Episode 41: Evolving Energy P3 on Higher Ed Campuses
Dave Karlsgodt 0:00
Welcome to the campus energy and sustainability podcast. In each episode, we talked with leading campus professionals, thought leaders, engineers, and innovators addressing the unique challenges and opportunities facing higher ed and corporate campuses. Our discussions will range from energy conservation and efficiency, to planning and finance, from building science to social science, from energy systems to food systems.
We hope you're ready to learn, share and ultimately accelerate your institution towards solutions. I'm your host, Dave, Carl Scott. I'm a Director of Energy and Sustainability at drills for the Navy.
Kevin Mara 0:39
And so where can you find opportunities where the university has advantages and outside partners have advantages that actually lead to more benefit where one plus one equals three rather than what one partner could accomplish on their own? If
Chris DePodesta 0:57
there are any skeletons? Like bring those out early, you know, often giving something come up the week that you're going to close because somebody finally did find an environmental report in a underground storage
Kevin Mara 1:12
tank, since about a real example that's ever happened to you. Right, Chris?
Chris DePodesta 1:15
I'm just thinking about things that could happen.
Carolyn Arida 1:18
I think communication is key. When it breaks down, that tends to be where most of the problems are. Because the reality of these long term partnerships is no financial model is ever right, it will be wrong. None of us can forecast what's going to happen over the next 50 years we had COVID There are all sorts of things that are going to happen. And so folks need to communicate and have to be willing to get to the table, sit down and talk through here's an issue.
Dave Karlsgodt 1:43
In this episode, you'll hear a session recorded earlier this summer at the 2023 Appalachian State University energy summit in Boone, North Carolina. This panel included my BND colleague, Kevin Mara, and two industry experts Chris de Podesta, and Carolyn Aretha from the infrastructure investment group at Harrison Street, the topic evolving Energy Public private partnerships or energy P threes for higher education.
Without further ado, we'll just get going. My name is Dave Karlsgodt. I'm the Director of Energy and Sustainability at Brailsford and Dan Levy. We're, I guess I said this morning, excited to sponsor this conference and be working on campus here. Today we're going to talk about the idea of evolving p3 energy. And we'll unpack that a little bit. I'm going to give a little bit of context to get us off. I'll let these guys introduce themselves. We'll get into some questions amongst that I'd have prepared for them. We'll get a little bit later into the conversation. I'll turn the mic over to you all. I'll probably walk around and play like a talk show host or something. We'll see how it goes. But we have to do a soundcheck for the audience too. So tell people that are listening to this in the future. What is North Carolina sound like? So you ready?
Well, I'm gonna just provide a little bit of context about higher ed energy and why we would even think about P threes first. So I've been doing work in this space for about a decade now. A lot of my work has been helping institutions think through big infrastructure challenges, big long term challenges. It started mostly with utility planning, it's morphed mostly into climate action planning, and now a variation of that being decarbonisation planning. So how do you take a system or, you know, assets and convert them into something else? And this is not, you know, a little cute project on the side, this is like, completely changing your institutions way of operation. So one of the concepts that
Great. Well, Chris, I'm going to start with you. I think you play on both sides of what we're going to talk about. So usually, we'll talk a little bit more about what we mean with P threes. But I know you've got a background, kind of a foot in both fields. You've recently been working as an advisor more like Kevin and I, that have recently moved to the dark side on the developer side. So if you just give a quick introduction of who you are a little thumbnail of your experience.
Chris DePodesta 6:26
Okay. Thanks, Dave. Happy to be here. And this is a great Summit. Yes, who my career is really split in half. Half of the head is engineering, project management, construction of various energy technologies, where they're behind the meter on campuses who are large scale, conventional, I don't even know if that's a word anymore. But we'll say fossil is when we as renewable in the other half is developing such projects for independent power producers in private equity groups. So yesterday, we met Harrison Street is a director of development in asset management. I hadn't even heard your new title yet. So glad to know that.
Dave Karlsgodt 7:09
Great. Yeah, Carolyn, we'll move on to you.
Sure.
Carolyn Arida 7:12
Sure. So I've, I guess been on the dark side my entire career, but always in energy and infrastructure. I started on larger utility-scale projects, I started my career at GE Capital in their energy Financial Services Group, and in true GE fashion rotated through all of the technologies, worked on coal back in the day, and drill rigs and all sorts of that good stuff, and then did a lot on the renewables front, I had the opportunity to build a largest solar project in Japan, the first and still only offshore wind farm in the US. So some pretty cool opportunities. And as we discussed in an earlier session, Harrison Street had always worked with municipalities, universities, schools, and hospitals more on the real estate side. So on campus housing and projects of that sort, and those institutions started to ask questions about, you know, we'd really like some help with our utility system, or we need to build a new data center, how could you help us so we launched a infrastructure fund five years ago. And that's when I joined to go help launch that strategy. I co-head it and focus primarily on district energy, renewable and other utilities transactions.
Dave Karlsgodt 8:29
Great. And then Kevin, it's been a pleasure to work with you to try to pull you into the world of energy, but you more have a background that's more steeped in the housing, housing p3. I've led a lot of transactions on that front. So I'll be interested to get your perspective there. But maybe give us your little introduction here.
Kevin Mara 8:45
Yeah, sure. Good afternoon, everyone. Kevin Mehra, senior associate with Brailsford and Dunlavy. To the extent that Dave provides leadership nationally in our energy and sustainability group, I'm more on the day to day side, leading projects here in the southeast. And so I work across a variety of asset types including a lot of housing but you know, anything from dining to entertainment districts to athletics to all sorts of stuff and so to give a quick summary B and D is really about helping clients plan and make good decisions about what's next for their campus and then really leading them through all the way to implementation. And so that's been really exciting to work with AP state on in particularly.
Dave Karlsgodt 9:30
You're right and you had I don't think you personally had a hand in it, but in our firm had a hand in some of the housing we got to stay in last night so that was
Kevin Mara 9:38
oh, yeah, no, I did or you did okay. Yeah. Great. Well, so if you if you like the housing great if you don't someone else built it.
Dave Karlsgodt 9:46
Yeah. All right. Well, I can't wait another foundational conversation before we get into evolving energy p3. Let's start with just defining what we mean by p3 and I don't want to go into too much detail but this group we have kind of our own way of thinking about that p3 kind of means, like a Rorschach test, I suppose. Maybe Kevin, because of your experience doing p3 ease and other places? Can you give us the most generic kind of high level understanding of what we're even talking about? And then we'll dig in from there?
Kevin Mara 10:15
Sure. So the way that I think about p3 uses is sort of its transferring risk right? At the end, we talk about kind of three buckets, deliver the right asset, acquire capital advantageously, and then operate the asset efficiently. And there's opportunity for the partnership aspect of p3 is in all of those buckets. And so where can you find opportunities where the university has advantages and outside partners have advantages that actually lead to, you know, more benefit, where one plus one equals three, rather than what one partner could accomplish on their own. And I think that's really the crux of what we try to do in these transactions.
Dave Karlsgodt 11:04
Alright, so Carolyn, you get to dig us into the topic of the day, so narrow us into p3 for energy for higher ed, how would you describe that?
Carolyn Arida 11:14
Well, there are a lot of structures. And I would say it all comes down to flexibility. But ultimately, what we are looking to do is provide capital solutions, and really that core competency around the energy assets to help identify a solution and bring capital to it. And so there's a pretty wide spectrum of transactions that have happened in the marketplace, and that we're continuing to do everything from a private party acquiring the entire energy system at a university, to really just supporting the development and capital formation around a specific energy capex project that might be on a campus. There are lots of variations in between. But really, as mentioned, it's an objective of transferring risk identifying folks that have the skill set, they have that partner bench that can just help advance those projects and allow a university or a healthcare system to focus on their core competencies, and really leverage what the private sector is doing. In this world of decarbonisation. There are all sorts of new technologies out there. And there are all sorts of new combinations of technologies that we're deploying. And, frankly, there isn't one solution that is identical to the next. So finding partners that are really willing to roll up their sleeves, think about who should be brought in for this project, and why goes a long way. And I think that's one of the key values of doing an energy p3.
Alright, well, I promised you we wouldn't get too deep into transaction types. But um, I'll throw out a few in this question just to get to the winner I'm trying to go. So bear with me here. The concept here is evolving p3. So we kind of need to know what's happening now that we need to evolve from so let me just lay out a couple of things that I think may some of the people in the audience here may think of when they think of p3 energy for a higher education campus, I think the most common one would be a power purchase agreement. So having somebody pay to put solar panels on and then selling you the electricity, that's sort of the most simplistic one that I can think of. Another one that's pretty common would be an ESCO company comes in, they fix things in your building, you pay them out of the energy savings, that yields, that's probably a pretty common one. Sometimes those goes great, sometimes there's some problems with those. And then the third one that I've we've heard a lot about recently is the Ohio State, billion dollar check version. And there's that's a, you know, I've heard that in some of the conversations today, I probably not going to talk about all of the intricacies of how those are structured. And I don't think that's what we want to get to today. But we can certainly answer specific questions later. But what are the problems that we're trying to solve for? Why do why do these things need to be evolved? What's missing? And what those three things that I laid out? Or how can even those specific structures be evolved? I'll start with you, Chris. And then we'll just maybe run it down the line?
Chris DePodesta 14:20
Okay, thanks. No, great, great question. I think, you know, there's always the first one of anything and I know is clearly mentioned, she worked for GE, and is a developer in a room like serial number one of a new gas turbine, but they always stood behind it. Right. So I think it's evolving because the stakeholders that are involved at the universities have different priorities. The resources that are there, the technologies that are available, period, yep, state we're looking at a geo change. Other areas of the country are getting wealth for that, so pricing and structure in in partners and solutions are really set up in the location. And again, the stakeholders. And then I think the third is just echoing what Carolyn had said flexibility, that that's just key. So it's not necessarily about what will the technology be, but that the structure is here to allow for that flexibility, where it really doesn't matter. It's about the performance and when it's providing.
Carolyn Arida 15:30
To build on that when you enter into these long term agreements, it's a 50 year marriage, and you better feel pretty good about who you're getting married to for 50 years. And so I think it's important to think about, once again, what are your priorities? Who do you want on the other side of the table? And why what are they offering? Which risks are they taking? Are they do they have the core competencies to take on those risks? And does it make sense in that regard? So we'll probably say the word stakeholder and partnership 50 times here, but honestly, that is one of the key components with that is also alignment. And it's something we're quite passionate about. It's how do you figure out how to ensure that parties have the right alignment that folks are incentivized to ensure that things that are the priorities of each side are accomplished. And there are a variety of mechanisms that you can use there in terms of cost savings. In terms of bonuses, you always have an option, of course, when you go out to do a construction project to have a fixed price, are there certain risks that may be folks take on and share again, the cost benefits associated with those and I think alignment is sometimes overlooked, because it just takes a little bit of extra time, and structuring and negotiation, as opposed to pulling a contract off the shelf.
Dave Karlsgodt 15:39
Okay, so more time on stakeholders I hear from both of you is the evolution that's required, loud and clear. Kevin, you've worked in these other types of asset classes, not just energy, District Energy Systems, what do you have to say? And what have you seen evolving in some of the other spaces where you've seen P threes work?
Kevin Mara 17:16
Yeah, I think it's a more nuanced understanding of the strategic imperative behind the partnership, right, it's not always a financial return, it's not always the monetization of a particular asset on campus. I'll give an example from one project in northeastern state with a declining population, where they had a number of historic buildings on campus that just had a ton of deferred maintenance, right. And so they went out and found a p3 partner to take on those historic buildings and create a boutique hotel and extended stay hotel, on campus, at their institution. And in doing so, got rid of a bunch of the deferred maintenance obligation, but it wasn't a huge check to the university to do that. But they got that deferred maintenance obligation off their books, they got a really useful asset that helps benefit their campus. And so that partnership, I think is going to be a success. But it took really understanding what the overarching goal was, and it you know, it's not just to check.
Dave Karlsgodt 18:27
Alright, I'm gonna back up a second to is there always a check involved? If I do a p3 is University? Do I always get paid to do it? Well, how does that work? The first time I ever heard of this, that was like, the question I had is like, what are you talking about? You're gonna pay me to do work on my campus? Like, how does that happen?
Kevin Mara 18:42
So there's a concept called residual land value. And you get to take the margin between the cost of providing something and the value of that land and spend it on all sorts of things. And that can be a check, or it can be affordability if you're trying to deliver affordable housing, or it can be innovation. And so it's that margin that you get to play with as an institution because you control the land and how valuable is that land?
Dave Karlsgodt 19:14
That was pretty good. Let's flip it around. We're all on, I guess, the Dark Side relative to the higher ed world because we're not in higher ed directly. But what can higher ed do to evolve from your perspectives? I guess, Kevin, I'll start with you. You are kind of on the higher ed side of that equation. We'll give our folks at Harrison Street a chance to poke at the other side a little bit. What can what can higher ed do to evolve? Partnerships on their side? What are the things that they can change? Maybe I'll set it up with building on my last question. I think there's a thought out there that you want a big check. Like I want to do p3 Because I want that big check. Right? That's like really simplistically, that's how a lot of people start thinking about this. For obvious reasons. That's, that's probably not the best way to approach these things. I mean that, you know, you're it's not a piggy bank that you're these are actual institutions that have missions that are trying to accomplish things. And if they're staying true to that mission, cashing out of them, that's probably not like, you know, the highest and best use of their their assets. If they're approaching a p3, what is higher ed not done? Well, that or you're starting to see change? Or how can it evolve to take better advantage of these types of transactions or situations?
Kevin Mara 20:28
Yeah, I think the, the more clarity you can achieve before going out to the market to engage partners, like Harrison Street, the better results you're going to have the level of planning that you put into these engagements yields dividends, as you get into stages, like design and negotiations, and all of that, because clarity yields efficient decision making down the line, and that is better for everyone in the partnership. And so going in with a lot of due diligence, while it feels like a lot up front, and not something that universities have traditionally been great at, does yield a better outcome at the end of the day.
Dave Karlsgodt 21:14
Yeah, all right. Here's your chance. What can universities do better? Harrison Street?
Carolyn Arida 21:18
No, I agree with that. I think a big part of understanding what you want is making sure all the right people are at the table, though, sometimes one of the key components is missing at a certain stage. And folks have 50 paths to run down and someone will start running down a path. And then it's like, Oops, we forgot to call up some department. And then you're backtracking and having to start over. And that's just something that can really be challenging. So one of our requests is always please get everybody to the table at the very beginning. I'm not saying we need to have 50 people in the room at every single session. But let's introduce everyone understand their perspectives, what they care about, so that we can prioritize what the university needs and wants, and can use that information to make informed decisions. I'd also say information gathering is really helpful, too. So everything that you have on campus is helpful. But just asking questions, reaching out, we love to come to a campus and do nothing but walk around the existing equipment and talk about other things that we've done. Because this world is evolving quickly. And none of us know everything that's out there, all we're trying to do is pick up 10 different pieces from 10 different projects, and combine them in the appropriate way for the right Counterparty. So that's probably what I would say.
Dave Karlsgodt 22:49
Go ahead, Chris.
Chris DePodesta 22:50
Yeah, just to put a finer point in the data. If there are any skeletons, like bring those out early in often having something come up the week that you're going to close, because somebody finally did find an environmental report in a underground storage tank, or something like that wasn't disclosed
Kevin Mara 23:14
That's not a real example that's ever happened to you, right, Chris,
Chris DePodesta 23:16
I'm just thinking about things that could happen, really. So that's kind of the skeletons, sort of thing, I think, be mindful the level of effort in the university side, in the advisors, you need to bring in. Just typically, if you haven't done a p3 in the housing side, you know, p3 in the energy side is quite a bit different. So make sure you hear the reed advisors in place, and then expectations and the duration that this is going to take. This is named a three month exercise. So data information, bad news is good. Telly mean, and they say qualifications. Really, for the few three partners that you're going to bring in, we're talking to qualifying them, make sure they're right for you. Everybody has their place, based on location, size in just, again, the stakeholders involved and how flexible both parties are.
Dave Karlsgodt 24:14
So I want to dig into that a little bit. And then we'll go to our next question, which is, I was talking to a public institution not too long ago, and they had a really specific idea they were pursuing, there were significant amounts of data required for that to make sense. And for counterparties to be excited about it. Um, it had to do with biomass and the availability of wood and etc. I got the sense from the development community that even if they told them everything about it, they wouldn't believe them anyway. And then I got the sense from the university that they just were like, well, we'll just do one more study, and then we're gonna be ready and then it'll be great. And we'll get all these great deals. Can you speak to that? Because I think, you know, tell me like, how do you guys actually think about it? Because if you're gonna write the check, what do you want to see?
Chris DePodesta 24:57
Yeah, I think the word that I would make the plus the most as biomass.
Dave Karlsgodt 25:03
Okay, okay, that's different in different podcasts.
Chris DePodesta 25:06
But that's just, I have some history there. Back in the day and developing those, it was very, it was very difficult plants, high capital, high fuel costs. So they are tough. But in the data request and the data request a, a, it's it's quoting the data. So with its, you know, in certain cases, depending on the central point that's there, you might be handwritten locks off of, you know, pressure indicators, and nothing really coming back to today's control system. So that that's more qualitative. From the analysis standpoint. It's more cumbersome, but I think you can you can also over meter things, I think in the backend said when we're talking key performance indicators, KPIs, so it's, you know, today we can meet or everything right, but if you don't have to don't can, you know, keep it simple. In because in the operating side, you want to you want to keep the checks and balances as simple as possible. Did that answer the question or today?
Dave Karlsgodt 25:06
Yeah, no, I think so. Well, I guess what I'm hearing is, knowing what's there. And if you're making the decision more on how they answer the question, then the actual answer to the question, maybe in some ways, like their data readiness is is as important as the actual data they provide. Is that, but maybe, Carolyn?
Carolyn Arida 26:30
All right, I think I would say you should work with what you have to begin with. And if what you have is great, you're off to the races. If what you have isn't great, that doesn't mean that you need to run around and and install a bunch of meters and do 15 studies to get to the next step, because that's where the priorities come in. It's what is your expectation on the other side? If you're a system that has extensive deferred maintenance, and you're not going to run that boiler plant in five years, do I as an investor really care all that much about how that was historically running? Maybe not as long as you're not going to say you must make sure that that old boiler plant has a 100% availability factor for five years, that would terrify me. But I guess what I'm saying is, as long as you're balanced on what your expectations are, with the data that you have, you can always find a path. And I think you can bridge the path by having a dialogue with who your partner might be. And that's not necessarily a requirement that you go do a bunch of studies and collect a bunch of data, it all boils down to what you need and want.
Dave Karlsgodt 27:37
Maybe another way to say it is there. There may be poker game negotiation somewhere in this process. But that first step is not the place to do it.
Carolyn Arida 27:45
Agreed. I think it's really identifying what you have and where you might want to go and figuring out maybe what meat is missing from the middle of the sandwich.
Dave Karlsgodt 27:56
Yeah, that's great. Before we go to audience questions, let's dig into the third P. So public private partnership says Kevin and I were kind of batting around some ideas for this, that that seemed to be the theme that we really wanted to settle on here. Maybe I'll start with you, Kevin, can you give us maybe a broader picture of what partnership should mean in this type of transaction? If you're going to use private money to do something in a public institution? With risk transfer, as you described in the first question, what does that partnership really need to look like to make it successful?
Kevin Mara 28:33
I think, to the extent that both partners we we've just talked about data from the university, right, but to the extent that both partners can be open book and and how they're arriving at assumptions and where costs are coming from, that's a really important partnership aspect. And then I think one important piece is, how do you identify value in the partnership. And it sort of goes back to what I was talking about earlier, in terms of the level of planning you can do up front? An important way to do that is figure out the base case, what would you have been able to do on your own? Right, and it doesn't have to be the most rigorous analysis, right? You can make assumptions, but they should be educated assumptions. But there needs to be a baseline against which to measure or else. By the time you embark on this extended journey with your partner, you're just in the woods together, right? You need to build the box that you're going to play in before you really get too deep into the process. And that I think, allows for efficient decision making and creative solutions over time. Because you have clarity about where the value is that you're generating in the partnership.
Dave Karlsgodt 29:51
Can you articulate a few specifics that would go into that? I mean, the financial ones are probably one one, but what else would fit in? What would the box be made out of?
Kevin Mara 29:59
Let me give the example of the housing p3 Here at App State. So Dan Layzell is in the room, I hope he doesn't mind me talking about this. So before his time, it was That's true. Before before Dr. Layzell, the university knew it had a housing issue knew it needed to replace aging inventory, and attempted to do so in a sort of in a piecemeal fashion, they issued bonds, tore down a residence hall, but then couldn't replace it in a cost effective manner. And so they knew they needed a partner to come in and do it at scale, in a way that allowed them to change the sort of design guidelines that they were following, to just provide a much more efficient product. And so it was important to know what App State could deliver a housing project for themselves at the outset, because we were innovating the p3 structure here in North Carolina with that project. And so when you go for state approvals, you have to be able to say, this is the benefit that this is generating, right? We know what it would cost for us to do it. Because if you don't have that data set up front, it all becomes ex post facto, right? You really have no idea what the value is, or, you know, people can come back and say, Well, you know, you could have done, I could have done that, right. But it's not a sort of intellectually honest way to look at it. So you need to do it, you need to do the mental exercise up front. A nd when you know, when the housing p3 wrapped up, at the end of the day, it was a significantly less cost per bed than the university was able to do themselves. And there are a variety of reasons for that. And I'm happy to talk about it anytime. But we had that number for self development from the outside. And we could benchmark against that the whole time as we were making the case to the state and other folks
Dave Karlsgodt 31:55
Ok great. And I probably egged it on. But I think we got off our original question, which was a partnership question. But Carolyn, bring it back to that unless you want to add anything to what Kevin just mentioned. You know, from your perspective, what are those critical moments of partnership?
Carolyn Arida 32:11
I think communication is key. When it breaks down, that tends to be where most of the problems are. Because the reality of these long term partnerships is no financial model is ever right, it will be wrong. None of us can forecast what's going to happen over the next 50 years, we had COVID There are all sorts of things that are going to happen. And so folks need to communicate and have to be willing to get to the table, sit down and talk through here's an issue. And here's how we're going to work to resolve it. And when that doesn't happen, I think that's where the biggest challenges are. Nobody ever wants to crack open a contract and say, Well look, that provision said blank, that's a really bad day that nobody ever wants to be there, the contracts important, it has to be there because folks are putting millions of dollars out the door. But at the end of the day, it boils down to communication and appreciation, I think from both sides, that one plus one is three, that folks are going to work together to make each other successful. Oftentimes, from a financial perspective, we're one of the single largest creditors to a university. And so we want the university to be successful, we would be self sabotaging, if we were doing things that were going to negatively affect that institution financially. And so, you know, everybody being open book and having a dialogue about here's what we're thinking about next, being open about here might be a skeleton in the closet and something we need to work through and over communicating really does help quite a bit.
Dave Karlsgodt 33:43
Take us home, Chris, and then we're going to audience questions.
Okay,
Chris DePodesta 33:46
Okay, we just hit you know, you have to, you just have to trust if you don't, if your gut isn't trusting of the partner, I mean, kind of the opposite of the poker face is you started with you're spending some time with one another. It goes for it goes for both sides, that the concessionaires trusting of university in the universities trusting in the concessionaire and so if any antennas start to go up, you might want to hook them back with, you know, your team of stakeholders. And make sure you can always back up, right.
Dave Karlsgodt 34:23
Fair enough. All right. I think we got through the core of the questions I want to go. I assume there's some questions in the audience. And if he does raise your hand to get the mic. Dan.
Audience 34:33
One of the things that I'm sorry, I may have missed it that I didn't hear you guys touch on when you're talking about making successful partnership was managing expectations on both sides. And maybe you were Biggie, were in a meeting. That was some of what you were talking about that maybe can you speak to the importance of that throughout the process, or wants to go ahead?
Carolyn Arida 34:57
Sure. Yeah, I think timeline, is one piece in particular, like ever, all parties being aligned on what the timeline looks like. And I think that sharing of information is really one of those key expectations. And I would say an important part too, in terms of managing expectations about an energy p3 is maybe compared to his housing p3 is they're really complicated. And I think in a prior session, somebody said, you're going to iterate, iterate, iterate, like that f9 key on Excel, it is going to go off for like, nonstop, that is just how it works, minutes, because you're trying to balance a lot of different pieces, you first need to understand the load side of the equation. So what are your buildings doing? How much load do they have? How might that change with time? And then, given that, what are those other priorities? And what are the pieces that you can fit together. And there isn't a magic tool that says the perfect solution is three wind turbines and this much solar and geothermal and it gets spit out. It takes rolling up the sleeves, bringing in multiple engineers and consultants to sort through that. And then if something pivots, all of that data has to pivot again. And so I guess I would just highlight that as something on an energy p3 journey, that flexibility on both sides is really important. It is truly a journey and a roadmap. Just like I said, not every model is perfect, that roadmap isn't going to be perfect, there are going to be huge changes with time. And you have to be nimble, as it happens. I don't know that I answered your question, I hope I did.
Chris DePodesta 36:45
It from like an advisor to the university standpoint, to put the adhesive back on. And the managing expectations with the newness of that type of contracting vehicle to the university staff, it's really important for the advisor to make sure that the university is thinking along p3 agreement terms, rather than third party operator terms or design bid build terms or something like that, and encouraging the university to move forward, even with limited notices to proceed, because the whole point of the p3 going back to alignment is you're both fully aligned, you're gonna get you're both getting the best out of this contract. So it's important to move quickly and purposefully. And sometimes certain stakeholders get hung up, because they're they're thinking of in p3, to build the contract,
Carolyn Arida 37:46
I might add one more thing on the advisor front that I think is often overlooked based on my experience, it's on for existing assets, really digging through the whole budget. So every university budgets differently, you might have a budget for your central utility plant, that budget may or may not account for IT systems and uniforms, and accounting and P cards and trucks and all of those things. And so, one thing we've noticed is we've pressed to that conversation to have that early because I know it's incredibly challenging to try to align those budgets. But I think the advisors who do spend a lot of time with the client saying, Okay, let's make sure we understand where everything's coming from, it helps make the decisions the right way. Because if you ignore a lot of those little items that add up, you're going to maybe miss judge in the analysis.
Dave Karlsgodt 38:44
All right. Other questions? Dan was brave and did the first one. So anybody else?
Audience 38:48
I wonder how this one is treating you something like the engine give a billion dollar check to Ohio State?
Carolyn Arida 38:55
So yes, we've done a similar style transaction. So we have taken over the existing utilities, a couple of universities and given them an upfront payment in exchange for that. And then a long term concession arrangement where we are there provider of utility services. So we've done a couple of those didn't get up to quite that size. And those I mean, to be honest, it was it was an interesting. So I think that that institution was really focused on how large is the upfront payment. The institution's we've worked with were a little bit more concerned about what does our annual budget look like? And how stable will it be? We don't need the biggest upfront check instead, we've kind of gone through our budget for the next 510 years. And we think we would really like to get a check of X dollars. So why don't you tell us if that's what we want to receive, what our annual fee would look like and judge bitters from that perspective, which I think was a different and unique approach, or no check and a lower annual payment. Right? We've done that as well.
Dave Karlsgodt 40:04
Great. Any last questions? Otherwise, I'm gonna go to my last question. And we'll wrap up. Tell me about where you see energy p3 going in the future. Now that you've been through some of these, play this out, give us the future. Be a futurist for the last question. It's always it's always fun to have that. I don't know, five years out, 10 years out, do you think this will take over? Do you think it'll evolve to be unrecognizable? I mean, tell us what it what do you think we're gonna see?
Chris DePodesta 40:29
You know, from a technical standpoint, I think, yeah, there's there's tremendous change, running energy transition. We've talked about some technologies and other discussions with folks here and not ready for primetime yet. Maybe baking in a missing money piece, to align with social cost of carbon, if you want to advance some of these technologies, because you've made some budgets. But a, I think the ones that I've been involved with the will been different. So I think the more that these are happening, the more people are educated on the pros and cons, I think, you know, it'll continue to evolve, I don't think it's going to be an off the shelf contract that you're going to pull. So it's still going to take a lot of heavy lift from both sides.
Carolyn Arida 41:23
Yeah, I would say I advise on not pulling the off the shelf contract and making sure you're tweaking it again, for your specific needs. I do think we're going to see more and more of these just because of the themes we talked about earlier, there's a need for resiliency, there's extensive deferred maintenance, there are heavy, decarbonisation goals. And these projects are getting more complicated. It's not just throwing a steam boiler in and running it through a campus, you're combining multiple technologies. And I mean, there really aren't even the specialists out there that do this every day. There aren't like singular parties that do all of it. And so for someone to expect a university to have those capabilities in house is just unreasonable. And so I think, to achieve the goals, you really do need to leverage the private sector in some way. And again, it's not a one stop shop, it could be a an evolving, complicated contract that honestly provides for flexibility. And that's what we've spent a lot of time doing in our contracts. It's making sure you know, if if there are opportunities for maybe the university to take a direct payment of the tax credit, to instead of pushing something through the concession allow for that technology to have a power purchase agreement to just figure out how can you bolt on elements to really, again, align the parties and make it the most cost efficient, de risked project for both sides. I think that's where we're going. But it's going to take a lot of work and rolling up the sleeves,
Dave Karlsgodt 42:56
You get the last word, Kevin,
Kevin Mara 42:58
Man. So what excites me about the future is that we don't know what the next technologies are. And so the one thing I might leave with is, to the extent that you can think modular ly or things that can adapt over time, this is not a discrete building that's going to stay there for 100 years. This is something that you should probably plan to plug things into and take things off of, and something that can really live along with an institution. And I think, if we can set partnerships up to do that, it's going to serve everyone into the future.
Dave Karlsgodt 43:40
That's great. Well, I'm glad to know that my musician, brethren in their creative skills, have a future in energy p3, because it sounds like there's a lot of creative thinking along with our friends from the stem world kind of coming back from our theme from this morning. But, again, want to thank our audience here, one last woohoo.
Great, and the folks here at App State, the AV guys that were great in helping us set this up. Thank you again. Just thank you all for coming. And I hope you enjoy the rest of the conference. Thank you.
That's it for this episode. A special thanks to Jody Miller and the mountaineer audiovisual production team at Appalachian State University for their recording assistance. Our music is under the radar courtesy of Dallas based musician and arranger geo Washington right and his studio Big Band. If you'd like to follow our show on social media, our Twitter handle is @energypodcast. You can also find us on LinkedIn, just search for campus energy and sustainability podcast. If you'd like to support the show, consider leaving a rating or review on iTunes. As always, thanks for listening.
Transcribed by https://otter.ai