Pacific Biodiesel is located far from the U.S. mainland in Hawaii. The 50-person company turns used cooking oil and its dirty cousin, restaurant trap grease, into biodiesel. While this may sound like a quaint cottage industry, Pacific Biodiesel actually produces more than five million gallons of alternative fuel each year.

That's a drop in the bucket compared to what large energy companies like Shell and ExxonMobil produce in petroleum-based fuel, and the company probably isn't going to be supplying a gas pump near you anytime soon. Still, one of Pacific Biodiesel's most important customers is a pretty big deal: the Department of Defense, which uses the company's biodiesel for non-tactical vehicles at the Pearl Harbor-Hickam and Kaneohe Marine Corps bases, and to fuel tourist boats that run out to survey the sunken aircraft carrier USS Arizona.

It's one of dozens of small companies that produce alternative energy and work with the DOD on its goal of cutting energy usage, which often causes the department to go over budget by billions of dollars each year. The companies are also charged with helping the DOD develop independent fuel sources in the event of enemy attacks, including cyber attacks, or natural disasters. Despite sequestration cuts that have decimated DOD contracting opportunities for small businesses, the DOD announced in May the first contracts for a renewable energy program worth $7 billion.

"The more you can take vital facilities off the central civilian gird, the more power there will be for civilians, and if a natural disaster strikes our civilian power, the military posts can still operate," says Mark Wright, a DOD spokesman.

The reliance on such companies, and their importance to the DOD, stand in marked contrast to the likes of the now-bankrupt solar energy producer Solyndra and electric car manufacturer Fisker, which became political emblems of federal budgetary waste for accepting hundreds of millions of dollars in Department of Energy loans.

"This is an extremely important model for the state of Hawaii, because we import 90 percent of our energy," Kelly King, co-founder and vice president of Pacific Biodiesel, says.

In addition to the DOD, whose contracts make up less than five percent of Pacific Biodiesel's approximately $50 million in annual revenue, Pacific Biodiesel sells its fuel for $4.34 at two civilian gas stations, one on the Big Island, and the other on Maui. It's also branched out from used cooking oil as a source of energy to feedstock and animal tallow.

The biggest obstacle to the DOD using more of Pacific Biodiesel's fuel is its need for so-called drop-in fuel, essentially a biofuel that can easily subsitute for gas, diesel, or jet fuel within the military's existing infrastructure, King says.*

The DOD is the largest single consumer of energy in the world, using more than 100 billion barrels of petroleum each year, with an estimated price tag of $16 billion for fiscal year 2013. It is also one of the largest contracting opportunities for small businesses, responsible for 60 percent of all federal contracting dollars.

The five companies to receive contracts, which are renewable up to ten years, will help the DOD reach substantive energy efficiency goals, including getting 25 percent of total energy from alternative sources and creating enough energy from military bases to power the equivalent of 750,000 houses by 2025.

In announcing the contracts, the DOD also cited the importance of private industry in creating the technology to help achieve its goals.

Three of the five companies awarded contracts to help the DOD develop geothermal technology are large, including Enel Green Power, Siemens Government Technologies, and Constellation NewEnergy. Smaller companies include ECC Renewables, of Burlingame, California, and LTC Federal of Detroit, Michigan. Neither company agreed to an interview with Inc.

"For the most part, the technology developments [in sustainable energy used by the DOD] are not taking place in the Department of Defense, but in private companies," says Shayle Kahn, vice president of research for GTM Research, of Boston, Massachusetts, which provides data, analysis and consulting on green energy. 

*This story was changed to clarify the idea of a drop-in fuel.