Public-private partnerships and value-based procurement enable cities to make improvements and help ensure long-term sustainability.
For cities, implementing intelligent technology and infrastructure upgrades comes down to a question of affordability. But increasing access to private capital investment via public-private partnerships (P3s) and alternative financing models such as performance contracting have allowed cities to benefit from sharing project risks and fill gaps in funding in order to meet local public service obligations.
As a sponsor of 2017 Infrastructure Week, Siemens is highlighting the successful application of these methods to underscore the critical importance of investing in U.S. infrastructure. It is important not only to build better roads and rail systems, but also to build smarter, more secure, and agile networks comprised of buildings, power grids, and public
utilities, employing intelligent technologies and digitalized systems that result in safer,
cleaner, and more resilient urban environments.
Two-thirds of the country’s population already lives in urban areas – a figure which is
expected to only increase in the years ahead and with it, continued infrastructure
challenges. Though state and local leaders in the U.S. may experience some relief because
infrastructure is a priority of the current administration and Congress, they are also aware
that federal funding alone cannot address 100 percent of the investment needed to
modernize the current systems. Local governments are increasingly faced with limited
available capital and resources to put towards infrastructure and sustainability goals, which
can lead to a backlog of deferred maintenance.
“In collaborating with companies like Siemens, municipalities have access to not only a
wealth of technical expertise, solutions, and services but also several financing options,”
said Dave Hopping, President of Siemens’ North American-based Building Technologies
Through its Building Technologies and Financial Services divisions, Siemens is working to
provide the capital as well as innovation and expertise required to complete these muchneeded
infrastructure improvements in cities across the country.
Public-Private Partnerships (P3s)
P3s bring together the public and private sectors to develop critical improvements to our
everyday infrastructure. The U.S. has the largest potential market for P3s in the world, and
public support for infrastructure investment is at an all-time high.
Most P3s in the U.S. are solicited by public authorities through a structured procurement
process. Successful global P3s have been carried out in various economic infrastructure
projects such as airports, ports, roads, tunnels, bridges, rail, and parking, as well as in
social infrastructure projects such as hospitals.
“There is growing P3 potential in the U.S., and we’re keen to see it develop further,
consistent with success we’ve seen in other countries such as Australia, Turkey, India, and
the United Kingdom,” said Anthony Casciano, CEO of Industry and Healthcare Finance,
Siemens Financial Services.
As lead equity or debt investors in projects, such as Thameslink railway in the United
Kingdom, Elazig Integrated Health Campus in Turkey and Bangalore Airport in India,
Siemens Financial Services has had a firsthand view of some of these state-of-the-art P3
projects that were achieved in other regions of the world.
Although infrastructure projects are often so complex that potential investors think it is too
risky to get involved, P3 contracts typically involve the private sector participant taking on
additional project risks, such as design, construction, finance, and long-term operation.
Siemens can provide the financial and technical expertise to ensure projects are completed
on time and on budget, manage risk as a trusted ally, and help produce the public service
outcomes that were envisioned.
“Leveraging public-private partnerships is one way Siemens and other investors aim to help
U.S. cities, states, and the federal government achieve their infrastructure improvement
goals,” said Casciano.
With P3s, private sector investors such as Siemens Financial Services can provide the
required capital for the project at a transparent rate of return over a long period of time, but share the project risk with the government by providing a portion of their investment as
Siemens Financial Services has also provided capital to support several North American P3
projects. These include Indiana Toll Road, Connecticut Service Plazas, Millennium Garages
in Illinois, and Auto route A25 in Canada through five – eight year credit facilities.
Performance contracting allows for improvement projects to be paid over long periods of
time through the savings that are guaranteed by the upgraded systems, and with little to no
upfront capital investment. Organizations typically have two sources of funds to pay for
energy and infrastructure projects – capital and operating funds. In both the public and
private sectors, Energy Service Companies (ESCOs), such as Siemens, offer an innovative
financing option through performance contracting.
“Performance contracting is a proven, and cost-effective way for cities to make needed
improvements that will reduce costs and improve sustainability without extensive impact to
the budget,” said Hopping.
Performance contracting is a value-based procurement process that allows for the
implementation of a variety of energy solutions that not only help reduce energy
consumption, but also allow organizations to produce energy, procure energy more
strategically, and protect that investment for the long term. ESCOs offer solutions on both
sides of the meter, complemented by continuous data analysis and support, to help ensure
a comprehensive plan that meets today’s strategic and technical goals, while also
protecting and optimizing an organization’s investment well into the future.
Once the improvements are made, they will deliver savings in the form of reduced utility
consumption and operating expenses. These savings typically meet or exceed the cost of
the project, essentially paying for today’s improvements with tomorrow’s savings.
Most recently, Siemens worked with UMass Memorial Health Care in Worcester (Mass.) on
the second phase of a 10-year performance contract to implement a master energy plan
and ensure long-term sustainability. New building technologies and capital improvements at
the facility are designed to reduce energy use and save energy and operational costs. More
than $24 million in energy and operational cost savings are projected over the next 10
years, as a result of the combined project phases and other sustainability efforts.
Similarly, a performance contract with Siemens is allowing Taylor, Texas to address
deferred maintenance projects and make facility modifications. The performance contract
will allow the city to make such infrastructure improvements as LED lighting and HVAC
system adjustments within its existing budget, and will use the more than $1 million of
projected energy savings to fund upgrades over the next 15 years.
Siemens has helped its customers realize more than $2 billion in energy and operational
savings over the past 10 years. The company has implemented more than 1,000
guaranteed performance contract projects for its customers, updating thousands of
buildings with the latest energy savings technologies. Its energy services and solutions
range from energy savings analysis, to implementation of facility improvement measures, to
ongoing monitoring and verification.