1. USAEE Conference, Pittsburgh (Oct 25-28, 2015) Public-Private Partnership (PPP) Financing Model for Micro-grids Khashayar Mahani utgers The State University of NJ 1

2. Objectives Develop a financing model for investment in community- level micro-grids based on public and private parties collaboration Demonstrate how public and private parties can benefit from this investment Introduce Public-Private Partnership (PPP) models to energy sector community 2

3. Public Private Partnership (PPP) Business relationship between a private sector entity and a government agency for the purpose of carrying out a project which will serve the public Public entity transfers responsibility and risk of designing, building, operating and maintaining (DBOM) of the project to the private sector while maintaining the project ownership. PPP for micro grids – Revenue ownership Private sector owns the micro-grid’s revenue till the investment horizon Revenue ownership will be transferred to the public entity after the investment horizon till a finite after- horizon period (15 years) 3

4. Funding resources 4

5. Community Level Micro-grid Micro-grid portfolio includes: Gas fired generators (GF) Electricity storage (ST) Wind turbine (WT) Photovoltaic cells (PV) Combined heat and power (CHP) Boiler We are considering this portfolio to supply as much as possible of electricity and heat demands of the community 5

6. Model development To accurately estimate the project revenue, operation optimization model developed in our previous work is used. Financial model assumptions: –No possibility of investment in alternative projects –Interest rate term structure for municipal bonds is estimated and used –The project revenue is split between two parties based on the contract 6

7. Illustrative example 100-year flood zone region in Hoboken, NJ. –High vulnerability to extreme weather condition and power gird outage –Two super critical sectors (i.e. Health service and Information technology) are located in this region Operating Micro-grid 7

8. Data extraction Land use classification in 100-year flood zone, Hoboken Sector Number of units Total roof area (acre) Health service1011.38 IT219.37 Retail7298.77 Leisure828.69 Residential1500339.71 Half of the total roof area can be used to install PV panels WT installation is not practical in this region Micro-grid assets : GF, PV, ST, CHP 8

9. Bond pricing and interest rate term structure Short term interest rate lattice Bond lattice (with maturity at year 3 and face value of $5,000 ) 9

10. Two parties cash flow at the investment horizon Entity Expected Cash flow position (M$) at the investment horizon Public28.78 Private1.69 10

11. Conclusion Results clearly show how a Public-Private Partnership (PPP) model can be utilized to finance and implement a micro-grid project while both private and public entities’ profits are significant. The developed model guarantees a revenue stream for the public entity over the course of a finite horizon, while provides an opportunity for the private sector to apply its expertise and generate revenue for its own Development of such a (PPP) model can be a forward step towards closer collaboration of public and private entities for more widespread micro-grid implementation 11

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