PART III: CHALLENGES FOR RENEWABLES

In numerous cases, federal, state, and local governments have managed to install distributed energy technologies and to purchase “green power” (electricity generated from renewable energy).²⁵ But many of the success stories rely strongly on “project champions” — motivated government officials who believed in the value of renewables and found a way to procure them despite the conventional method of making energy decisions. While project champions are an important source of early adoption of technologies, they are not enough to make government procurement an important vehicle for the commercialization of renewables. What is needed is a system that can both champion renewables and foster project champions. A number of challenges still need to be addressed in order for this to happen.

CAPITAL COSTS

Many renewable energy technologies use little or no fuel and have lower operating and maintenance (O&M) costs than fossil or nuclear fuels. For most applications, however, renewables tend to have higher initial capital costs. Since cost-benefit analyses tend to value present costs higher than those deferred to the future, high initial costs can make renewables seem more expensive, even though their “life-cycle costs” (initial costs upon purchase, ongoing operations costs, and ancillary costs such as environmental controls and im-pact) may be lower. High initial costs can kill a bid to the government. According to a Sandia National Laboratories study of PV system use in three federal agencies, the largest perceived barrier for two agencies, and the second largest for the third one, was the initial cost of the systems.²⁶

This raises two issues. First, government budgets are frequently split into capital and O&M accounts. Many renewables require more of the former, but do not incur high O&M costs. Yet often the “capital department” makes the purchasing decision, so the initial high costs of many renewables will have more weight. To prevent this “split incentive” from dooming renewables, the benefits for O&M should be considered in any purchasing decision.

Second, the perception of higher capital costs for some renewables can indiscriminately include all renewables for all applications. In fact, many renewables are cost-effective right away for off-grid and mobile applications. This perception problem, unlike the issue of split capital and O&M accounts, does not require a regulatory fix; it can be addressed by greater awareness of affordable renewables applications.

LIMITED EXPERIENCE WITH RENEWABLES

Many government officials believe that renewable energy technologies are unreliable and uneconomical. Discussions with federal, state, and local officials yield a common concern — that stories of past failure of renewable energy technologies have clouded the overall reputation of renewables among government officials at all levels. For example, the Sandia Labs survey of PV system use in federal facilities found the largest perceived barrier for one agency, and the second largest for the remaining two, was lack of familiarity with PVs, and “related to this is uncertainty with PV’s performance record.”²⁷

Technological failure is a costly mistake in any market — it is particularly costly in the government procurement community. One former federal engineer even asserted that “bad news travels 10 times faster than good news” in the federal procurement community.²⁸ Based on interviews, it appears that skepticism is even higher within many municipal governments that do not have an office devoted to renewable energy.

FEW “BOTTOM-UP” INCENTIVES: THE PROCUREMENT CULTURE

The system within which contracting officers function creates a conservative approach to purchasing decisions, and can hinder renewables’ prospects. Contracting officers have few incentives to encourage innovation. If anything, they traditionally face many penalties for errors and for decisions that lead to failure. According to a study by the Center for Strategic and International Studies’ Working Group on Federal Acquisition Regulation Reform, “contracting is one of the very few functions in the federal government in which employees may be criminally liable for errors they make on the job.”²⁹ Contracting officers also face a mountain of regulations, administrative orders, and oversight processes that, when combined with the possibilities of severe penalties, offer little latitude for innovative decisions on particular facilities and projects. Finally, due to these unique pressures, contracting officers are frequently cut off from managers of facilities for which the purchases are intended, who are not criminally liable for poor purchases. Thus contracting officers may focus on the most simple bottom-line, short-term cost. Less attention may be paid to more complex considerations of product value, environmental impact, and the long-term costs of energy choices to be borne by the facility or project.

On a positive front, public administration innovators are slowly making “best value” and “customer focus” central tenets of procurement. In particular, Vice President Al Gore’s National Performance Review and Reinventing Government initiatives have sought to elevate high-value purchases above mere price considerations. There have been several recent efforts to provide positive incentives for good government procurement and management, such as the Kennedy School of Government’s Innovations in American Government award program and Vice President Gore’s Hammer Awards. The latter program only rewards teams, providing an important incentive for contracting officers and facility managers to work together and allow value — a strength for renewables — to take precedence over short-term cost and rigid regula-tions.

Nevertheless, a recent federal employee survey found that only one-third of 14,000 respondents said their organization rewards creativity and innovation.³⁰ Much more work is required on this front to support purchases of less conventional technologies providing new values.

FEW “TOP-DOWN” CATALYSTS: LIMITED POLITICAL LEADERSHIP

If government procurement officers are to purchase renewables for reasons not currently emphasized in the procurement process, they need clear signals that elected officials and their administrative appointees believe renewable energy purchases are a priority. Such leadership can build on recent government efforts to emphasize performance-based decisions rather than those centered on short-term costs.

Political leadership can also help coordinate different offices that must work together to promote renewables. Problems include the gap between the facilities that use products and the supply agencies that can offer expedited purchases of products, and the decisionmaking gap mentioned earlier between capital budget managers and O&M budget managers. Leadership can convey the message that renewables are important, require the involvement of disparate offices, and should not be left on the shelf due to administrative divisions.

Examples abound of directives and orders that encourage procurement officers to buy products for reasons other than cost. Many of these have fallen flat, however, because they did not include forceful language or subsequent oversight from those who issued them. A good example is Executive Order 12902, issued by President Clinton in 1993. This directed executive agencies to purchase renewables, but it does not carry the force of law.³¹ Instead, it relies on the White House to make sure that agency heads comply with the order. Yet the order’s wording provides little force, stating that “Each agency &ldots; shall attempt to incorporate cogeneration, solar and other renew-able energy technologies” or “utilize passive solar design and adopt active solar technologies where they are cost-effec-tive.”³² Its emphasis on process (the attempt to purchase renewables) rather than results (actually buying them) meant it had little effect on federal energy purchasing decisions.³³

With several executive orders coming out of the White House each year, and with new administrations often rescinding executive orders issued by their predecessors, it is no surprise that procurement officers defer to procurement statutes and regulations that carry the force of law.

At best, directives with good intentions but little political, legal or financial support will encourage a few project champions within the government to take on the burden and risk of purchasing renewables. The Renew the Parks campaign by the National Park Service (NPS) spurred renewable energy purchases. Although the program was barely funded, it provided a platform for officials to convert their long-time interest in renewables, and particularly PVs, into a working reality for NPS’s many remote, off-grid needs. In this case, the directive matched well with the economical opportunities to install renewables.

On the downside, relying on project champions to advance renewable energy will not make up for a procurement system that can discriminate against it. In fact, the system can stifle the attempt of project champions to make renewables a mainstream technology for the government. (See Box 2.) Political leadership in state and municipal government is just as important and potentially more influential in directing government policy. The small size of many state and municipal governments can make high-level political leadership a powerful tool in convincing departments and officials — many of whom are just down the hall — to fulfill the interests of the executive.

NO ACCOUNTING FOR ENVIRONMENTAL IMPACTS

Two reasons that renewables frequently cost more than conventional fuels are a part of the same problem — there is no established method for procurement officials to account for the public impacts of their energy decisions. The benefits of renewables — including lower environmental impact — are not incorporated into cost analyses. And the environmental costs of conventional energy are not included in energy analyses.

There have been several efforts to incorporate environmental considerations into government energy choices. For example, to help in energy purchasing decisions, the U.S. National Park Service estimated dollar values for emissions of pollutants, such as carbon dioxide and nitrogen oxide. Many local governments, such as that in Portland, Oregon, have committed voluntarily to reduce carbon emissions under the International Council of Local Environmental Initiatives’ Urban Carbon Dioxide Reduction Program by purchasing renewable energy.³⁴ But further action is required at all levels to account for environmental impacts, so that choosing renewables does not mean subsidizing an uneconomical energy option but instead supporting an energy option with numerous benefits, many of which do not show up in conventional accounting systems.

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