Guidance on pathways to net zero for assets delivered under PPP contracts: an opportunity for parties approaching handback periods? 

United KingdomScotland

Much has been written about handback of PPP assets as some of the long term PPP contracts approach expiry. Scottish Futures Trust’s (“SFT”) latest guidance has a different slant. As handback approaches, with an eye to the future and the need for public sector bodies in Scotland to achieve net zero in Scotland by 2045 (and 2050 south of the border) SFT’s guidance focusses on pathways to net zero for assets delivered under PPP contracts (the “Guidance”). Although the Guidance has been published by SFT, the issues are also relevant to PPP contracts in England and Wales.

The Guidance provides an overview of issues to be considered in the context of existing operational PPP facilities, specifically how a systematic approach can be adopted to deliver net zero transition in this area. The Guidance recognises that the cooperation of all interested parties is required to meet these targets, due to the unique nature of PPP projects. It focuses on (and provides great detail on) the change provisions of PPP projects and how they can be used to achieve changes necessary to reach net zero.

The Scottish Government and UK Government are committed to achieving net zero emissions by 2045 and 2050, respectively. As part of this drive to net zero, an “Energy Security Bill” was announced in the Queen’s Speech on 10 May 2022. This contains measures aimed at innovation in carbon capture, low carbon hydrogen and the finalisation of the set-up of the UK Infrastructure Bank. The Guidance is published against this political backdrop, which is focussed on low carbon energy sources. Therefore, any funding available in the context of PPP projects is likely to be in the low carbon sector, evidenced by those announcements in Queen’s Speech.

The opportunities arising in this rapidly moving area provide a unique possibility in the context of PPP projects approaching their handback periods. It is widely recognised that change provisions in project contracts can be complicated and burdensome for all parties involved. Although the Guidance focusses on net zero pathways being implemented via these change provisions, our view is that a more holistic approach between the parties in terms of handback and net zero could be favourable, using net zero pathways as an opportunity to increase engagement between parties during the handback process. Instead of relying on onerous change procedures, there is opportunity for parties to discuss, negotiate and come to mutual agreements on both net zero and handback. This is particularly pertinent in PPP projects in the latter stage of their handback periods, where funders are no longer involved and therefore their consent is no longer required, as such discussions can become less complicated.

By facilitating these discussions surrounding net zero pathways, parties to PPP projects can simultaneously open or reopen discussions surrounding handback with an opportunity for positive engagement. Each PPP project requires individual discussions and bespoke solutions for their respective handback periods, meaning there is a huge amount of work to be done. As a result, there is a general urge for handback discussions to begin early, rather than being left to the final few years before the expiry of a project. This is in the best interest of all parties involved due to the sheer volume of work required.

This Guidance provides an opportunity for parties to commence discussions surrounding net zero changes, and therefore an excellent opportunity to revisit or indeed visit for the first time, discussions surrounding the handback process.

The Guidance can be found here.

For more information, please contact one of the following local CMS experts or your usual contact at CMS.

Article co-authored by Rosie Walsh-Kirk.