The energy transition is the process of shifting the global energy system away from the consumption of fossil fuels and toward low-carbon technologies in order to support international goals of limiting climate change. Energy transition in developing countries will require an unprecedented transformation of the power sector infrastructure, scaling up energy efficiency and renewable energy, and phasing down coal-fired power generation. 

In this section, you will find recent research along with links to the sections in PPPRC focused on transitioning to clean, renewable energy, improving energy efficiency, and gradually phasing out fossil fuels. 

PPPRC Sections

The World Bank Emission Reduction Program (ERP) plays a critical role in accelerating the global energy transition by enabling financial incentives, strengthening policies, and supporting projects that move economies away from fossil fuels and toward sustainable, low-carbon energy systems. It aims to help countries leverage the benefits of Emission Reduction Credits (ERC) markets, including increased revenue streams, reduced emissions, and improved environmental sustainability.

To access this section in PPPRC visit: 

• Guidance for Countries in Assessing ERC Projects

• Country System Assessments 

• Mobilizing ERC Finance

The Asset Recycling Guidelines have been developed to support governments in selecting, preparing, and delivering asset recycling transactions. A well-implemented asset recycling program offers an option to monetize invested capital, helping meet infrastructure development needs while fostering sustainable infrastructure solutions that promote low-carbon development pathways. 

The Guidelines on Innovative Revenues for Infrastructure can be a way for governments to increase revenues. These guidelines explore innovative financing mechanisms to fund infrastructure projects, with Commercial Value Capture (CVC) as the primary focus. The opportunities for applying CVC are numerous, and governments should consider potential innovative funding options during the early planning or project preparation stages to ensure that planning does not unnecessarily limit or fail to identify and capture these sources. The World Bank has applied these guidelines in various projects, and the PPPRC includes more than 100 project summaries with examples of commercial value capture in various sectors and countries, including energy.

The Renewable Energy Section in PPPRC offers insights into how different countries regulate and promote renewable energy development. By sharing renewable energy sample project documents and contracts, this section can also assist in adopting best practices in renewable energy. 

Tools

The World Bank Group’s Climate Toolkits for Infrastructure PPPs provide guidance to integrate climate considerations into infrastructure projects. Well-structured PPPs can enhance climate resilience, offering solutions for both mitigation and adaptation challenges. By allocating risks effectively between partners and providing long-term visibility and stability, PPPs compensate for the uncertainty of climate change through contractual predictability. The toolkits offer practical methods to incorporate renewable energy solutions and low-carbon strategies into infrastructure planning and investment: 

• Climate Toolkits: Roads

• Climate Toolkits: Renewables

• Climate Toolkits: Hydropower

• Climate Toolkits: ICT

• Climate Toolkits: Water Production and Treatment

The Renewable Energy Toolkits section in PPPRC links to toolkits for evaluating and setting up public-private partnerships for renewable energy. 

The Energy & Power PPP Toolkits provide best practices, standard templates, and guidance for establishing and evaluating public-private partnerships in power and energy projects.

The Energy Transition Toolkit from the World Energy Council is designed to define and better manage successful energy transitions. 

Governance of Transitions Toolkit - The Governance of Transitions Toolkit from the European Commission provides insights into key questions for regions undergoing transition.

Global Solar Atlas - research mapping tool - The Global Solar Atlas offers access to data needed for preliminary assessment of solar energy projects. 

Model documents

Model RFP & Concession Agreement for Waste to Compressed Bio Gas Project - Standardized documents for implementing waste-to-bio-methanation projects and create an enabling framework to encourage greater private sector participation in India's waste management sector.

Model RFP & Concession Agreement for Waste to Electricity Project - The Model Agreements include frameworks for Integrated Solid Waste Management (ISWM), Bio-methanation, and Waste-to-Electricity projects in India.

Key Resources

Strategies and Policy Frameworks

Green Economy Transition Strategy - According to its Green Economy Transition Strategy EBRD aims to undertake systematic screening to identify climate-sensitive projects at an early stage of development so that appropriate climate-resilience measures can be integrated into investment design.

Just Transition for All: The World Bank Group’s Support to Countries Transitioning Away from Coal - Transitioning countries away from coal—the world's most dominant and most carbon-intensive source of energy—is crucial to ensuring a clean energy future. The World Bank has built an approach based on lessons learned from decades of transition experience.

World Energy Transitions Outlook - The report provides in-depth analysis of two areas particularly relevant for the decarbonisation of end-use sectors: electrification and bioenergy. 

Renewable Energy Policies in a Time of Transition - identifies key barriers and highlights policy options to boost renewable energy deployment.

Legislating for a low carbon and climate resilient transition: learning from international experiences - The objective of this working paper is to inform policy experts, legislators and decision-makers on the recent trends in climate change policy-making around the world and to draw lessons learnt from the experiences with designing and implementing climate change legislation.

Financing and Market Mechanisms

London Stock Exchange's Voluntary Carbon Markets solution – accelerating the availability of financing for projects supporting the low-carbon transition - The London Stock Exchange has a centuries-old role as a venue that brings together those who need capital with those who have capital in service of an objective, be that the development of new products, investments in plant and machinery or the creation of jobs.

FAST-Infra initiative (Finance to Accelerate the Sustainable Transition-Infrastructure initiative) - 
FAST-Infra — the ‘Finance to Accelerate the Sustainable Transition-Infrastructure’ initiative — aims to close the trillion dollar sustainable infrastructure investment gap, with urgency, by transforming sustainable infrastructure into a mainstream, liquid asset class.

Scaling Up to Phase Down: Financing Energy Transitions in the Power Sector - The Scaling Up to Phase Down approach is a contribution by the World Bank to the ongoing debate on how to accelerate energy transition in low- and middle-income countries.

Scaling Up Private Finance for Clean Energy in Emerging and Developing Economies - This report’s analysis identifies key barriers and how to remove them – and sets out the policy actions and financial instruments that can deliver a major acceleration in private capital flows for the energy transition.

The Asset Recycling Guidelines PPPRC Section

The Guidelines on Innovative Revenues for Infrastructure PPRC Section

Reports

Theme Report on Energy Transition - his proposed roadmap illuminates a way forward for how the world can achieve a sustainable energy future

Country Climate and Development Reports (CCDRs) - The World Bank Group’s Country Climate and Development Reports (CCDRs) are a core diagnostic that integrates climate change and development.

People in a Changing Climate: From Vulnerability to Action - Insights from World Bank Group Country Climate and Development Reports covering 72 economies - Key insights based the Country Climate and Development Reports covering 72 economies.

Global Perspective on Coal Jobs and Managing Labor Transition out of Coal: Key Issues and Policy Responses - This report analyzes the status of coal phase-out around the world, the magnitude and character of coal mining jobs and their spillovers in local economies, and the challenges associated with future labor transition.

World Bank Group Climate Change Action Plan 2021–2025: Supporting Green, Resilient, and Inclusive Development - The Climate Change Action Plan 2021–2025 aims to advance the climate change aspects of the WBG's Green, Resilient, and Inclusive Development (GRID) approach.

Assessing and Mapping Renewable Energy Resources - The report’s purpose is to explain, for a wide range of audiences, the importance of resource assessment and mapping, key steps and good practices, methodological issues, and potential sources for further advice and support.

Guidelines to Implement Battery Energy Storage Systems Under Public-Private Partnership Structures - The objective of this report is to provide guidance on how such structures can be implemented to grow the role of battery energy storage systems (BESS) in developing countries.

Case Studies and Examples

MES Barcelona: Driving the energy transition through public-private partnerships - The MES Barcelona (Barcelona Sustainable Energy Mechanism) program, conceived and designed by the 2030 Agenda Office of the Barcelona City Council, exemplifies the determination of public administrations to join the private sector in the search for solutions ensuring a sustainable future with greater energy savings and less dependence on fossil fuels. 

Mini Grids for Half a Billion People - Market Outlook and Handbook for Decision Makers - This book includes actionable information for decision-makers, and it is the World Bank’s most comprehensive and authoritative publication on mini grids to date.

The Critical Link: Empowering Utilities for the Energy Transition - The report and UPBEAT dashboard  examine over 180 utilities in more than 90 countries.

France Ministry of Ecological Transition: portal for hydroelectric

Ministry of Energy Transformation 

Spanish Ministry for Ecological Transition and Demographic Challenge

Blogs

In the PPPRC Blogs Section, you can explore blogs and gain insights on global energy transition or visit the World Bank Group Blogs webpage. 

This section discusses how existing PPP projects can manage technological change that may occur during the project implementation phase.¹

This includes the management of changes that are permitted in the PPP contract or by the law that governs the contract, such as output specifications; periodic changes in the scope of work or tariffs; and unforeseen changes caused by external events or changes in law. Against the background of the transformative nature of some technological changes that are underway and have the potential to reshape entire infrastructure sectors, it is natural to expect that the parties will at some point during the contract term face circumstances that cannot be dealt with by the adjustment mechanisms provided for in the PPP contract. These changes in circumstance may need to be addressed through renegotiation frameworks as well as the dispute resolution processes and termination regimes set out in the respective PPP contracts or legal systems governing the contract.

See the sections below for managing technological change in existing PPP Projects.

Footnote 1:  The administrative arrangements and processes for handling change are often further defined as part of the contract management framework and materials. Although rules and processes for change are usually specified in the PPP contract, room for discretion is likely to remain.

This section of Disruption and PPPs is also supplemented with the following examples and resources. 

Technology is consistently innovating and developing. However, during recent years the pace of technological change has been accelerating rapidly across the global economy. Disruptive technologies can open up unprecedented opportunities for all infrastructure sectors, in particular with regard to digitalization and decarbonization. At the same time, innovative technology has the potential to displace established business models or supersede existing technologies within a short timeframe, thereby creating winners and losers within infrastructure markets.

Strategies that facilitate the adoption of disruptive technology

Against this background, governments increasingly face challenges caused by disruptive technology when managing long-term PPP contracts. Strategies that have allowed governments to overcome these challenges and to enhance “innovation resilience” and facilitate the adoption of disruptive technology are:

Plan for innovation

• Output specifications:
  • Anticipate long-term needs.
  • Quantify innovative technology risk (caps and exceptions).
• Variations:
  • Allow for technology changes if compensated.
  • Consider risk sharing for unpredictable technology changes (e.g., risk of obsolescence or upgrades with major cost implications).
  • Integrate gain sharing mechanism to incentivize the adoption of superior technology.

Enhance flexibility

• Equity principles:
  • Integrate explicit provisions that restore balance of economic equilibrium where mandated.
  • Consider integration of equity principles where possible (subject to legal advice).
• Term: Enhance flexibility related to contract term, e.g., present value-of-revenue (PVR) contracts.
• Change in law:
  • Limit/share risk for laws/regulations that require technical enhancement unless the requested upgrade is affecting the general economy and any type of business.
  • Integrate financial relief mechanisms to share and limit cost impact if legal obligation was not foreseeable and adversely impacts in a material form economic equilibrium of contract.

Consider potential cyber attacks

• Consider risk of cyber attacks when drafting force majeure/MAGA clauses.
• Consider availability of insurance for cyber risk (mandatory insurance requirement?).

Promote strong partnerships and contract management before dispute stage

• Cultivate strong relationships with the partner and stakeholders, to find amicable solutions when things change, before the disputes stage.
• Alternative dispute resolution mechanism in PPP contracts, including the use of dispute review boards, may be useful to prevent and resolve disputes.

Consider renegotiation and termination

• Consider renegotiation/termination where technological disruption has fundamentally altered circumstances long term.
• Specify process and conditions for renegotiation in PPP contract.
• Include provisions that give contracting authority the right to voluntary termination.

Increase the resilience of PPP contracts going forward

To increase the resilience of PPP contracts going forward and to encourage and facilitate the implementation of disruptive technologies with regard to future PPP contracts, governments need to prepare for technological disruption before the PPP contract stage. The following strategies could be applied going forward:

Plan for disruptive innovation

• Identify, assess and allocate risks/opportunities associated with potential technological changes.
• Find possibilities to integrate new technologies into projects throughout all stages.

Incentivize flexible and innovative solutions during procurement

• Consider quality of technical solution and its flexibility to adapt to a changing technological landscape during PPP procurement.
• Focus, e.g., on life-cycle costs and collaborative procurement methods that allow bidders to prepare alternative proposals or to propose innovative solutions.

Focus on climate-smart and digital projects

• Prioritize “green” and digital infrastructure projects (including smart-city components).
• Set out low-carbon and digital targets.

Collaborate with all stakeholders throughout project development to identify and adopt innovation (e.g., give access to data).

The Disruption and PPPs Section

The Disruption and PPPs section provides guidance to developing country governments on managing PPP contracts in the face of innovative technologies. It attempted to create a framework for thinking about potential strategies to enhance resilience and flexibility of PPP contracts in the face of disruptive innovation.

The examples, case studies and recent reports reviewed with regard to disruptive technology and disruptive events provided crucial inputs for the development of this framework. These inputs made it possible to highlight several strategies that governments could consider to make PPP contracts and contract management fit for the Fourth Industrial Revolution.

However, this section can only be a starting point—given the various types of disruptive technology that could impact infrastructure projects going forward and the fact that these technologies can be integrated into the physical infrastructure as well as used in infrastructure design, planning, delivery and management, and can affect PPP projects and their partners in a number of different ways as well as sector-specific differences. Because disruptive innovation as well as disruptive events are continuing to change infrastructure markets globally, it is expected that the evidence base for this report can continuously be expanded in coming years to make the analysis and guidance even more robust.

The objective of the Disruption and PPPs Section is to help governments of emerging economies to better understand the increasing impact of disruptive technologies on PPP infrastructure projects, and to provide guidance on how to manage existing and design future PPP contracts.

The five case studies below illustrates how different categories of technology disruption and disruptive events were dealt with in various PPP projects and what good practices might entail. These practical examples are drawn from different sectors and from both developed and developing countries globally.

Enhancing “Innovation Resilience” and the Adoption of Disruptive Technology throughout the PPP Project Cycle

We are living in a world of transformative changes. Technological advances together with the transition to a carbon-free future revolutionize the way we live and interact with the world and could have immense implications for infrastructure PPPs. To reap the benefits of technological advances, PPP infrastructure projects must be planned and designed with a view to potential upsides to such advances while maintaining the flexibility to adapt to unforeseen downsides or risks.

This section will discuss what governments need to consider during the different development stages of PPP projects, including the procurement, structuring, and drafting of PPP contracts. The section will also address the management of existing PPP contracts if the reader wants to facilitate the adoption of innovative technologies and respond effectively to the challenges of technological disruption.

The first part of this section, Preparing, Structuring and Procuring Resilient PPP Projects that Can Adapt to Disruptive Technology, discusses how “innovation resilience” and the adoption of emerging technologies can be enhanced throughout the project development stage going forward. It also gives a brief overview of some best-practice approaches that can be considered during the project preparation stage, including the structuring and procurement of PPP contracts. The aim of this section is to give the reader a basic understanding of the proactive steps that can be taken during the project development phase to anticipate potential changes and identify measures necessary to deal with expected changes while adding sufficient flexibility so that PPPs can respond efficiently and effectively to the opportunities and risks of this new technological era.

The second part of this section, Managing Technological Change in Existing PPP Projects, focuses on existing PPP projects and addresses disruptive technology from a contract management perspective. It outlines typical adjustment mechanisms that are encountered in most PPP contracts or legal systems governing PPP contracts, including the key underlying economic principles that may allow the parties to manage circumstances that were not fully envisaged at financial closure. In addition, it discusses mechanisms that are important tools for the management of unexpected changes, such as renegotiation frameworks, dispute resolution systems, and termination regimes. The aim of this section is to describe what governments have to consider with regard to projects that are already implemented in a changing technological environment, and to highlight emerging best practices that can inform future PPP contracts and contract management.

Preparing, Structuring and Procuring Resilient PPP Projects that Can Adapt to Disruptive Technology

The adoption and application of technology-enabled infrastructure as well as “innovation resilience” of PPP projects needs to be considered in the broader context of PPP project preparation and delivery against the background of the G20 Principles for Quality Infrastructure Investment.

These principles acknowledge that disruption and change have become the norm, and they stress that advanced technologies are an important component for new and existing assets. Two important ingredients of quality infrastructure are therefore (i) that it is resilient to natural disasters and other human-made risks,¹ i.e., planned, designed, built, and operated in a way that anticipates, prepares for, and adapts to changing circumstances and can withstand, respond to and recover swiftly from potential disruptions; and (ii) that it leverages innovative technologies through its life cycle to raise economic efficiency for existing and new infrastructure.²

Complex PPP infrastructure projects thus require new strategies that integrate InfraTech into the planning, design, procurement, and contracting stages and at the same time reflect the uncertainty and broad range of disruptive technology risks these projects may encounter over their life cycles. This section highlights key considerations regarding mechanisms that could be applied starting from an early stage of project preparation that could shape and determine the drafting of individual PPP contracts in times of rapid technological advancement going forward.

See the following sub sections: 

• Project Identification, Screening and Appraisal
• Considerations Related to Procurement
• Structuring the PPP Contract

Managing Technological Change in Existing PPP Projects

This section discusses how existing PPP projects can manage technological change that may occur during the project implementation phase.³ This includes the management of changes that are permitted in the PPP contract or by the law that governs the contract, such as output specifications; periodic changes in the scope of work or tariffs; and unforeseen changes caused by external events or changes in law. Against the background of the transformative nature of some technological changes that are underway and have the potential to reshape entire infrastructure sectors, it is natural to expect that the parties will at some point during the contract term face circumstances that cannot be dealt with by the adjustment mechanisms provided for in the PPP contract. These changes in circumstance may need to be addressed through renegotiation frameworks as well as the dispute resolution processes and termination regimes set out in the respective PPP contracts or legal systems governing the contract.

See the following sub sections:

• Contractual Obligations to Adjust the Project to a Changing Technological Environment
• PPP Contractual Provisions that Permit Regular Adjustments
• PPP contractual provisions and legal mechanisms that permit adjustments in exceptional situations
• Renegotiation, Government Step-in rights, Termination, and Dispute Resolution

Footnote 1: Principle 4: “Building Resilience against Natural Disasters and Other Risks,” G20 Principles for Quality Infrastructure Investment. This principle has been developed for disruptive events but it can also be applied to some extent to disruptive technologies. Disruptions such as the rising rates and intensity of climate change-related natural and other disasters, the 2008 financial crisis, the 2022 Ukraine-Russia conflict and the dramatic impact of the COVID-19 pandemic on infrastructure have shown the importance of quality infrastructure development to prevent and counter disruption.

Footnote 2:  Principle 2: “Raising Economic Efficiency in View of Life-Cycle Cost,” G20 Principles for Quality Infrastructure Investment.

Footnote 3: The administrative arrangements and processes for handling change are often further defined as part of the contract management framework and materials. Although rules and processes for change are usually specified in the PPP contract, room for discretion is likely to remain.

What Is Disruptive Technology?

Technological developments have always transformed lives and disrupted old ways of doing things. Older technologies, like the telephone, developed gradually, over decades. In contrast, new technologies, like the cell phone, scale with ever-increasing speed across the global economy. Often a few different new technologies (e.g., artificial intelligence, IoT, 3D printing, robotics) come together to create something entirely new. Although specific types of disruption caused by innovation are difficult to predict with precision, it has already become clear that these new technologies will have significant economic impact and will fundamentally change the way people around the globe work, live, conduct business and interact with each other.

However, not every new technology or innovation is disruptive. The original meaning of disruption is an occurrence of something external from a system, process, or event that prevents it from continuing as usual or as expected. Today, the term disruptive technology (or disruptive innovation) has become a trendy phrase to describe transformative change.¹ The phrase is used for technological advancements and innovations that share the following characteristics:

• The technology is rapidly advancing.

• The potential scope of impact is broad.

• Significant economic value could be affected.

• It has the potential to dramatically change the status quo.

The World Bank defines “disruptive and transformative technologies” in its 2019 Development Committee paper² as those that result in a step change in the access to products and services, and dramatically alter how we gather information, make products, and interact. For the purpose of this report, the terms "disruptive technology" and "disruptive innovation" are used interchangeably and in this broad sense.³

Examples of Disruptive Technologies that Could Transform Infrastructure

Technologies that have the potential to revolutionize or that have already impacted infrastructure projects include the following:⁴

• Renewable energy

• Stationary and mobile energy storage devices

• Mobile internet (MI)

• Artificial intelligence (AI)

• Mixed reality (MR), virtual reality (VR), and augmented reality (AR)

• Big data

• Blockchain

• Robotics

• Internet of things (IoT)

• 3D printing

• Advanced materials

This list is not meant to be exhaustive, and new technologies that have the potential to significantly affect infrastructure continue to appear. Appendix A provides an overview of these disruptive technologies, with a generic definition of each of these technologies and how they are applied to infrastructure.⁵ Based on this, How Are Infrastructure PPPs Impacted by Disruptive Technology?, deals with the impact of disruptive technologies on PPP infrastructure projects.

Footnote 1: The concept of disruptive technology (and later disruptive innovation) was originally introduced in 1995 by Clayton M. Christensen, and describes the evolutionary process of a product or service that is initially inferior to what is offered in established markets and only useful to new, emerging markets or smaller, low-end, and often overlooked markets. The product or service then migrates into and dominates the established markets by adapting to deliver the performance and value that the consumers in the established markets demand.

Footnote 2: World Bank Group. 2019. Mainstreaming the Approach to Disruptive and Transformative Technologies at the World Bank Group. See also: World Bank Group. 2018. Disruptive Technologies and the World Bank Group—Creating Opportunities—Mitigating Risks.

Footnote 3: According to the 2017 Organisation for Economic Co-operation and Development (OECD) report Selected Good Practices for Risk Allocation and Mitigation in Infrastructure in APEC Economies, disruptive technology risk is the risk that a new or emerging technology unexpectedly displaces an established technology used in that sector. Such technological changes can cause significant disruption to a project over the term of a concession.

Footnote 4: This is not a comprehensive overview but a selection of technologies that have already or will most likely disrupt infrastructure going forward.

Footnote 5: Appendix B and Appendix C highlight trends related to the application of disruptive technologies in the energy and transport sector.

Renewable energy projects can provide governments with an additional source of revenue, see examples below. 

The World Bank’s Municipal Public-Private Framework Case Studies includes around 100 Project Summaries with examples of commercial value capture in various sectors and from countries around the world. Below is a list of projects and project summaries which use Leveraging Climate Opportunities as innovative sources of funding.

To find more see Municipal Public-Private Partnership Framework.

List of Projects: Leveraging Knowledge Generators

• Sembcorp Tengeh Floating Solar Farm (108)
• SolarNova Rooftop Solar Program, Singapore (109)
• EV charging infrastructure, India (110)

Context

Building modern, sustainable, affordable, and resilient infrastructure is critical for meeting the rising demands of billions of people around the globe, while addressing global threats such as climate change. Both technological innovation and PPPs can be essential drivers to close the infrastructure gap and get more quality infrastructure services to more people: They can maximize the positive impact of infrastructure by enhancing sustainability, resilience, and economic efficiencies, and they have the potential to accelerate economic growth and private sector development in emerging markets. At the same time, insufficient public budgets (exacerbated by the COVID-19 pandemic) and the quest for greener, more resilient and inclusive infrastructure projects¹ continue to generate interest in public-private-partnerships (PPPs) globally.

The increasing number of global disruptions—in particular the growing frequency and intensity of climate-related and other natural disasters worldwide, economic and financial crises, and the pandemic—have, however, demonstrated some of the vulnerabilities and risks associated with unforeseen disruptive events on long-term infrastructure PPP contracts and the related importance of making PPPs more resilient. In this context, fast-paced technological and scientific advances can also be viewed as a threat. The advent of the Fourth Industrial Revolution has the potential to disrupt PPP infrastructure models if certain equipment, delivery models, and development tools become outdated or inadequate before public or private investors can fully recover the costs of the infrastructure. Similarly, deepening understanding of climate science and subsequent global collective action are rapidly pushing governments and companies away from carbon-intensive assets and industries and towards “clean” ones, raising the question of how to retire existing “dirty” assets. These impacts are already being felt in countries around the world, including in public services sectors such as transport and energy.

How can private sector adoption of emerging technologies be supported within existing and future PPP projects? How can new technologies be harnessed to strengthen PPP projects going forward? Which parties should bear the burden of the risk of obsolete and stranded assets? And how can governments “future-proof” their pipeline PPPs?

The PPP Contracts in An Age of Disruption section addresses these questions systematically by

(i) defining disruptive technologies and their potential impacts on infrastructure projects and PPP contracts;

(ii) outlining different policy options during the project development phase that encourage private sector adoption of innovative technology while improving resilience towards technological disruption; and

(iii) discussing considerations for PPP contract management as well as future contracts to embed flexibility that allows for the integration of new technologies and accounts for technology disruptions that will inevitably occur.

Aim of PPP Contracts in An Age of Disruption

The objective of PPP Contracts in An Age of Disruption is to help governments of emerging economies to better understand the increasing impact of disruptive technologies on PPP infrastructure projects, and to provide guidance on how to manage existing and design future PPP contracts. This comes at a time when emerging technologies are creating opportunities for innovation and enabling new business models that can be essential for economic growth and private sector expansion, and also have the potential to disrupt the way we plan, develop, deliver, operate and use infrastructure.

The PPP Contracts in An Age of Disruption section looks specifically at infrastructure projects that are financed through the PPP model because disruptive innovation affects them differently than traditionally procured infrastructure contracts in terms of challenges and opportunities. In projects that are entirely publicly funded, governments can unilaterally decide how to deal with changing economic assumptions, technological advancements, and standards. Projects that are financed through PPP arrangements are less flexible because of the long-term commitments made between the parties, including lenders. These long-term partnerships are based on key commercial assumptions, performance requirements, and an allocation of risks and related costs, all of which make it more difficult to respond to unexpected disruptions.

The PPP Contracts in An Age of Disruption section presents emerging practices related to PPP projects in developed and developing countries that were impacted by disruption over the past few decades. These examples as well as case studies² provide an understanding of the scope and type of pressures that PPP contracts are faced with when disruptions occur. They reveal trends related to the effectiveness of PPP contractual and legal mechanisms in responding to disruption in different sectors, and scenarios that can inform PPP contracts—both the management of existing contracts and the design of future ones. Recognizing that new trends are emerging continuously while disruptive technology is spreading rapidly, this report also intends to encourage further debate among all stakeholders involved in PPP projects—about potential technological disruptions and their impact on infrastructure PPPs, as well as approaches they have encountered that facilitate the adoption of innovative technology and the management of the risk of obsolescence.

Footnote 1:  The report Green, Resilient, and Inclusive Development (World Bank Group 2021) charts out the Green, Resilient, and Inclusive Development (GRID) approach, which departs from previous development strategies by promoting economic growth that goes hand in hand with environmental goals and social inclusion. 

Footnote 2: Included is five case studies that illustrate how different categories of technology disruption and disruptive events were dealt with in various PPP projects and what good practices might entail. These practical examples are drawn from different sectors and from both developed and developing countries globally.

“To improve is to change; to be perfect is to change often.” —Winston Churchill

This report examines how disruptive technologies impact public-private partnership (PPP) infrastructure; what this means for the management of existing PPP contracts; and how better partnerships can be created—ones that are more resilient to such changes, as well as flexible enough to encourage collaboration between the public and private sectors in order to allow implementation of innovative technologies.

Context and Aim of the Report

Both innovation and PPPs can be essential drivers to get more quality infrastructure services to more people: New technologies can maximize the positive impact of infrastructure by enhancing sustainability, resilience, and economic efficiencies, and they can play an important role in helping economies respond to global crises. At the same time, emerging technologies have the potential to disrupt PPP infrastructure models if certain equipment, delivery models, and development tools become increasingly outdated or inadequate before public or private investors can fully recover their costs.

The objective of this report is to help governments of emerging economies to better understand the increasing impact of disruptive technologies on PPP infrastructure projects. The report also seeks to provide guidance on how to manage existing PPP contracts and design future ones at a time when emerging technologies are providing opportunities for innovation, and new business models can be essential for economic growth and private sector development in emerging markets. In addition, the report intends to encourage further debate among stakeholders involved in PPP projects about the scope and type of technological disruption they have encountered, as well as approaches to manage associated risks and to encourage innovation.

Disruptive Technology, Infrastructure and PPPs

Disruption is all around us. Changes to the status quo are not new; they can come slowly or suddenly, and they can be beneficial, disastrous, or both. However, with the advent of new technologies, technological change has scaled with ever-increasing speed across the global economy. Though it is uncertain what types of disruptions PPP infrastructure projects will encounter in the future, it is already apparent that disruption through technological change will continue. Such change will create promising opportunities for the development and implementation of infrastructure - in particular in emerging markets - but it will also disrupt infrastructure sectors and projects. This can be disconcerting when applied to long-term contracts for infrastructure development, which rely on assumptions and models developed at the beginning of a project for a period of years or even decades.

Developments in the energy sector give an idea of the scope and dynamic of the potential disruptions that are underway. For example, the rapid pace of developments in the renewable energy space, and corresponding policy changes, have opened up several arbitration cases and countless renegotiations. Similarly, advances in battery storage, artificial intelligence, electric and autonomous vehicles, internet of things (IoT), and other disruptive technologies promise to change the context in which long term PPP contracts have been drafted.

Disruptive technologies present extraordinary opportunities for progress, with cleaner, more efficient, and more resilient infrastructure services. These opportunities should be seized and celebrated. However, changes from the status quo create pain points that must be carefully managed, in particular when long-term PPP contracts are structured based on a financial model on which financing relies. Unraveling such commitments has proven contentious and difficult.

The discussion of disruptive technology and its impacts on PPPs can be considered in the broader context of disruptions that have in recent years increased, and that present unprecedented worldwide challenges, such as climate change, natural disasters, economic crises, and global pandemics such as COVID-19. Unlike these disruptive events, which usually have negative consequences, disruptive technologies generally indicate progress, albeit often with winners and losers. Even though the nature of disruptive events and disruptive technologies differs, useful guidance can be drawn from the global experience of the impact of disruptive events on PPPs; analysis of underlying issues, occurrences, and impacts of risks and ways to address them; and tools that have been developed to deal with the growing number of disruptive events in the context of PPPs. The lessons learned, and approaches that have been discussed or implemented with regard to specific disruptive events, provide a useful basis for the development of guidelines aiming to enhance resilience of PPP contracts and contract management in the context of the exponential pace of technological change.

Enhancing ‘“Innovation Resilience’” and the Adoption of Disruptive Technology throughout the PPP Project Cycle

Preparing for disruption, including by disruptive technology, starts well before the contract stage, during project selection and preparation. It is therefore important for policy makers and investors to not only consider the existing legal framework but also the policy trajectory years into the future. Taking the long view when screening and selecting projects is essential, to avoid assets becoming “stranded” well before the end of their economic life (in some cases, even before they are operational). This involves improved forecasting of disruptive technologies, and reading policy signals before they become policy changes.

For example, commitments made during the 2015 Paris Agreement on Climate Change are still being put into more detailed action plans around the world, but it should not be surprising that countries are becoming more aware of and responsive to the global climate crisis. This is a trend that has been occurring for the last decade. Therefore, it is important when selecting projects now to prioritize “green” and resilient infrastructure—not only to prevent and respond to climate-related shocks and stresses, but also to ensure sustainability of support for the projects in the years to come, and to avoid the risk of stranded assets. Conducting proper due diligence before investment is an obligation on the part of the private investor as well as the public entity, in order to set realistic expectations regarding what will stay constant, and what may change.

Flexibility with respect to technological changes can be embedded during the project appraisal stage, when the risk allocation and scenarios are modeled, as well as the procurement stage, by ensuring that the request for proposals allows bidders to propose the latest innovative solutions, and by factoring such innovations into the scoring. Governments should encourage innovative practices in the procurement documents and bidding methods, i.e., a two-stage bidding process that allows bidders to compete on innovative design aspects before financial considerations enter the picture. In the US state of Maryland, for example, procurement of a new metro line was done in phases, complemented by an innovative dialogue process that allowed innovations proposed by bidders to be taken into account during the project design and tendering phases.

When drafting PPP contracts, it is important to ensure that the output specifications consider long-term needs and anticipate changes that are reasonably predictable. This will need to be balanced with ensuring that the private partner can quantify its risk through caps or exceptions. Upgrades with major cost implications can then be treated as variations that are compensated. An appropriate gain sharing mechanism can incentivize the adoption of superior technology if it becomes available, while ensuring that contracting authorities and society at large benefit from efficiencies that are made possible by disruptive technologies. In Australia, technological upgrades to a desalination plant could be proposed by either the public or private parties to the PPP. If proposed by the public party, the authority pays for the upgrade but also keeps any resulting cost savings. If proposed by the private party, it would share in the cost savings, creating an incentive to make such improvements. In general, balance of interest considerations should guide PPP contract management. For example, if a technological development and the need for a requested technological upgrade were unforeseeable at the time the parties entered into the contract, and such an upgrade requires significant investment, it may be more appropriate to treat the request as a contract variation if the wording of the PPP contract is not explicit.

One way to mitigate exogenous demand risk is to structure PPP contracts as present value-of-revenue (PVR) contracts. In general, it would be advisable to switch to shorter terms or make contractual terms more flexible in sectors that are susceptible to technological change, should the financial model allow. Contracting authorities could also consider extending provisions that make tariffs or payments dependent on specific formulas in tariff adjustment schemes, to factor in economic effects caused by technological disruption and to incentivize innovation.

To protect parties from scenarios in which disruptive technology upsets the economic balance of the PPP contract, it will be important to carefully assess and allocate potential increased risks related to such technology, and to clearly define atypical and extreme events that should fall within the ambit of provisions, together with thresholds, exceptions (where appropriate), and consequences for each risk. The contract could, for example, expressly mention cyber attacks as force majeure events, together with required precautionary and mitigation measures. It can also be advisable to spell out legal concepts that govern a PPP contract in a specific jurisdiction and allow for a rebalancing of the economic equilibrium of the PPP contract to achieve more clarity for both parties. Depending on the circumstances, equitable principles could also be integrated into PPP contracts in jurisdictions where such principles are not mandated by law, to provide better protection for both parties in an environment that is continuously changing due to technological advances.

The level of risk the private partner can assume with regard to disruptive events is closely connected to the availability of insurance. Contracting authorities should review recent developments in the insurance market, and should take into account the availability of insurance for events or developments that may occur more frequently due to disruptive technology (e.g., cyber incidents) and the cost of such insurance. As a general rule, uninsurable disruptions are more likely to be treated as force majeure or material adverse government action (MAGA) events, whereas the private partner may be able to assume the risk for impacts caused by certain disruptions that can be covered by insurance mechanisms.

Good contract management, including cultivating strong relationships with the partner and stakeholders, helps lead to amicable discussions when things change, before any disputes arise. To deal with conflicts that may occur more frequently in times of increased disruption, PPP contracts should contain well-drafted dispute resolution clauses. Alternative dispute resolution mechanisms, including the use of dispute review boards, can be particularly useful tools to prevent and resolve conflicts arising in the context of disruptive technology, because they allow the parties to settle disputes informally at an early stage, before they become real disputes or impede the contracts.

In particular, in instances where a technological disruption has fundamentally altered circumstances long term, renegotiations can be the best path forward to try to find a mutually acceptable solution to an unforeseen problem or opportunity. Although renegotiation should be used sparingly and avoided where possible—because it harms the investment climate of the country and jeopardizes the transparency and competitiveness of the procurement—in some instances it is the preferred solution. Sometimes there may even be a mutually beneficial outcome to renegotiation, in which case it makes sense to adjust the contract to benefit from that outcome, for example if there is a technology that improves the efficiency of the project. PPP contracts should expressly regulate the processes and conditions for renegotiation, in particular if the PPP framework does not contain detailed mandatory requirements for contract renegotiation. At a minimum, these provisions should provide for third-party government approval. Amicable renegotiation is possible, if there is trust between the public and private parties and if the renegotiated terms are seen as fair to both sides. In Puerto Rico, for example, renegotiations resulted in an extension of the concessional term, increases in the private party’s share of revenues, and additional payments, which helped the private party accept the financial burden of additional technological improvement. In other instances, if there is a strong enough public policy reason not to continue with the contract, termination combined with renegotiation of the terms may be the only option, understanding that the investor has the right to demand all of the termination compensation to which it is entitled under the contract in the case of voluntary termination.

Ultimately, however, a long-term PPP contract will be limited in how much flexibility can be introduced without threatening its bankability. PPP projects are by nature dependent on a set financial model at the outset to raise financing for the upfront construction costs. Once that financing is committed, it is very difficult to adjust any variables or assumptions in the model, and attempts to do so almost inevitably result in renegotiations or disputes.

Overall, a healthy underlying sector with competitive forces driving innovation and pricing helps to encourage adoption of new technologies. A financially robust underlying sector also helps to raise the financing and funding needed to make key technological shifts going forward, such as retiring old “dirty” technologies to make space for cleaner ones. Encouraging market-based pricing where possible (for example, some liberalized markets for electricity) could naturally reflect and drive innovative behavior, helping to introduce flexibility—though whether that is a desirable outcome for every publicly regulated infrastructure sector is debatable.