include private insurance and direct federal sharing of the risk and/or cost. The White House should not issue an energy performance contract “challenge” (if that is even under consideration) until DOE has solved this problem.
6. OMB’s Office of Federal Procurement Policy should look at how best to familiarize federal procurement officials with new EaaS concepts that are not explicitly countenanced in legislation.
7. The Army, Navy, and Air Force should each designate an official to authorize cybersecurity approvals for technology demonstration projects. They should create a similarly expedited process for EaaS procurements.
8. DOE’s Building Technologies Office (BTO) should partner with DOD and GSA to test BTO-funded technologies in federal buildings. More broadly, BTO should connect its support for emerging building-energy technologies to the demonstration and early adoption activities taking place in federal facilities.
9. The five-year budget should provide direct funding for GSA to undertake a set of major building renovations to deploy and showcase next-generation building-energy technologies. The budget should also provide funding for GSA to carry out additional deep-energy retrofits, with or without ESCO participation, incorporating advanced technology.