Energy Performance Contracting and Public-Private Partnership: How to Share Risks and Balance Benefits

Laura Martiniello, Donato Morea, Francesco Paolone and Riccardo Tiscini
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Laura Martiniello: Faculty of Economics, Universitas Mercatorum, Piazza Mattei, 10, 00186 Rome, Italy
Donato Morea: Faculty of Economics, Universitas Mercatorum, Piazza Mattei, 10, 00186 Rome, Italy
Francesco Paolone: Faculty of Economics, Universitas Mercatorum, Piazza Mattei, 10, 00186 Rome, Italy
Riccardo Tiscini: Faculty of Economics, Universitas Mercatorum, Piazza Mattei, 10, 00186 Rome, Italy

Energies, 2020, vol. 13, issue 14, 1-19

Abstract: Public private partnerships (PPPs) are a well-known instrument used worldwide by public administration (PA) to build public infrastructure using private knowhow and financial resources, and sharing risks. In recent years, PPPs have been widely adopted to develop energy efficiency projects between public and private sectors. In this context, a successful project requires a contractual arrangement based on energy performance contracting (EPC) that balances the interests of the two parties. This paper aims to answer two questions: how to share the benefits between the contractual parties and reach an optimal long-term contractual agreement; and which type of contract ensures a consistent risk transfer to the private partner, allowing the PA an “off balance” accounting treatment. The research questions are answered through the development of a mathematical equation able to calculate the optimal percentage of benefits sharing between partners in a long-term contractual agreement. The results are tested with a simulation based on a case study about the energy efficiency project of an Italian hospital. The paper is innovative because it provides suggestions to improve the EPC-PPP contractual structure and realize a balanced agreement between the public and private partners. Moreover, it analyzes the different allocation of risks in EPC contracts to identify the implication for the PA in terms of on-off balance accounting treatment in energy efficiency investment. We show how a successful long-term EPC-PPP can benefit from a mixed contractual structure in which profit-sharing percentage changes during the contract’s life to ensure the same net present value (NPV) to both public and private partners. This paper supports public decision making in order to choose contracts that are able to transfer energy and management risks. Moreover, it helps to understand the balance between public and private interests in a long-term EPC-PPP contract.

Keywords: public private partnership; energy performance contracts; risks; performance monitoring technologies; accounting treatment (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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