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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Deloitte is a leading professional services firm with a commitment to energy and sustainability
Audit and Enterprise Risk
Positioning P3 for Success
Applications for Energy
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.
Definition of P3 IIAt the Federal level, there are lesser-known tools in the P3 toolbox that can be used to great affect
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.
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
International Market Study
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
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
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
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
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
New funding sources require networked outreach to stakeholders
727,485 metric tons of carbon emitted per year
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
According to NIST forecasts, electricity escalators are flat out to 2022, excluding general inflation
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.
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.
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
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
Solutions VStructured processes help drive execution through the transaction phase and beyond
Sample Level 0 Process Steps for PPA and EUL
Issue Info Request
Issue Quals Request
Notice of Opp.
Issue Notice of Opp.
Lease and Mgmt. Plan
Source: Federal Energy Management Program
ConclusionEnergy and sustainability strategy drives capital budgeting decisions and P3s support and enable execution
Manager, Deloitte Consulting