Solar Could Win Big In Army’s $7B Energy Buy

By Dietrich Knauth

Law360, New York (August 17, 2012, 9:17 PM EDT) — Solar power companies are well positioned to compete for U.S. Army energy contracts worth $7 billion over the next 10 years, considering the solar-friendly terrain around bases and the attractive pricing of renewable energy projects as utility-scale development slows and competition for projects increases, experts say.

The U.S. Army issued its formal request for proposals for the energy contracts on Aug. 7, outlining a plan to hand out so-called indefinite delivery, indefinite quantity contracts companies that meet the qualifications to provide renewable power on military bases. Once the pool of contractors is selected, the winners will compete for individual task orders to build specific projects, signing power purchase agreements that could last 30 years.

In its request for proposals, the Army plans to buy a mix of solar, wind, biomass, geothermal and other renewable power, although its requirements could favor solar over others, with wind potentially being a runner-up, according to experts.

“Solar and wind will probably dominate the response,” said Jeffery Atkin, head of the solar enery team at Foley & Lardner LLP.

Solar has a few advantages over wind for the miltary’s purposes, starting with its smaller footprint and the fact that many Army bases are located in flat, sunny areas. Wind power requires more land and would need to be transported over larger distances, and an expiring tax credit for wind energy production could lead to higher prices that make wind projects less competitive, experts said.

“Solar would probably have more opportunities than wind, simply because there are operational issues associated with wind projects that can make some base commanders nervous,” including the increased land use and the potential for wind turbines to interfere with flight training, said Amy Koch, the regulatory team leader for Reed Smith LLP’s energy and natural resources industry group.

Wind power could suffer another disadvantage because of uncertainty surrounding the production tax credit for wind. Based on the Army’s reverse auction approach, wind developers might be less viable or reluctant to bid, because without the tax credit, their prices will go up, according to Joel A. Goldberg, a partner at Porter Hedges LLP.

“The tax credit is sort of in limbo,” Goldberg said. “It expires at the end of the year, and in an election year there’s a lot of uncertainty about where that is going.”

On the other hand, the Army’s RFP could throw a lifeline to the wind power industry if the tax credit is not extended, Iverson said.

“With the expiration of the wind PTC, this RFP may spur new development in the sense that it may open new markets to the private sector that offer higher wind regime sites that will increase productivity and revenue, and help off-set the loss of the PTC, thus making wind project profitable in a PTC-less era,” Iverson said.

Solar developers were also helped by lowered energy thresholds for proposed projects in the final RFP, compared to other industries and the initial draft released in March. While the draft RFP required potential contractors to propose 10 projects, including at least three that would provide 4 megawatts or more, the final RFP allowed solar energy companies to drop that threshold to at least three projects of 2 MW or more.

“This was an important change to expand the list of potentially qualified solar offerors,” said Bruce Iverson, a senior project manager at TRC Companies Inc., which provides engineering, consulting and construction services to the energy, environmental and infrastructure markets.

The timing of the RFP will also allow the Army to take advantage of maturing technology and a lull in development that will maximize competition and help drive its prices down, according to Atkin.

Demand for new projects is low because most of the utility-scale purchasers have already made their investments in renewable technology — in part because they wanted to get started to take advantage of the expiring 1603 Treasury Grant program, which covers up to 30 percent of an eligible renewable project’s construction costs through grants instead of tax credits, according to Atkin.

“We’ve seen the prices just continue to drop and drop, and most of the major buyers of these clean energy projects are not as aggressive in buying right now,” Atkin said. “There will be very high interest in this RFP, and there will be a lot of competitors.”

Geography will play a key role in determining the technology that the Army chooses for individual bases as well. In many cases, biomass could also be in a good position because its smaller footprint allows for easier on-base production than wind or solar, while geothermal opportunities could be available only on a limited number of bases, according to Goldberg.

“It really depends on where these bases are and what kind of spaces are available,” Goldberg said.

While biofuel’s smaller footprint could play to its advantage, the Army RFP’s insistence on proven power production could still make wind and solar technology a better fit, because of recent technological advances made by private developers, according to Atkin.

“The industry has been well seeded and grown in,” Atkin said of wind and solar. “This will certainly help maintain the momentum that’s built up over the past couple of years.”

While the Army is relying on proven technology for power production, the RFP could spur innovation in other areas, such as energy efficiency and smart grid technologies, such as technology that would automatically adjust a base’s energy use to reduce power at times when prices are the highest, Koch said.

“Where they may push the envelope a little bit is in their smart grid needs, and smart grid issues are going to be part and parcel of some of the upcoming task order RFPs,” Koch said. ”It is possible that they may be a bit more flexible as far as not requiring fully commercialized technology for smart grid because that is more of an emerging area.”

While some politicians have criticized the military for buying alternative energy at higher prices than traditional fuels, Atkin said that the long-term agreements contemplated in the RFP will help shield the Pentagon from volatile energy prices and could save money in the long run.

“They’re locking in their power price for 20-plus years, reducing the risk of price escalation,” Atkin said. “When we look back at this in 20 years, it will probably have turned out to be a pretty good deal.”

Published by Law360

NASA Contractor’s Launch Kicks Off Commercial Space Race

By Dietrich Knauth

Law360, New York (May 22, 2012, 6:21 PM EDT) — NASA contractor Space Exploration Technologies Corp. launched the first commercial space flight to the International Space Station on Tuesday, a significant milestone in NASA’s quest to open up outer space to private companies.

SpaceX’s unmanned Dragon spacecraft, funded by a mix of private investment and NASA contracts, will deliver cargo to the International Space Station, and if successful, would position the company to begin a cargo delivery contract worth between $1.6 billion and $3.1 billion.

But both NASA and SpaceX have even bigger goals in mind for the project, which they view as an early step toward a future in which commercial space flights provided by private U.S. companies are almost routine and private innovation spurs greater access to space.

SpaceX CEO and Chief Designer Elon Musk compared the commercial entry into spaceflight to the growth of the Internet in the mid-1990s, when commercial companies entered what was originally a government endeavor, making the technology available for mass consumption.

“I think we’re at a similar inflection point for space,” Musk said. “I hope and I believe that this mission will be historic in marking that turning point toward a rapid advancement in space transportation technology.”

While it develops a replacement for the retired space shuttle, NASA has been funding SpaceX and other contractors to develop and build spacecraft capable of short-range space flights. Contractor-owned vehicles, including a variant of the SpaceX Dragon, will eventually transport astronauts as well, reducing U.S. reliance on Russia, which charges about $62 million to send an astronaut to the International Space Station, as well as smoothing the way for future commercial spaceflights.

John P. Holdren, assistant to the president for science and technology, said Tuesday that partnering with U.S. companies helps free up NASA resources to focus on more long-range goals, and Tuesday’s mission, if successful, may well kick-start a new era in American spaceflight.

“Partnering with U.S. companies such as SpaceX to provide cargo and eventually crew service to the International Space Station is a cornerstone of the president’s plan for maintaining America’s leadership in space,” Holdren said. “This expanded role for the private sector will free up more of NASA’s resources to do what NASA does best — tackle the most demanding technological challenges in space, including those of human space flight beyond low Earth orbit.”

Henry Hertzfeld, research professor of space policy and international affairs at George Washington University, praised the SpaceX team, while pointing out that its launch, which was built with funds from government contracts and designed for a specific government mission, was a natural progression from previous NASA efforts, like the space shuttle, which depended on NASA contractors Boeing Co. and Lockheed Martin Corp.

Space technology has matured through decades of previous launches, making it possible for NASA to switch to a more contractor-driven approach, tying contract funds to certain goals and checkpoints and giving contractors like SpaceX more responsibility and the flexibility to design with future commercial opportunities in mind.

“One of the things that’s different about the whole commercial program is that we try to stay out of the details of how the problems are solved,” said Sean O’Rourke, NASA’s lead visiting vehicle officer for SpaceX’s Dragon. “They have to weigh our requirements against what other markets they see out there, which would be great because if they can take this vehicle and make money in others ways then that could bring our costs down in the long run.”

Increased commercialization of outer space will also accelerate the evolution of space laws and regulations, according to space law experts. The U.S. and other space-capable nations will have to further develop laws on space safety standards and liability, develop a strategy to deal with increased space debris, and rethink current restrictions on the import and export of space technology.

“The commercial participation in space activities, more specifically space launch and manned spaceflight, is the most exciting and fundamental development in space over its last half century — and that applies to space law as well,” said Frans von der Dunk, professor of space law at University of Nebraska-Lincoln’s College of Law.

Space law is largely based on international treaties that date back to the 1960s and 1970s, when large-scale commercial space flight was not seriously expected, von der Dunk said. The laws around commercial space flights are evolving, and in 2004, the U.S. Commercial Space Launch Act was amended to include manned spaceflight, which would apply not only to future SpaceX launches of a manned-version of the Dragon cargo vehicle, but also to space tourism, the “next new kid on the block.”

“With Virgin Galactic planning to start flying space tourists later this year or early 2013, the 2004 amendments allowed for such companies to offer their services effectively disclaiming liability on the basis of ‘informed consent,'” von der Dunk said. “The issues, however, certainly gain in importance once we would be talking about private passenger services for public astronauts to the ISS — is NASA going to allow Space-X to fly on the basis of informed consent? Is it going to impose its own safety standards?”

Currently, the Federal Aviation Administration is in charge of safety standards for commercial spacecraft, an extension over its current oversight of commercial aircraft, while NASA handles safety standards for government missions and government personnel.

However, U.S. law prevents the FAA from implementing full-blown safety regulations until 2015 because lawmakers don’t want the FAA to stifle innovation by setting standards that give preference to one vehicle type, according to Matthew Kleiman, professor of space law at Boston University Law School.

“The FAA so far has a very hands-off approach to spacecraft,” Kleiman said. “Once it can become routine, like airline flights, and there’s a precedent for how these tourism rides work, it will make a lot more sense for the FAA to come in and regulate it.”

Despite the relaxed regulation, companies like Virgin and Space X have every incentive to put safety first.

“Nobody is looking at these companies like they’re cowboys. Even without strict regulation, they are taking every precaution,” Kleiman said. “They know that if they have an accident on one of their early flights, it’s game over for the whole industry.”

Still, the commercial spaceflight contracts have their detractors. In testimony to Congress, NASA Inspector General Paul K. Martin said that NASA still needs to develop clear safety and performance requirements and be more careful to avoid potential conflicts of interest. While NASA has awarded more than $300 million in contracts through its commercial crew development program, it still needs to finalize regulations, develop a procurement strategy and coordinate safety standards with the FAA.

And members of Congress like Rep. Brad Miller, D-N.C., have questioned whether the U.S. should make huge investments in a private space industry that will then have great leverage over the U.S. in negotiating transportation prices. The U.S. is prepared to spend $4 billion to $6 billion to develop commercial spacecraft, and the contractors might not charge much less than the $62 million per seat that the Russians are charging, he said in a November hearing.

“It sounds like it’s a lot more expensive than the deal we have now,” Miller said.

Despite current skepticism, early successes for Space X and other contractors will go a long way toward making investors and Congress more comfortable with the technology and give companies like Space X more credibility in performing these missions, according to Kleiman.

“If we’re actually going to have a space faring civilization that routinely goes to outer space, these companies need to be successful, it can’t be just the government,” he said.

Tuesday’s Space X launch was originally scheduled for Saturday, but Space X’s computers aborted the launch at the last minute, after discovering high pressure in one of the Dragon rocket’s nine engines. Space X said that the problem was caused by a failed valve that was quickly repaired.

“In some ways that [aborted launch] was a success even if they didn’t get off the ground,” Hertzfeld said, noting that the aborted launch demonstrated SpaceX’s effective safety controls and allowed the company to save their rockets for another flight.

Published by Law360

NASA Contractor’s Launch Kicks Off Commercial Space Race

Law360, New York (May 22, 2012, 6:21 PM EDT) — NASA contractor Space Exploration Technologies Corp. launched the first commercial space flight to the International Space Station on Tuesday, a significant milestone in NASA’s quest to open up outer space to private companies.

SpaceX’s unmanned Dragon spacecraft, funded by a mix of private investment and NASA contracts, will deliver cargo to the International Space Station, and if successful, would position the company to begin a cargo delivery contract worth between $1.6 billion and $3.1 billion.

But both NASA and SpaceX have even bigger goals in mind for the project, which they view as an early step toward a future in which commercial space flights provided by private U.S. companies are almost routine and private innovation spurs greater access to space.

SpaceX CEO and Chief Designer Elon Musk compared the commercial entry into spaceflight to the growth of the Internet in the mid-1990s, when commercial companies entered what was originally a government endeavor, making the technology available for mass consumption.

“I think we’re at a similar inflection point for space,” Musk said. “I hope and I believe that this mission will be historic in marking that turning point toward a rapid advancement in space transportation technology.”

While it develops a replacement for the retired space shuttle, NASA has been funding SpaceX and other contractors to develop and build spacecraft capable of short-range space flights. Contractor-owned vehicles, including a variant of the SpaceX Dragon, will eventually transport astronauts as well, reducing U.S. reliance on Russia, which charges about $62 million to send an astronaut to the International Space Station, as well as smoothing the way for future commercial spaceflights.

John P. Holdren, assistant to the president for science and technology, said Tuesday that partnering with U.S. companies helps free up NASA resources to focus on more long-range goals, and Tuesday’s mission, if successful, may well kick-start a new era in American spaceflight.

“Partnering with U.S. companies such as SpaceX to provide cargo and eventually crew service to the International Space Station is a cornerstone of the president’s plan for maintaining America’s leadership in space,” Holdren said. “This expanded role for the private sector will free up more of NASA’s resources to do what NASA does best — tackle the most demanding technological challenges in space, including those of human space flight beyond low Earth orbit.”

Henry Hertzfeld, research professor of space policy and international affairs at George Washington University, praised the SpaceX team, while pointing out that its launch, which was built with funds from government contracts and designed for a specific government mission, was a natural progression from previous NASA efforts, like the space shuttle, which depended on NASA contractors Boeing Co. and Lockheed Martin Corp.

Space technology has matured through decades of previous launches, making it possible for NASA to switch to a more contractor-driven approach, tying contract funds to certain goals and checkpoints and giving contractors like SpaceX more responsibility and the flexibility to design with future commercial opportunities in mind.

“One of the things that’s different about the whole commercial program is that we try to stay out of the details of how the problems are solved,” said Sean O’Rourke, NASA’s lead visiting vehicle officer for SpaceX’s Dragon. “They have to weigh our requirements against what other markets they see out there, which would be great because if they can take this vehicle and make money in others ways then that could bring our costs down in the long run.”

Increased commercialization of outer space will also accelerate the evolution of space laws and regulations, according to space law experts. The U.S. and other space-capable nations will have to further develop laws on space safety standards and liability, develop a strategy to deal with increased space debris, and rethink current restrictions on the import and export of space technology.

“The commercial participation in space activities, more specifically space launch and manned spaceflight, is the most exciting and fundamental development in space over its last half century — and that applies to space law as well,” said Frans von der Dunk, professor of space law at University of Nebraska-Lincoln’s College of Law.

Space law is largely based on international treaties that date back to the 1960s and 1970s, when large-scale commercial space flight was not seriously expected, von der Dunk said. The laws around commercial space flights are evolving, and in 2004, the U.S. Commercial Space Launch Act was amended to include manned spaceflight, which would apply not only to future SpaceX launches of a manned-version of the Dragon cargo vehicle, but also to space tourism, the “next new kid on the block.”

“With Virgin Galactic planning to start flying space tourists later this year or early 2013, the 2004 amendments allowed for such companies to offer their services effectively disclaiming liability on the basis of ‘informed consent,'” von der Dunk said. “The issues, however, certainly gain in importance once we would be talking about private passenger services for public astronauts to the ISS — is NASA going to allow Space-X to fly on the basis of informed consent? Is it going to impose its own safety standards?”

Currently, the Federal Aviation Administration is in charge of safety standards for commercial spacecraft, an extension over its current oversight of commercial aircraft, while NASA handles safety standards for government missions and government personnel.

However, U.S. law prevents the FAA from implementing full-blown safety regulations until 2015 because lawmakers don’t want the FAA to stifle innovation by setting standards that give preference to one vehicle type, according to Matthew Kleiman, professor of space law at Boston University Law School.

“The FAA so far has a very hands-off approach to spacecraft,” Kleiman said. “Once it can become routine, like airline flights, and there’s a precedent for how these tourism rides work, it will make a lot more sense for the FAA to come in and regulate it.”

Despite the relaxed regulation, companies like Virgin and Space X have every incentive to put safety first.

“Nobody is looking at these companies like they’re cowboys. Even without strict regulation, they are taking every precaution,” Kleiman said. “They know that if they have an accident on one of their early flights, it’s game over for the whole industry.”

Still, the commercial spaceflight contracts have their detractors. In testimony to Congress, NASA Inspector General Paul K. Martin said that NASA still needs to develop clear safety and performance requirements and be more careful to avoid potential conflicts of interest. While NASA has awarded more than $300 million in contracts through its commercial crew development program, it still needs to finalize regulations, develop a procurement strategy and coordinate safety standards with the FAA.

And members of Congress like Rep. Brad Miller, D-N.C., have questioned whether the U.S. should make huge investments in a private space industry that will then have great leverage over the U.S. in negotiating transportation prices. The U.S. is prepared to spend $4 billion to $6 billion to develop commercial spacecraft, and the contractors might not charge much less than the $62 million per seat that the Russians are charging, he said in a November hearing.

“It sounds like it’s a lot more expensive than the deal we have now,” Miller said.

Despite current skepticism, early successes for Space X and other contractors will go a long way toward making investors and Congress more comfortable with the technology and give companies like Space X more credibility in performing these missions, according to Kleiman.

“If we’re actually going to have a space faring civilization that routinely goes to outer space, these companies need to be successful, it can’t be just the government,” he said.

Tuesday’s Space X launch was originally scheduled for Saturday, but Space X’s computers aborted the launch at the last minute, after discovering high pressure in one of the Dragon rocket’s nine engines. Space X said that the problem was caused by a failed valve that was quickly repaired.

“In some ways that [aborted launch] was a success even if they didn’t get off the ground,” Hertzfeld said, noting that the aborted launch demonstrated SpaceX’s effective safety controls and allowed the company to save their rockets for another flight.

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