Energy P3s in the US: Is the future so bright, you’ll have to wear shades?

P3 Bulletin’s Sandra McQuain sheds light on the emerging trends flowing from the intersection of the water and energy sectors during last month’s P3 Electrified Conference

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The future of energy-related P3s in the US is a galvanizing topic. 

When it comes to energy, everyone at the P3 Electrified Conference in San Diego last month agreed the energy transition, Net Zero goals and the need to improve the reliability and resiliency of power generation, transmission and distribution will drive demand for innovation and should create opportunity for private sector investment and participation. There was also agreement that the nexus of water and energy needs could also create P3 opportunity.

Overall, there was optimism for this emerging category of infrastructure, but there was also acknowledgement that the regulatory environment of a public utility adds a new and untested dynamic into the equation. Sia Kusha, a senior vice president with Plenary Americas, noted: “One of the things that is new to us as developers and investors in these two sectors, is the fact that they - both water and energy - have traditionally been regulated utilities and regulated utilities traditionally don't come to the private financing market while maintaining their public ownership.”

Thomas Mulvihill, managing director and head of infrastructure at KeyBanc Capital Markets, echoed Kusha’s comments: “At Key, when we're talking about P3s for water and energy, we are really focused on where that private investment is in a project finance type of transaction. It isn't regulated utilities or public utilities. We are really looking at other entities that are bringing private capital to bear.”

Mulvihill noted that those other entities currently include universities and healthcare infrastructure owners who are looking for partnerships to address campus energy needs as well as solutions to address Net Zero goals. Mulvihill also addressed opportunities for energy projects connected to water.

“There has been a long history of water and energy together and, frankly, water needs energy. Unfortunately, people don't necessarily live where the water is and some of that water can be hard to get. You've got to pump up groundwater and you’ve got to transmit it through a pipeline. All that takes energy. You need to treat the water, both drinking water and wastewater, so for sure, we're seeing the need for energy there. And as new projects are being built, that needs to be considered at the time you're building them and they can be combined into a single P3. 

“We’re also seeing renewable natural gas or waste to energy become an area where you are again seeing a P3 starting to combine energy and water.”

Kusha and Mulvihill also discussed opportunities for large scale projects for data centers and other industrial uses. “These are very big energy projects that are being done usually for one single hyperscaler,” said Mulvihill. “That’s where you can start to introduce this P3 concept or project finance concept around it. They need a lot of water to help cool all that energy generation, so you’re seeing P3s or I should probably say more project finance structures get done that include energy and water within the same project.”

Added Kusha: “In both the water and energy sectors, we are beginning to see industrial applications where the owner is not a public entity. It’s effectively a P3, but it's a private-private participation where you actually have an industrial application. You certainly need water for the cooling of the data centers, but it's a lot easier and it's a lot cheaper to get that water from semi-treated or treated wastewater prior to releasing it back into the environment.”

Kusha pointed to the number of active hyperscaler projects in Virginia and the innovation needed to deliver complex energy and water systems. He said: “We’re beginning to see a lot of new technologies being developed and delivered. We're beginning to see a lot of generative AI with respect to these types of applications that require significant private financing, because quite frankly, public sector owners who own the water utility, water processes or wastewater facilities, don't necessarily have either the technical wherewithal or the financial capacity and capability to implement these types of new technologies into generating the water that is needed for energy transition or energy projects.”

In his remarks during the conference, Lucian Niemeyer, former assistant secretary of defense and a founding partner of UCAN Power, discussed how future demand would drive the need for P3s in the energy sector.  

“We are going to see a significant increase in demand over the next 20 years. And that's not just an increase in demand for generation, but there's going to be an increase in transmission requirements and distribution requirements,” he explained. 

“We're seeing that playing out across the country right now as new technologies come in, particularly data centers, and what they draw for power and water and whether we have the resources locally to meet that. And that also extends down to what we're installing for EV chargers around the country; the distribution that's needed to be able to address that significant capitalization requirement on top of maintaining resilient and reliable power.”

It is often said that market opportunities are created when there is either an unmet need or an emerging trend. It is clear from recent conversation that future energy demands check both boxes, meaning the prospects for P3 energy projects should be quite bright and definitely a sector to watch closely in the coming years.