The challenge to successful implementation of the diverse provisions--related to renewable and clean energy applications--of the American Recovery and Reinvestment Act of 2009 (“Stimulus Package”), is to create one or more new types of “pubic-private partnerships” which may well differ from the traditional “P3” arrangements presently in place.

There is an apparent divergence between the Stimulus Package formulation for assistance delivery and the forms of public-private partnerships used by governments today.  That is more appearance than it is substantive for the reasons discussed below.

The Stimulus Package’s terms reflect the multiple objectives which it hopes to jumpstart through massive short-term expenditure.  These include promoting development of sustainable clean energy sources, smart grids and improved grid systems, reduced national consumption of foreign-sourced hydrocarbons, creation of “green jobs” in resulting business expansion, assistance to budgetarily-strapped state and local governments to undertake energy efficiency in public assets and in their communities, and larger Federal energy efficiency initiatives.  The Stimulus Package doesn’t contemplate by its terms the relinquishment of any current asset ownership or service activities to the private sector.  It doesn’t contain provisions which would facilitate the leverage of public funds.  In fact, states are to be the “delivery system,” for the Federal cash. 

The U.S. concept of public-private partnerships has moved away from the notion of the outright public asset “privatization”;  it has generally included a contractual agreement between public hosts and private providers for the delivery of services or development of assets, which are subject to some measured allocation of risks and rewards, and of a financing--while not termed “concessions” in most cases--the economic equivalent of one mechanism for efficient task performance.  The more common methodology for scrutinized public-private partnerships for their financing has been use of debt obligations (whether public or private activity bonds) secured by public contractual obligations and underlying assets.  On the Federal side these P3s have notably included guaranteed efficiency savings contracts for many types of buildings and facilities, and special enhanced-use value lease arrangements for specific Federal properties whose value was not being exploited or redefined fully.  There has also been U.S. adaptation of the U.K. “project finance initiatives” approach, in which the private developer accepts construction and operation risk based on contractually pre-committed public outtake or use obligations.  Applications could range from on-site generation to military housing.

How do the Stimulus and the P3 concepts fit together in the clean energy space today?  What does that mean, for example, for the potpourri of private development stages and technology types which are loosely grouped under the new conceptional rubric of “convergence,” of solar energy and energy efficiency?

Consider the spectrum of the following cases:

·                    A new, possibly disruptive, energy efficiency technology seeking its first customers.

·                    A proven energy efficiency technological breakthrough whose corporate sponsor is seeking to roll out its national commercialization and develop a domestic manufacturing facility.

·                    A proven solar technology, which can cost-effectively be installed by its corporate sponsor in various configurations in different types of public facilities and installations. 

I would suggest these conclusions: 

·                    That new types of public-private partnerships using the Stimulus Package can and must be developed, specifically adapted to the functional and operating needs of each case.

·                    That many of the hard-learned lessons about public-private partnerships in the traditional P3 arrangement should be incorporated in the formulations of these energy P3s.

·                    That, notwithstanding evolution of P3 structures, a single code of good practices can be developed, which can be adapted to the cases presented here, and the many new types of cases which may evolve.

Let’s consider each of these cases: 

The new technology commercialization stage
The Stimulus Package has various R&D and stimulus programs, recently highlighted by President Obama as also having definite job creation potential.  The Stimulus Package also promotes state energy and energy office technology assistance programs.  Some of these can flow through existing university or state sponsored incubator programs.  In principle, various types of public-private programs could be developed, which meet the state’s near term and longer term economic development goals, the Federal desire to hasten the application of effective new energy technologies and, of course, the private party’s objectives.  It is not as though this idea is unprecedented.  Public-private partnerships have already sprung up through state economic development agency models, governmental models making available a variety of fiscal and incentive tools, and sometimes through industry sponsored models.  It’s up to the proponents of these approaches to link together the energy early stage technology Stimulus programs and pre-existing programs in a way which takes advantages of both.  P3s become mechanisms for fitting existing forms to the newer Stimulus Package functions.

A roll out of a commercially demonstrated technology and erection of related manufacturing facilities
The Stimulus Package contains notable tax incentives for new energy manufacturing facilities.  It also potentially provides states with the wherewithal to reward energy efficiency initiatives which add net benefits both to consumers and investors in rapid savings payback.  Separate energy efficiency incentives are made available to states and local communities for their own initiatives.  There exists energy efficiency infrastructure management in most jurisdictions, although it is not as clearly defined as for renewable energy.  The makings are present in some states to become the situs for commercial and industrial firms to establish energy manufacturing plants, particularly in states which also represent good markets.

An integrator of a proven renewable technology
Unlike earlier loan guarantee legislation, the Stimulus Package provides incentives for technologies which have already achieved commercial status.  It effectively provides a basis for governmental uses of money for convergence.  Finally, of course, the tax aspects of the Stimulus Package in effect create a de facto public-private partnership, since private project equity can derive from Federal grants (or tax incentives) and, privately, solar power sales revenue streams via PPAs (and possibly soon energy efficiency credits) serve to amortize the debt.  Solar manufacturing plants are also the subject of tax credits.  Some states, where the climatic factors are right, are thus in a position to massively incentivize those possibilities.  In effect, it is possible to develop triangular public-private partnerships built around taxes, PPA incentives, and private risk taking.

Consideration of these cases points toward a few key conclusions for energy P3s--adapting and modifying lessons learned in the water treatment, transportation, and public facilities areas, where many P3s are about public risk shifting and private negotiation to obtain satisfactory toll or tax arrangements. 

·                    Energy and energy efficiency are potentially revenue productive.  Federal assistance is available directly, as well as in specified debt situations where provisions of debt guarantees is authorized.  Existing forms can be adapted--with private sector encouragement--to different functions, or to support activities which themselves complement existing P3 services (e.g. energy source for water and wastewater treatment). 

·                    The benefits of these new model possibilities can best be realized if there is a concerted effort to re-examine the way in which the service contract model can be supplemented by various other forms both of public participation and NGO involvement.  “Partnership” need not be inconsistent with different ownership, risk sharing, and benefits structures than we have seen in the past.  Emphasis on “green” provision of more cost effective public services or more cost-effective public buildings can objectively be presented as win-win situations. 

·                    Also, as energy companies enter the Stimulus-oriented environment, their approach to the relationships with state and local governments must adapt as well.  Encouraging creative morphing forms of public-private partnerships is a key way to do that at the state and local, as well as the Federal, levels.

·                    In addition to emphasizing proposals’ compliance with applicable Federal authorities and technical requirements, the hard won P3 lessons previously learned and publicized by The National Council for Public-Private Partnerships continue to be applicable in the new setting.

By considering the requirements for different types of solar/energy efficiency convergence involving government and the private sector, we can discern the outlines of new public-private partnerships which are nevertheless rooted in well-established principles.  The Stimulus Package, and further energy and environmental legislative incentives to come, are not radical divergences from the traditional form of P3s.  In fact, they will provide the impetus for a convergence point in the working of public policy.

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ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon Markets Group has practiced law related to the finance of environmental and energy projects and companies for 40 years.  In particular, he has analyzed and executed a wide variety and substantial value of project financings.  He chairs the American Bar Association’s Committee on Carbon Trading and Finance, serves on the Board of the American Council for Renewable Energy, and has been a senior official in the Federal Energy Administration.  He is a graduate of Brown University, Yale Law School and Harvard Business School.