Implementation of a PPP model for smart street lighting
Sept 25, 2021 4 min read
Governments/Public sector organizations usually incorporate a PPP model in collaboration with an ESCO (Energy savings company) for smart street lighting projects. The PPP model is based on an energy savings performance contract (ESPC), in such a model an Energy Services Company (ESCO) achieves energy savings by implementing a smart street lighting system. An ESCO will assess the efficiency opportunity, purchase equipment necessary to improve performance and install the equipment. Typically, such a project involves retrofitting public street lamps with energy-efficient lamps (LEDs), improving operational efficiency by establishing a central management software that offers real-time monitoring and predictive repair, maintenance management, remote control, API integration, etc. The type of smart lighting system that is installed, as well as the ancillary services that are supplied to the public sector, vary from one ESCO to another. The outcome of such a PPP model is aimed at energy savings. This model guarantees savings for a set period of time in exchange for payment from the energy cost savings. The ESCP is always structured to balance risks, make the project sustainable and viable, protect the rights of all parties involved, and provide measurable investment and performance objectives.
Hypothetically, If an ESCO can implement a lighting system that guarantees an energy savings of 80%, the saved energy cost becomes their mode of profit in exchange for energy savings. The ESCO receives either the entire cost of energy savings or a portion of it, depending on the contract’s predefined terms and conditions. Such a model benefits both the private and public sectors while also lowering the city’s carbon footprint. A PPP model or the ESCO mechanism can improve a country’s energy security, boost its economic growth, and promote regional development. As a result, implementing a PPP model for smart street lighting will be beneficial in the long run, and it has a lot of promise for success in developing nations such as India, Vietnam, Cambodia, and Nepal, among others. Therefore, the advantages of such a paradigm should be exploited to the fullest extent possible.
Several PPP models that are based on the ESCO mechanism have been successful all over the world. Revamping the public street lighting system in Rajasthan was a remarkable project based on the ESCO model. In the city of Jaipur, over 100,000 public streetlights were managed and maintained by the Jaipur Municipal Corporation (JMC). However, the public lighting system was facing problems owing to old, energy-intensive technology and a lack of capacity to operate such a large network. JMC was keen to procure an energy-efficient system but lacked the necessary knowledge and management capabilities. Under the umbrella of a Knowledge Partnership between the Government of Rajasthan and IFC (International Finance Corporation), JMC engaged IFC as the transaction advisor to structure a PPP for financing, upgrading, operating, and maintaining the public lights system in Jaipur. After a transparent and competitive bidding process, a consortium led by SMC Infrastructures Private Ltd., a large Indian infrastructure company comprising Samudra Electronic System Private Limited, a leading LED lights manufacturer, and Winwalk System Inc., an ESCO, was selected and awarded the project. The winning bid committed to achieving over 77% in energy savings of which over 30% would be shared with JMC.
POST TENDER RESULTS
- Fiscal savings of $1 million per year.
- At least $12 million in private investments.
- Improved streetlight services to over 1,650,000 people daily.
- Reduced Greenhouse Gas emissions by 36,750 metric tons per year.
- Enhanced safety and security of Jaipur city.
- Replication potential throughout the country
Source: Public-Private Partnership Stories India: Rajasthan Public Street Lighting International Finance Corporation (IFC)
Another successful project based on the ESCO mechanism is the public street lighting project in the city of Bhubaneswar. The city’s municipal authority, the Bhubaneswar Municipal Corporation (BMC) was assisted by IFC to design and structure the transaction, manage a PPP bid process and identify a qualified private sector partner to upgrade and manage the street lighting system. Shah Investments, Financials, Developments, and Consultants Private Limited, an Indian Energy Services Company (ESCO), was awarded the tender. Post this, the ESCO invested and managed Bhubaneswar’s street lighting system and received payments generated by realized energy savings. The bid variable for the project was the energy savings committed by ESCO to BMC, subject to a 30 percent minimum.
- Expected to generate annual savings to government of $100,000;
- Mobilized $4.8 million in private sector investment;
- Will reduce greenhouse gas emissions by an estimated 10,500 annually;
- Potential for replication throughout India.
Public-Private Partnership Stories India : Bhubaneswar Street Lighting
International Finance Corporation (IFC)