Developing and rolling out innovative new infrastructure technology fast is only one part of limiting the worst impacts of climate change. The other key component is collaboration, sharing insight and fully realizing the value that both private and public sectors bring to the table. Public-private partnerships (PPP) are helping the private sector to provide long-term support to governments looking to drive deep changes in the way the infrastructure communities depend on is designed, built, and maintained.

According to figures from the World Bank, private investment in infrastructure fell sharply in 2020. As the world grappled with lockdowns, social distancing, and quarantines – many construction projects simply ground to a halt. Thankfully, it now looks as if infrastructure projects all over the world are back in action.

The data shows that sustainability is a high priority for this growing number of PPPs. In 2021, 95% of PPP projects related to energy generation were renewable, while those in the water and sewage sector saw the highest investment for 10 years. With governments all over the world looking to accelerate the transition to a lower-carbon economy, PPPs have emerged as one of the most valuable tools in the infrastructure sector’s collective toolkit.

We need a lot of investment in infrastructure

There is a lot of work to do. The OECD calculates that over $6 trillion of investment in infrastructure will be needed annually to meet the UN’s Sustainable Development Goals. That’s almost twice the entire GDP of India in 2021. Greening the existing infrastructure of countries is a significant task, but we also need to ensure access to resources is widened as well. Currently, around a billion people worldwide lack access to electricity. This effectively locks them out of the digital economy. The challenge of sustainable development is not just about doing what we do now with less – it’s about doing a lot more too.

The numbers involved are huge. But it is important to remember that this also represents a big opportunity for project developers. As the processes of climate change, population growth and urbanization continue to impact societies, infrastructure is an issue that will need to be addressed. Many cities that have been inhabited for long periods of time are already experiencing challenges when it comes to a growing population.

The question becomes: do you wait until something breaks before addressing it, or do you proactively manage risk?

Creating long-term value through PPPs

Alfanar Projects has significant experience in working as part of PPPs to ensure the successful completion of large-scale projects. In fact, in 2022 we joined an ambitious project alongside a range of public bodies in Egypt to build a new green hydrogen facility in Sokhna. Over four decades we have seen what makes a successful PPP firsthand, as well as the value they can create for communities.

A large part of this is understanding the power that the PPP model can have when utilized correctly. First, the initial investment planning process must prioritize projects that focus on creating the widest socio-economic benefit. While commercial considerations are crucial, they must be balanced with environmental, financial, and social factors and risks. PPPs have a central place in many ambitious infrastructure projects around the world, including the Kingdom of Saudi Arabia’s Vision 2030 Program as well as projects like Lighthouse Green Fuels in the UK.   

Second, the potential long-term impacts of climate change need to be considered at the project design stage. PPPs are usually focused on creating long-term value and quality rather than just the creation of underlying assets. This makes them well-suited to incentivize climate adaptation and risk mitigation into the design and delivery of infrastructure and development projects.

To do this effectively, PPPs need to be flexible enough to let the private sector do what it does best: innovate – especially for a challenge on the scale and complexity of mitigating the worst impacts of climate change. Managing the risks and uncertainties associated with long-term infrastructure projects requires governments to implement frameworks that support and protect innovation. This flexibility extends to contracts that focus on putting the right processes in place – because we all know that it is impossible to predict the future, especially one with a changing climate. PPPs can use a diverse range of models to explore a wider range of delivery options.

Maximizing the benefits of PPPs

Encouraging more PPPs in low-income countries could be challenging for a number of structural reasons. High transaction costs and low risk-adjusted returns may not be as attractive to investors and private companies. Available projects are also often not large enough to justify higher costs. These economies may present additional risks as well, such as those relating to currency, politics, business capability or institutional capacity.

Continuing to break down the barriers to PPPs to contribute to sustainable development and construction projects is a priority over the coming decades – especially if the world is going to achieve the trillions of annual spending estimated by the OECD. At Alfanar Projects, we know from experience that infrastructure development can have a strong economic multiplier effect. As successful renewable energy projects gather pace, they create a range of positive economic and social developments. These in turn attract more regional investment from the public and private sectors. We are already seeing governments across the developing world try to attract more PPP activity through a range of policies and financing instruments such as green loans and social bonds.

And the opportunity is enormous. A report by the International Finance Corporation recently stated that cities in emerging markets could attract more than $3.1 trillion in renewable energy, water, and infrastructure investment over the coming years. Those that create the right policy environment will have the potential to enable hugely positive changes for their communities.

Supporting governments. Strengthening communities.

We believe firmly that the future of the world is low carbon. Building effective and sustainable infrastructure is an essential way of strengthening communities and limiting the impact on ecosystems around the world. The challenge comes down to implementation, collaboration, and finding an effective way for the private sector to support governments as they embark on ambitious transformation strategies. This is why PPPs are so powerful and where their potential to enable a new wave of sustainable development across the world becomes clear. We know they work from experience, and we know that they will continue to create long-term value in the years to come.