P3s are arrangements between governments and the private sector to build public infrastructure, including roads, hospitals, and schools or to deliver services. P3s provide a cost-effective mechanism for governments to access private-sector expertise and innovation and to scale projects.
Financing the Nation’s Expanding EV Charging Network
With more EVs hitting the road every year, the United States will need to dramatically expand its network of chargers. According to the ideal ratio of EVs to charging stations put forth by the U.S. Department of Energy, if EV sales reach 35 million by 2030, the country will need 1.4 million Level 2 and 120,000 direct-current fast chargers to keep pace.
The cost of all the hardware, planning, and installation for the new infrastructure is expected to exceed $35 billion, and federal funds will play a key role in financing this necessary investment. The IIJA provides $7.5 billion for grant programs to help states deploy convenient, reliable, and affordable public charging infrastructure nationwide. Initially, grants will come from the $5 billion National Electric Vehicle Infrastructure (NEVI) formula grant program. States seeking grants through this program have already submitted their EV charger deployment plans for consideration.
With more EVs hitting the road every year, the United States will need to dramatically expand its network of chargers. The NEVI program is not the only opportunity for funding. Guidelines will soon be available for another IIJA program, the two-part $2.5 billion Discretionary Grant Program for Charging and Fueling Infrastructure. The Discretionary Grant Program supports equitable policy goals such as increasing charging access in rural areas and in underserved and overburdened communities, building resilient infrastructure, and slowing climate change.
The IIJA also expanded the financing tools available for P3s. Changes to private activity bond (PAB) laws and the Build America Bureau’s Transportation Infrastructure Finance and Innovation Act (TIFIA) loan program will provide additional options for blending low-cost, long-term debt with private investment to fund P3s.
PABs allow state governments to issue tax-free municipal bonds to benefit private entities that finance specific public works projects. ILJA doubled the PABs authority for surface transportation projects to $30 billion. According to the DOT, nearly $14 billion in PABs had already been issued by late February 2022.
In addition, the IRA expands the tax credits available for the purchase of commercial and consumer electric vehicles. It also includes a new Alternative Fuel Vehicle Refueling Property Credit for 30 percent of the total costs of purchasing and installing charging equipment — up to $100,000 per charger.
The IRA tax credits started after December 31, 2022, and end after December 31, 2032. Businesses can use the credits after receiving other grants or rebates like NEVI funding.
How P3s Can Help States Deploy EV Charging Infrastructure?
Even with federal support, states still face stiff challenges in deploying EV chargers. EV charging infrastructure is highly complex and requires multiple decisions regarding site selection, charging technologies, user payments, electrical power upgrades, and more. A P3 can help overcome these challenges by blending federal and local government incentives with private-sector financial, technical, and operations expertise.
A public-private partnership (P3) blends federal and local government incentives with private-sector financial, technical, and operations expertise. Under a long-term P3, a private partner would assume the risk and responsibility for installing and maintaining EV charging stations in exchange for user fee revenue and/or other payments. The developer would likely finance the project, possibly with the help of federal or state tax incentives, while the state government sponsor can tap federal funding to help pay the developer.
Given that state and local governments are not in the business of operating EV charging stations, many pre-IIJA implementations have been delivered via P3s. For states seeking IIJA funds, a P3 provides a familiar tool that may prove to be the most efficient way to meet the rapidly growing demand for EV charging infrastructure. In fact, the NEVI formula program actively encourages state governments to partner with private entities, freeing state agencies to focus on their core missions.
Tips for a Successful P3
A successful P3 involves tough decisions to clarify goals, secure an appropriate partner, and negotiate an agreement that will last years. Given the complexity, P3 stakeholders need to invest time up front for careful planning and to consider the following key aspects:
- Define your EV charging vision. The most successful P3s begin with a clear vision and well-defined outcomes. Understanding use patterns of drivers, necessary charging speed, and overall site capacity will ensure the project is scoped appropriately with the right charging technology. Any potential partner will want to understand your implementation goals and risks, performance requirements, and, of course, financial objectives.
- Structure an agreement that meets your needs, while balancing risk and return. Your P3 agreement must provide a basis for the private contractor to raise financing and earn a return commensurate with the risks. To ensure that your community’s needs are addressed as well as your partner’s objectives, your agreement should include details on geographic distribution of charging sites, power supply, length of agreement, payment mechanisms, and structure.
Your agreement terms should also prevent the partner from allowing the chargers or stations to deteriorate as the P3 contract approaches expiration, and to keep pace as EV technology evolves. Electricity costs have a significant impact on private-sector returns, so selecting tariffs designed for the right use case — such as time of use rates (TOU) or commercial electric vehicle rates for fleets — is important to the financial feasibility of the P3 agreement. In addition, various EV charging owner-operator models exist. Therefore, design the deal to support the model utilized by the private partner (e.g., developer owns, operates, and maintains system through fixed-term service plans or public entity owns and operates, but developer maintains).
- Plan for careful management and oversight over the long-term. P3s involve long-term relationships and during that period you will need to ensure contract compliance and protect taxpayers. An efficient, streamlined governance process needs to be built into your P3 agreement so you can plan for the resources required to manage the relationship. Your agreement terms should also prevent the partner from allowing the chargers or stations to deteriorate as the P3 contract approaches expiration, and to keep pace as EV technology evolves.
Not all projects are good candidates for a P3, which is why IIJA requires public sponsors to assess whether a P3 is an appropriate long-term solution for their EV charging project. In some instances, alternative approaches may be more feasible.
The IIJA also provides funding for technical assistance to help states plan and implement infrastructure projects that the ILJA was intended to support. Whether or not a state or local government chooses to pursue the P3 route, the technical assistance funds will go a long way toward helping improve access to EV charging stations for all communities, large and small, rural and urban, and underserved and disadvantaged.