PPP street lighting in Germany

PPP street lighting in Germany
Berlin, 28 th January 2011
www.partnerschaften-deutschland.de

Framework conditions for street-lighting in Germany (1)
• Street-lighting is a public service by state law
• Further street-lighting obligations arise from general and specific traffic safety
obligations
• In many municipalities street-lighting is also used for artificial illumination of squares,
buildings, fountains and other buildings or places of interest
• Installations, operation and maintenance of street-lighting is traditionally tendered in
different packages without a lifecycle approach
• O&M service contracts are typically short-term without incentives to improve lightingstandards
or major replacements of facilities
• In many cases contracts are signed with Stadtwerke or regional utility firms
PPP is a new approach for street-lighting projects in Germany ÖPP Deutschland AG has
developed a package of tender documents which are published:
www.partnerschaften-deutschland.de/verdingungsunterlagen-beleuchtung
2

Background on German energy sector
• Four major energy suppliers E.ON, RWE, Vattenfall and EnBW who
• own/operate power plants (about 80% of generation capacities)
• own/operate high voltage grids
• supply energy to regional energy firms and local utility firms
(Stadtwerke)
• have major shares in regional energy firms and Stadtwerke
• About 40 regional energy firms supply in larger areas to Stadtwerke and
customers and have ownership of about 10% of generation capacity
• More than 600 Stadtwerke who deliver power, heat, gas, water and
other services to customers (ownership of about 10% of generation
capacity), Stadtwerke are traditionally owned by municipalities but today
many of them have private sector minority shareholders
• Street-lighting is traditionally operated by Stadtwerke or other local
service-companies operating with local sub-contractors
• Major energy suppliers and specialised service companies step into
street-lighting services in Germany as a new business field
4

Light emitting diode (LED)
• Short development-cycles and continuous improvement of energy-efficiency
• Close to become a mature and cost-effective technology
• The installation of LED’s offers huge saving potentials for energy and CO 2 -emissions
• Some municipalities have already installed test-projects to collect reference data
• Investment costs are still high and the lifecycle is still unpredictable as suppliers don’t
guarantee the lifetime LED’s
• Currently there is still uncertainty about
• Lifetime of 40.000 - 50.000h
• O&M costs, energy-consumption
• Possible effect of dimming, temperature and environment on life-time
• Major political interest to develop and implement LED technology
5

Number of lights
Typical age structure of street-lighting facilities
in Western Germany
Columns
Lights
Year of
installation
6

Number of lights
Typical age structure of street-lighting facilities
in Eastern Germany
Columns
Lights
Year of
installation
7

Shareholder
agreement
Lending
agreement
PPP-model for street-lighing in Germany
Authority
PPP-contract
Large projects: debt finance of
replacements and new installations
Small projects: replacements and new
installations financed by cash-flow
Shareholder
SPV
Bank
Supply, construction,
operation and
maintenance contracts
Large projects: > 8.000 street-lights
Small projects: 3.000 – 8.000 street-lights
Supply,
construction,
operation and
maintenance
companies
8

Key elements of PPP street-lighting model
• Contract period of 20 years (15 years for small projects)
• 5 years core investment-period for large projects (no investment-period for
small projects)
• For small projects replacements are financed from annual payments by the
authority
• Operation and maintenance of facilities
• Energy supply
• Ownership of existing facilities remain with the municipality
• Transfer of ownership of new assets to municipality once they are operational
• Need for documentation of existing facilities, technologies, age and their status
• Output-based specification
9

Risk transfer of PPP street-lighting model
Municipality
• Price risks of energy, personal, material
• Changes in tax-regulation
• Change of legal and technical standards
• Vandalism above a fixed annual amount
• Costs of accidents above a fixed annual
amount
Private Sector
• Energy consumption-risks
• Planning risks
• Effects of delay and cost overruns
• Financial risks
• Availability of facilities
• Operation and maintenance risks
• Vandalism up to a fixed annual amount
• Costs of accidents up to a fixed annual
amount
10

Potential savings from replacements
Annual
costs
Operation and maintenance
Energy
Operation and maintenance
Energy
Replacement
Time
Source: Zentralverband Elektrotechnik- und Elektronikindustrie e.V. (ZVEI)
11

Payment mechanisms
• Fixed monthly payments on the basis of availability of facilities and services
• Investments: payment starts in year six after investment-period (large projects)
• Fixed monthly payment per street-light starts in year one (small/large projects)
> Replacements
> Operation
> Maintenance
> Energy
• Annual adjustments for energy, personal, material with indices
• Annual adjustments according to number of street-lights
• Penalties for poor performance: number of replacements, average age of lights
and columns, energy-saving targets, helpdesk-services, reporting obligations,
98% availability
12

PPP street-lighting model for large projects
(> 8.000 street-lights)
Major replacements during
core investment-period
Pre-financing
Annuity financing
Replacements and new installations from monthly payments
Operation, maintenance and energy supply
Investment-period (5 years)
O&M-period (20 years)
End of contract
13

PPP street-lighting model for small projects
(3.000 - 8.000 street-lights)
Replacements and new installations from monthly payments
Operation, maintenance and energy supply
O&M-period (15 years)
End of contract
14

Advantages of the PPP street-lighting model for municipalities
• Fast replacement of old facilities to improve traffic safety and security
• Achievement of energy- and CO 2 -savings
• Use artificial lighting for the attractiveness of municipalities
• Opportunity for major replacement under restricted public budget
• Major efficiency gains in comparison to traditional delivery
• Risk transfer to private sector
• Use of provided procurement package reduces transaction costs
15

Conclusion
• There are huge investment needs for street-lighting in Germany
• Upgrade of street-lighting facilities offers major energy-savings and costreductions
• PPP is a new model for street-lighting in Germany
• ÖPP Deutschland AG has published a procurement package for street-lighting
• To prepare a project for tendering the following steps are necessary
> Definition of objectives
> Set up a database with existing facilities and standards
> Adjustment of procurement package with project details to prepare the tender
• The street-lighting procurement-package will reduce transaction costs and
promote the tender of street-lighting projects as PPP
www.partnerschaften-deutschland.de/verdingungsunterlagen-beleuchtung
16

Thank you for your attention!
Dr. Clemens Elbing
ÖPP Deutschland AG
Telefon: +49 30 / 25 76 79-338
E-Mail: clemens.elbing@partnerschaften-deutschland.de
www.partnerschaften-deutschland.de/verdingungsunterlagen-beleuchtung
www.partnerschaften-deutschland.de