Developments around smart cities will compliment existing brick-and-mortar projects.
- While there may not be a dramatic uptick in the pace of P3 procurements in 2019, technological development may influence the projects that do come to market.
- The development of new technologies such as electronic vehicles is set to create new opportunities for private sector involvement in public infrastructure projects.
- The introduction of managed lanes with advanced tolling technology and dynamic pricing in Virginia and Texas has proven to be successful and will spur other states to adapt this technology to relieve congestion
Public-private partnerships (P3) have been pursued by a number of states and municipalities over the last decade, with varying degrees of success. Some industry participants say that, while there may not be a dramatic uptick in the pace of P3 procurements in 2019, technological development may influence the projects that do come to market.
One sign of coming change is Oakland County, Michigan’s contract for a connected and autonomous vehicle (CAV) pilot project. The contract, which was awarded in June of this year, will see Toronto-based P3M install wireless smart intersection technology at 10-12 intersections. The firm will also examine the user experience to better understand the optimal pricing of various road services, as well as their projected income potential.
It is understood that the states of Minnesota, Ohio, and Rhode Island are considering similar procurements.
Cherian George, a managing director at Fitch Ratings, told Icons of Infrastructure that the development of new technologies such as electronic vehicles is set to create new opportunities for private sector involvement in public infrastructure projects.
“The increase in EVs could give rise to the need for more charging stations, and an easy place to do that would be outfitting parking garages with EV charging technology, a lot of which could be done in municipal garages,” he noted.
George added smart sensors, which allow vehicle tracking and connectivity, could also create availability payment-based deals in the autonomous vehicle (AV) space. However, he warned that the difficulty in transferring demand risk for smart city projects to investors will be difficult since demand is hard to predict.
According to a November 2018 report from Fitch, once AVs begin to appear on roadways, existing and new parking structures could use a portion of the garage as a fueling, battery swap and service station, along with a pick up and drop off location for individuals waiting for an AV to take them to their desired destination. The report however notes that the advent of AVs could negatively affect urban parking assets over time, since they could use a ride-sharing model or travel to cheaper parking locations outside of the city centers.
“The exposure is less pronounced, though it may be meaningful for airport parking and consolidated rental car facilities and sports facilities, where parking exposure is a share of revenue,” the report notes.
Transforming traditional P3 procurement
Adam Sherman, managing director and group head of the public infrastructure finance group at SMBC said that transportation has historically been the most active P3 sector in the US primarily due to the availability of lower cost financing through tax exempt PABs and USDOT’s TIFIA loan program. He added that the adoption of new technology can benefit traditional brick-and-mortar projects and drive further innovations.
Sherman noted that the introduction of managed lanes with advanced tolling technology and dynamic pricing in Virginia and Texas has proven to be successful and will spur other states to adapt this technology to relieve congestion. He added that the state of Maryland’s impending announcement of a multi-billion dollar P3 program featuring managed lanes is one example.
“Given the massive congestion in all of our country’s economic centers, I think we will see more programs like this with construction and new technology which can be rolled out more quickly through PPPs,” Sherman says.
“Safety regulations require a lot to be done before the technology can be adopted on a large scale.” — Kent Rowey, partner Allen & Overy
Streetlighting is another sectors that could be positively impacted by new technology, according to Sherman. To date, several municipalities – including Chicago and Washington, DC — have explored using P3s to replace incandescent bulbs with new energy saving LED bulbs.
While this technology cannot be considered new, Sherman noted that procurement bodies could provide space for computer driven sensors which might one day efficiently guide traffic patterns for AV vehicles on the streetlights. The installation of these sensors may be quite inexpensive for governments as AV start-ups may want to introduce their own technology and control the data, he added. Moreover, state DOTs might want to consider bringing in private concessionaires who can introduce new approaches and share the revenue potential for recharging EVs at existing fuel stations.
Building the future
There’s no hiding that US infrastructure needs urgent help. A report by the American Society of Civil Engineers rated the country’s overall infrastructure ‘D+’. The performance report card, which is produced every four years, showed that most sectors scored a ‘D’ grade, except rail which scored ‘B’. Key sectors like; roads and aviation scored ‘D’.
While a lot needs to be done, the pace of procurement remains slow. Kent Rowey, Partner at law firm Allen & Overy said that reasonable deal flow is expected in 2019 but there will be no windfall.
“I would expect a similar trend as the past decade where half-a-dozen big deals in the surface transport sector are launched and very keenly competed for,” Rowey said. “I don’t see floodgates opening.”
Rowey identified Colorado, Georgia, Maryland, California, Pennsylvania, Michigan and Alabama as the most active procurement bodies in the transportation sector today. But, he noted that the issue with many P3 deals is that it takes time to bring them to market, since the procuring authority has to advance the environmental process and the asset has to be prepared prior to launch.
Rowey said that, despite the issues in bringing deals to market, P3s are here to stay. He added that Technological advancements are inevitable, however aligning them to existing systems will take time.
“Today we are only seeing a few pilot projects,” Rowey said. “Safety regulations require a lot to be done before the technology can be adopted on a large scale.”