“Public-Private Partnerships (PPP) involve collaboration between a government entity and a private-sector company, in order to finance, build, and operate public projects. Financing a project through a public-private partnership can allow a project to be completed sooner or even to make it possible at all. Financing arrangements made by the private sector partner, usually require participation with the funding and/or payments from the public sector and/or citizens over the project’s lifetime. The private partner participates in designing, completing, implementing, and funding the project. The public partner focuses on defining and monitoring compliance with the objectives. Risks are distributed between the public and private partners.
Electrify! considers a project to be a “Public-Private Partnership” when the level of involvement in the project, from funding through construction through completion through operation, is balanced between government and private sector entities.
The best possible collaborations between two parties seem to take place when both sides are vested or “bought in” to the long term success of the project. Successful public private partnerships are an excellent example of this.
Many projects in this category are based on agreements and contracts that are very long term in scope. In the renewable electricity business, Power Purchase Agreements (PPAs) are frequently 15 or 20 years in duration. In the Waste-To-Energy marketplace, a plant cannot operate unless waste is delivered day-in and day-out, for the life of the plant and project.
If the PPA is not honored, or the waste stream stops coming, the results can be disastrous for the private sector company, the viability of the plant, or the heath of the financials. On the flip side, the public may not have the electricity it needs, or the means for disposal of their waste once counted on.
In order to make sure that both parties see through their initial commitments and intentions, it’s best to create the project so both sides have skin in the game.
An example of one funding program available to Public-Private Partnerships requires the project developers to come up with a Letter of Credit or Bank Guarantee for 10 to 20 percent of their project’s budget, in order to receive: 80% to 90% funding (inverse of up front amount), at 3 to 5%, with a repayment term of 10 to 15 or 20 years, and a 2 to 5 year ramp-up grace period.
Here, the Letter of Credit or Bank Guarantee is monetized, and become the basis for a Structured Project Funding package, where the project will receive a contractually specified number of tranches of funding, over a contractually specified period of time, until the entire project budget has been released.