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Investing in a brighter future: PPP street lighting projects

Susanne Foerster's picture


Investing in an energy-efficient street lighting system can be a game changer for municipalities.

On one hand, switching to modern street lighting schemes based on light-emitting diode (LED) technology presents an opportunity for city governments to lower energy consumption, operation and maintenance costs while reducing the overall carbon footprint.

At the same time, reliable bright street lighting can have a range of socio-economic benefits: well-lit streets make people feel safe and reduce accidents while boosting economic and social activity after sunset.

Given these benefits, switching from outdated systems to modern technology is a win-win solution for many municipalities worldwide, but high upfront costs can be a deterrent. Attracting private capital via Public-Private Partnerships (PPPs) can help municipalities raise the funds needed to implement clever street lighting systems that secure efficiency and high technical standards in the long run.

The Public-Private Partnership in Infrastructure Resource Center (PPPIRC), a website that provides sample legal materials that can assist in the planning, design and legal structuring of infrastructure projects, has recently launched a sub-national section. One part of this section focuses on energy-efficient street lighting projects. Building on best practice cases, the new resource gives access to a variety of standardized and sample contracts and bidding documents, as well as laws and policies that are used worldwide to implement successful PPP arrangements for the delivery of small and large scale energy-efficient lighting projects.


What are some key trends related to street lighting projects that are reflected on the PPPIRC site?

  1. A strong and supportive regulatory framework: A clear regulatory framework that facilitates and promotes private investment is an important factor to attract private finance. Examples are the policies and institutional initiatives to promote energy efficiency in India (e.g. Republic of India – Energy-Efficient Urban Street Lighting) or the National Public Lighting Program in Mexico, which aims to incentivize investment in street lighting systems. In Brazil, a very important element for the success of street lighting projects are the municipal regulations (e.g. the regulation for Belo Horizonte) that introduce a tax called “COSIP” (Contribuição para o Custeio do Serviço de Iluminação Publica) that is collected exclusively for the funding of public street lighting services and ensures a reliable source of revenue.
  2. Developing a customized model: Given the differences between municipalities there is no one-size-fits-all approach. Governments have developed and implemented a variety of business and financial models that are suited for their specific needs and markets (see ESMAP’s series of six case studies that analyses different LED public lighting programs or Lighting Brazilian Cities: Business Models for EE Street Lighting). Concepts that have emerged include different Energy Service Company (ESCO) models  (e.g. shared savings model or the super-ESCO model that were developed for India) or leasing models (e.g. ESMAP’s case study for the lease-to-own delivery model developed for Guadalajara, Mexico). Large or medium-sized cities with good credit ratings may be able to attract private finance through more traditional PPP schemes where the private partner assumes more risks and responsibilities over the PPP contract life. Examples are the Highways Maintenance and Service PFI project for Birmingham, United Kingdom, the Concession for street lighting in Belo Horizonte, Brazil, or the DBFOM project for freeway lighting in Michigan, United States.  
  3. Pooling of projects and joint procurement: To improve economy of scales and make smaller street lighting projects attractive for investors, countries are also considering pooling projects to create larger ones. Similarly, as ESMAP’s case study on the delivery model chosen to retrofit the public lighting system in Ontario, Canada points out, joint procurement can also allow municipalities to conduct competitive and transparent procurement in a cost-effective way while leaving it up to the individual municipality to chose between different financing models (e.g. ESCO or PPP model).
  4. Standardization: In order to reduce time and expenses for smaller lighting projects, some countries have developed standard contracts, standard contract clauses, or even full standard procurement packs for PPPs in street lighting. They include technical documents, output specifications, legal documents and model contracts (e.g. super-ESCO model developed for India, standard clauses developed for France and standard procurement packs in the United Kingdom or Germany).  
The PPPIRC is a free online resource and relies on your support and input. If you are aware of additional best practice documents that could facilitate the structuring of street lighting projects worldwide, please send them to us at ppp@worldbank.org.


Related links:

The Public-Private-Partnership in Infrastructure Resource Center (PPPIRC)

A tale of… cities

Eight steps to brightening Bhubaneswar
 

Comments

Submitted by Dr. Mohamed Taher Abdelrazik Hamada, Ph.D on

Street lighting projects with lowering energy consumption are very required to
to reduce the the high prices on electricity and it is necessary to be sure of the
quality of street lighting for safety reasons .
Private capital should be strongly encouraged to share in PPPS street lighting
projects as a clever way to attrcat money owners .
Street lighting is very essential for both regular individuals and investors
to faciliate project procurements.
Yours Very Respectfully,
Dr. Mohamed Taher Abdelrazik Hamada, Ph.D
Retired Professor at Strayer University , USA
[redacted]

Submitted by Francois Bergere, PPIAF on

Street-lighting PPPs (in the broader sense, as they may include beyond public lighting highway electrical equipment, traffic lights, illumination of public buildings & historical monument,festive lighting or even stadium lighting, CCTV,...) were not among the top sectors envisioned for PPPs.Many observers initially thought that the investment amounts involved were too small (in the region of a few million dollars in most cases) to lend themselves to a relative complex and cumbersome procedure such as PPP. As for the main traditional promoters of PPP in the private sector – major construction firms – they seemed less immediately interested by this family of projects.
But such constraints have in many cases become opportunities: an opportunity to test a new and still little-known procedure on what, for local government, were traditionally non-priority projects strategically and in budgetary terms with more limited stakes & budget implications, an opportunity to involve SMEs and mid-sized companies as partners in addition to the usual big players, and an opportunity to add related general-interest or revenue-generating services, (to be shared between the public and private partners) such as street-light WiFi hotspots, information panels and advertising media, etc. The current landscape is a testimony to the flexibility and versatility of PPPs as a procurement tool to adapt to different constraints and expectations form one jurisdiction to another, while offering innovative and flexible solutions, reflected in some of the legal materials available on the PPIRC site

Submitted by Machief Ayuba Mallo on

I am a community development consultant based in Nigeria and I will love to learn more about this concept and how to get this innovation implemented in local government's round Nigeria.

Submitted by thomas samuel on

Interesting . I would love to get insight on PPP for solar street light, where energy savings cannot be the main KPI

Submitted by Calvin Mogaka on

Am calvin from Kenya are you interested on PPP for solar street light in one of the counties in Kenya? Kindly contact me if still with the interest.

Submitted by Calvin Mogaka on

If still interested in investing in one of the counties in kenya contact me.
calvoh90@gmail.com

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