Clark Hill 2023 Automotive & Manufacturing Industry Outlook: Electric Vehicles Update

P3 for Emobility: A Growing Transactional Area

The electrification of the transport sector by its nature includes public entities. From large public toll roads to local municipalities and airports, public entities control significant transport and transport-supporting assets that can be electrified.

Emobility has already embraced the lowest level of P3 deal-making

At the lowest level of cooperation and codependency, Clark Hill is already helping public entities strike deals to design, build, manage, operate, and maintain emobility infrastructure. Common deal structures include:

1. Construction service and design contracts for charging stations, battery storage, and associated retail/entertainment facilities. These tend to be common along major roadways, at high-traffic city properties, rail stations, and airports.
2. Management, operations, and maintenance agreements (the awkwardly named EV CaaS). This is probably the most popular model offered by emobility companies (like Tesla, EV America, ChargePoint, etc.) with the deal typically being for a license to parking spaces and a turnkey approach to operations and management. Real estate developers and retail businesses are somewhat ahead of the game in this area, and as mentioned it would behoove public airports, city facilities, and train station to start considering these projects.
3. Fleet service agreements are also popping up in deals with public entities. The City of Los Angeles Police Department and numerous school districts are the most popular examples, but any public entity with a fleet of cars, buses, or heavy vehicles should consider this approach.

Emobility makes sense for more complicated P3 models, but so far is underutilized

With much of the emobolity space stuck in the direct leasing model of public-private cooperation, there are other models that should be explored by public planning teams. Some novel approaches may include:

1. Development Agreements- a public entity would hire an emobility developer to implement solutions across their public assets. The developer would earn a fee for recruiting multiple concessionaires across multiple sites and managing the process. The emobility developer would be an expert in the area and drive competition. As an example, the right company for light-duty fleet conversion may not be the best party for heavy-duty fleet conversion. The emobility developer may have an easier time finding bidders and selecting the right party than a public entity.
2. Concession/Prime Concessionaire/Master Concession models could also be used. While not particularly dissimilar to the development agreement approach, many public entities involved in business along public roadways may be more used to a concession-type approach. Similar to the concession provider that provides retail, food, tolling, parking, etc., an emobility prime can be designated.
3. SPV/JV creation and revenue flip models- much like solar development, placing an emobility public infrastructure project in an SPV may make sense. Alternative fueling tax credits (26 U.S. Code § 30C) are likely transferrable, so a structure that embraces an investor/debt allocation of tax credits approach may help the municipality close what will be some projects with revenue funding gaps. Especially in areas with little to no current electrified infrastructure. While the municipality may be willing to expend tax revenue to build out infrastructure at a net loss, the investor/lender will not want to participate in that loss. The municipality may also want to utilize bonding to pay for the infrastructure, which can be paid to the SPV entity over time (like utility, school, and road development in neighborhoods). Once the investor/lender has made an adequate return, the revenue could then flip to majority ownership by the public entity.

What is the revenue potential of P3 emobility project?

Public entities typically will seek approval of infrastructure from the city council, public entity boards, commissions, etc. With that in mind, how does a P3 emobility project drive revenue and sway the often fiscally conservative decision-makers to act? The following are all reasonable revenue sources stemming from an emobility P3 project:

1. Yearly fees (licensing, minimum revenues, etc.)
2. Share of retail revenues, revenue sharing generally.
3. Coverage of capital costs/retention of property at contract end.
4. Retention of tax credits/environmental attributes/tax credit sale protentional.
5. Access to state and federal grant funding.
6. Brand recognition of the site.
7. Increased traffic to core business: tolling, retail, public entertainment (concerts, parks, seasonal activities), flights, train ride, etc.
8. Access to bond funds.

The views and opinions expressed in the article represent the view of the author(s) and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.