Positioning p3 for success and applications for energy sustainable energy workshop 2012
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Positioning P3 for Success and Applications for Energy Sustainable Energy Workshop 2012. Deloitte Consulting LLP August 2012. About Deloitte Deloitte is a leading professional services firm with a commitment to energy and sustainability . Industries. Services. Consulting.

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Positioning p3 for success and applications for energy sustainable energy workshop 2012

Positioning P3 for Success and Applications for EnergySustainable Energy Workshop 2012

Deloitte Consulting LLP

August 2012


Positioning p3 for success and applications for energy sustainable energy workshop 2012

About Deloitte

Deloitte is a leading professional services firm with a commitment to energy and sustainability

Industries

Services

Consulting

Audit and Enterprise Risk

Financial Advisory

Tax

  • Strategy & Operations

  • Human Capital

  • Technology

  • Finance Operations and Controls Transformation

  • Financial Instrument Valuation & Securitization

  • Governance, Regulatory & Risk Strategies

  • Corporate Finance Advisory

  • Capital Projects

  • Business Valuation

  • Global Business Tax Services

  • Multistate Tax

  • Indirect Tax

Sustainability


Contents

Contents

Positioning P3 for Success

Applications for Energy

  • Definition of P3

  • A Case Study and Lessons Learned

  • Strategic Considerations

  • P3 Execution Challenges

  • Solutions


Positioning p3 for success

Positioning P3 for Success


Positioning p3 for success and applications for energy sustainable energy workshop 2012

Definition of P3 IP3 enables an overall energy and sustainability strategy and the definitions are broad

A public-private partnership, or P3, refers to a contractual agreement formed between a government agency and a private sector entity that allows for greater private sector participation in the delivery of public projects. Compared with traditional procurement models, the private sector assumes a greater role in the planning, financing, design, construction, operation, and/or maintenance of public facilities.


Positioning p3 for success and applications for energy sustainable energy workshop 2012

Definition of P3 IIAt the Federal level, there are lesser-known tools in the P3 toolbox that can be used to great affect


Positioning p3 for success and applications for energy sustainable energy workshop 2012

A Case Study and Lessons Learned IA successful P3 can come together through many different types of transacting mechanisms

Deloitte served as strategic advisors to the Government of Bulgaria on the long-term concession of Bulgaria’s Black Sea Coast airports. We performed an options analysis in close consultation with the Government, proposed amendments to the enabling environment for P3, assisted the Government to create a core base of stakeholder support, managed interactions with strategic investors, assisted in the conduct of the competitive tender, and built the capacity of the Civil Aviation Authority to be a strong partner for this P3.

The Government received 4 proposals from leading airport development groups, and accepted the proposal from Fraport, the international arm of the Frankfurt International Airport, with an estimated total value in excess of $500M USD, while securing the long-term development of these strategic assets.


Positioning p3 for success and applications for energy sustainable energy workshop 2012

A Case Study and Lessons Learned IIEstablishing governance up-front helps to ensure a successful transaction and subsequent operate environment

Project Development and Implementation: Pre-feasibility activities

Due Diligence: legal, environmental, technical and social

  • Developed capital expenditure plan for 10-years

  • Identified problem with Civil Aviation Act

    Financial Analysis

  • Developed traffic forecast and financial modeling

  • Clear projections on key issues: future costs /returns to public sector and user charges

    International Market Study

  • At the macro-level by sector

  • Detailed review of individual aviation projects

    Options Analysis

  • Public vs. private operation

  • Issue: To bundle the airports to make more attractive


Positioning p3 for success and applications for energy sustainable energy workshop 2012

A Case Study and Lessons Learned IIISelecting the optimal framework is a first step to a functioning governance model for the P3

Selecting a Model


Applications for energy

Applications for Energy


Positioning p3 for success and applications for energy sustainable energy workshop 2012

Strategic Considerations IERCOT faces some difficult supply challenges in the near-term future

According to the most recent ERCOT capacity report, reserve margins are forecast at less than 10 percent by next year

ERCOT, May 2012

Coal and natural gas make up the largest share of generating capacity in Texas with more reliance on gas expected in the future

ERCOT, May 2012


Positioning p3 for success and applications for energy sustainable energy workshop 2012

P3 Execution Challenges IBreaking down barriers to P3 execution requires tenacious problem solving

Above or Behind the Meter

Direct interaction with the grid will be one of the larges and most tangible sources of value for the P3. The P3 should be structured to optimize the strategic objectives of both parties in the transaction.

Own or Lease

Asset ownership comes with risk and will greatly impact pricing considerations

Risk Management

Establishing a governance model that can last the duration of the lifecycle

Future Energy Prices

Developing a strategic view of future prices is critical to success

Contracting

The federal government has an array of available tools but their use is complex

Mandates versus Value

Selecting the optimal balance of mandates versus value will drive tactical considerations such as the type of contracting vehicle used.

$.05per kwh price electric

$50M annual energy cost

3% annual energy goal

1055 GWh annual energy consumption

Raising Capital

New funding sources require networked outreach to stakeholders

727,485 metric tons of carbon emitted per year


Positioning p3 for success and applications for energy sustainable energy workshop 2012

P3 Execution Challenges IINIST Supplemental 135 has serious analytical shortcomings, which can lead to faulty P3 pricing

Measures of future prices are based on census zone, which has little direct applicability to electric markets

South Region

According to NIST forecasts, electricity escalators are flat out to 2022, excluding general inflation


Positioning p3 for success and applications for energy sustainable energy workshop 2012

P3 Solutions IIEven before considering spot prices and DR opportunities, long-term energy economics in Texas yield potential

Our analysis shows that TRE South could see significant price increases by 2030 with more than a doubling of prices from today’s level in nominal terms. With large generating capacity needed in the region, a number of pricing assumptions should be evaluated to determine future strategy.


Positioning p3 for success and applications for energy sustainable energy workshop 2012

P3 Solutions IIIAlthough energy prices are local, energy markets are integrated and have global reach

In today’s world, local decisions quickly bump up against international factors. Long-lived P3 assets will be impacted by these factors well into the future.


Positioning p3 for success and applications for energy sustainable energy workshop 2012

P3 Solutions IVInternational markets could be knocking at America’s door; what are the scenarios to consider?

Impact of LNG Exports on Average US Citygate Gas Prices

A recent Deloitte analysis forecasts a marginal affect on domestic gas prices as a result of LNG imports. Despite varying worldviews, strategic flexibility enables strong organizations.

Price Impact by Region

As compared to the NIST 135 census regions, local markets and regions are a key factor in forecasting future prices.

Source: Deloitte MarketPoint


Positioning p3 for success and applications for energy sustainable energy workshop 2012

P3 Solutions VWith a compelling and targeted value proposition, sources of capital reach beyond traditional buckets

Tried and true P3 tools for energy will be a major source of project funding with ARRA funds expended

While not typically a source of outsized returns, energy project financing can go a long way to solving the asset / liability mismatch facing the U.S. and other developed economies


Positioning p3 for success and applications for energy sustainable energy workshop 2012

Solutions VStructured processes help drive execution through the transaction phase and beyond

Sample Level 0 Process Steps for PPA and EUL

Level 0

Process

Steps

Select Agent

Issue Info Request

Issue Quals Request

Develop RFP

Issue RFP

Administer RFP

Evaluate Proposals

Award

Design Project

Construct Project

Commission System

M&V Performance

End Oversight

13

PPA

Level 0

Process

Steps

Develop scope

Notice of Opp.

Issue Notice of Opp.

Evaluate Proposals

Select Contractor

Lease and Mgmt. Plan

Issue Lease

Design Project

Construct Project

Commission Project

M&V Project

End Oversight

12

EUL

Source: Federal Energy Management Program


Positioning p3 for success and applications for energy sustainable energy workshop 2012

ConclusionEnergy and sustainability strategy drives capital budgeting decisions and P3s support and enable execution

  • After designing a project that best meets an organization’s strategic goals and objectives there are many P3 options that can support successful implementation and operations.

  • Careful consideration is required to ensure that both parties achieve the maximum risk-adjusted value from the projects while ensuring the transaction gets done and service is maintained.


Positioning p3 for success and applications for energy sustainable energy workshop 2012

Thank You


Positioning p3 for success and applications for energy sustainable energy workshop 2012

For more information

Alexander Kasuya

Manager, Deloitte Consulting

[email protected]

www.deloitte.com

www.deloittemarketpoint.com


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