Financial Close for University of Kentucky Energy P3

Kentucky Infrastructure Partners (KIP) has reached financial close for the University of Kentucky’s Central Utility Plant (CUP) Project, which will develop a new, 100,000 square foot campus energy plant and make other upgrades to the university’s heating, cooling and electrical infrastructure. The project will significantly expand the university’s chilled water and steam generation capacity for heating and cooling, enabling major expansions of university facilities and the university’s Chandler Hospital.

KIP is led by Plenary Americans and Walsh Investors. The Design-Builder for the project is a joint venture between Walsh and Turner. NORESCO will be the project’s operations and maintenance provider. KIP’s concession for the P3 includes a 3-year construction period followed by a 30-year operations and maintenance concession.

The concession makes the University of Kentucky the latest public sponsor of a major trend towards university energy retrofit and central utility plant replacement P3s over the last decades. Other recent universities that have procured major campus energy P3s include Ohio State University, the University of Iowa, the University of Idaho, Eastern Michigan University, Fresno State University in California, and the University of Maryland. Some of the recent energy P3s have also included large up front concession payments to the university in addition to major renovations or lifecycle investments. Others financings, like the University of Kentucky CUP project, have only included major project costs and no upfront concession fee.

Total sources and uses for the CUP Project financing were approximately $550 million. Major uses include design-build costs of approximately $422 million, approximately $61 million in interest during construction, and approximately $38 million in closing costs. The project’s sources include approximately $431 million in bond offering proceeds and approximately $57 million in university payments. The university and KIP entered into the CUP project implementation agreement in May, and financial close followed in June.

“This milestone reflects the strength of the strong partnerships we have built to support the University of Kentucky’s future and our mission to advance Kentucky,” said UK President Eli Capilouto. “By working with experienced partners, we can take on complex, transformational work that will strengthen our infrastructure, expand care in UK HealthCare and better serve the people of Kentucky for generations to come.”

The CUP Project will develop a combined heating and cooling plant for the university with a capacity for steam generation of 100,000 pounds per hour of steam capacity as well as 15,000 tons of chilled water capacity. The project scope also includes backup generator capacity to support the facility, life safety systems and the Chandler Hospital base load requirements. The project will also develop related utility infrastructure to support both the campus and hospital expansions currently under construction.

The scope of work for the P3 also includes a North-South Connector project that will be the first element of the project. That portion of the scope will build steam and chilled water connections from the CUP site to other parts of campus. The backup generation scope of work includes the provision of six 3 megawatt diesel generators as well as the infrastructure to support an additional three 3 megawatt generators, as well as fuel storage to support 96 hours of run time for all nine generators.

Planning for the University of Kentucky CUP Project has been underway for some time. The university solicited for advisors to assist on the procurement back in 2023, and published an “RFP Phase 1” to solicit developer qualifications in 2024. At the time, the university already had a pretty detailed idea of how it wanted to structure a P3 to deliver the CUP project. The RFP noted that “UK is not interested in pure monetization of energy assets and instead is seeking a creative collaboration with a partner to optimize long-term value.”

At the time, the University of Kentucky’s Board of Trustees had approved the project with a total budget and corresponding scope of $400 million. The university would go on to select the KIP team as a development partner and entered a predevelopment agreement to advance the project in June 2025. By the time predevelopment was completed earlier this year, however, the project scope had expanded and its budget increased. Scope additions included the backup power generation capacity, a larger plant building to allow for easy future expansions, the modernization of other existing chilled water systems, and additional piping and support infrastructure. Electrical equipment cost inflation was also significantly higher in final pricing compared to early project estimates, due to the ongoing datacenter construction boom. Earlier this year, the Board of Trustees re-approved the project with the increased scope and budget.

Construction of the CUP project is expected to take 35 months, with completion of the CUP and piping work in 2029 and the completion of the backup power generation infrastructure in 2030. The university is aiming to complete the demolition of some existing facilities by the end of this year, and KIP will complete some of the utility work for the North-South Connector portion of the project in mid-2027.

“We are proud to deliver essential infrastructure that will enable the University to expand its world-class healthcare, education, and research mission,” said Alex Barrett, Vice President at Plenary Americas. “Through this partnership, we are bringing together proven expertise to ensure this critical system performs for decades to come.”

The CUP Project also used a somewhat novel, for a DBFOM energy P3, contractual structure to complete its tax-exempt financing. In this case, the borrower for the financing is not the developer/special-purpose vehicle, but rather a 501(c)(3) nonprofit. That nonprofit has then entered into a project implementation agreement with KIP. The additional layer and contractual complexity enabled the project to issue debt in the tax-exempt market.

The University of Kentucky was advised by Brailsford & Dunlavey during the procurement and planning process for the CUP project. The underwriter for the project’s bond offering was Wells Fargo. The bonds were rated A3 by Moody’s.