The U.S. Defense Department (DoD) is the largest consumer of energy worldwide, spending over $20 billion annually on energy. By 2025, each of the major DoD branches, the Army, Air Force and the Navy have committed to sourcing at least 25% of installation energy consumption from renewable sources, representing a significant opportunity for renewable energy project developers.

This adds up to significant opportunity – and some important challenges.  Most renewable energy projects in the United States are developed, built, and financed on a “project finance” model.  In contrast, the contracting functions at the DoD are largely structured around a traditional government contracting procurement approach.  Our team helps our clients bridge that gap and assists them in taking on the most challenging issues related to developing and financing DoD projects. 

 

Our team includes members of our energy project development and finance practice and our government contracting practice. To date, Orrick has been involved in advising project developers, investors and financing parties in the majority of the successful large-scale DoD utility scale renewable energy projects.  

 

 

Supporting Clients at Each Stage

 

  • Requests for Proposals. Federal renewable energy project opportunities are typically competed through requests for proposals (RFPs). We advise our clients on strategic considerations related to the bidding process, including model power purchase agreements (PPAs) and model leases. We have experience putting together comprehensive comments on model PPAs contained in RFPs, as well as, at the client’s option, shorter lists of items to be negotiated that are critical to project financing.
  • Contract Document Negotiations. Following pre-selection of a contractor, the PPA and lease will typically have to be negotiated in order for them to become financeable documents. With our experience in both government contracting and traditional power purchase arrangements, Orrick has developed an approach to negotiating these types of agreements efficiently. We understand the issues and the pressure points. We also understand where the Government can legally compromise and where they cannot. Beyond typical points of discussion in a PPA (price, curtailment, scheduling, milestones, etc.), many government contract considerations, including appropriate recovery upon termination for convenience, will need to be addressed in order for the energy project PPA to attract a robust set of financing parties.
  • Structuring Subcontracting Relationships. Our team focuses on project development arrangements, including engineering, procurement and construction contracts (EPCs), turbine and panel supply agreements, and operation and maintenance agreements. Developers will need to structure these arrangements to account for unique government contracting risks, including changes, termination for convenience, force majeure and federal acquisition compliance. We bring deep knowledge of current market practices in this area. We also represent construction contractors and assist financial institutions in analyzing these contracts in order to determine whether risks associated with government contracts are appropriately allocated and that development arrangements will support third-party financing.
  • Project and Tax Equity Financing. Government contracts present unique challenges for financing parties, including evaluating implications and potential recovery for termination for convenience, questions regarding the ability of the Government to give traditional lender consents (including step-in rights), performance security required for special-purpose entity financing, and minimum payment and production guarantees. We help developers and financing parties (including tax equity investors) analyze and mitigate these issues and achieve successful financings.
  • Government Contracting and Federal Acquisition Regulation Compliance. A robust compliance program is a required when participating significantly in the Defense energy space. We have crafted and helped implement compliance programs for leading players in the energy sector in connection with these types of transactions.

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