How the FSCI is Helping Cities Rethink Bus Procurement
by Anthony Courreges, Clean Transportation Finance Manager, FSCI
The upfront cost of electric buses is higher than traditional diesel and CNG buses, but they present the unique advantage of having significantly lower operation and maintenance costs. In the current economic environment, many cities cannot afford a significant increase in the budget allocated to the renewal of their bus fleets and until now, only cities that have access to government incentives have deployed small numbers of electric buses by relying heavily on subsidies. This model however, is not scalable to 1000+ vehicles nor replicable to cities that don’t have access to similar support.
For those reasons, cities need to consider new business models when acquiring electric buses that can leverage the lower operating costs of the vehicles to compensate for their higher upfront cost, and avoid any additional spending of public money. For most cities, this represents a major shift from the traditional business model of outright purchase where cities and transit operators expend large amounts of capital to procure the vehicles.
Through its participation in the Financing Sustainable Cities Initiative (FSCI), C40 has been supporting cities in the deployment of electric buses by addressing the technical barriers that indirectly affect the financial viability of a project, then presenting innovative options for procuring, financing and operating electric buses. The Financing Sustainable Cities Initiative is a partnership between C40 and the WRI Ross Center for Sustainable Cities, funded by the Citi Foundation, helping accelerate and scale up investment in sustainable urban solutions.
Most recently, the FSCI commissioned a ground-breaking study of the real-life total cost of ownership (TCO) of electric buses. The research, led by Bloomberg New Energy Finance, utilized data collected throughout the C40 network to develop reliable estimates and projections of the cost to purchase and operate electric buses. A comparison against traditional diesel buses revealed that electric buses are already less expensive to own and operate than diesel buses over their lifetime, which supports the notion that cities need to consider alternative ownership models to better leverage the lower TCO of electric buses.
Following the launch of this report, C40 hosted its second annual Clean Bus Finance Academy in Quito from May 2 – May 4, 2018. The Academy gathered 17 senior officials from nine different cities of Latin America, India, Europe, and North America for a three-day event dedicated to electric bus financing. A number of financial and technical experts also joined the event, from Britain, Colombia and the U.S.
Dr. Holmes Hummel, Director of Clean Energy Works, presented an innovative model that involves electricity distribution utilities sourcing much-needed capital for clean transport, starting with clean transit. A utility can offer to pay the upfront cost of bus batteries for a bus operator through a tariff agreement, which also allows the utility to recover its cost with a fixed payment on the operator’s electricity bill. Because the estimated fuel and maintenance savings exceed the cost recovery for the batteries, the city and/or its bus operators realize savings.
The Pay As You Save (PAYS) approach has already been applied to energy efficiency in other sectors, and based on that experience, the prospects for clean transit are good. A case study presented at the Finance Academy showed compelling results, and a similar analysis can be adapted to other locations, based on local electricity and diesel prices, labour cost, and bus prices. Utility financing generated significant interest from cities during the Academy and certainly confirmed that engaging utilities is an absolute necessity as cities are transitioning to electric buses.
Aside from financial experts, cities such as Los Angeles, Vancouver and Buenos Aires presented their own case studies, providing additional tools and data to support the business case for electric buses.
Martha D’Andrea, Grants and Finance Manager for the Los Angeles Department of Transportation presented an ongoing initiative by the Los Angeles region to foster collaboration between transit agencies and develop a joint procurement policy led by the State of California. This effort, facilitated by C40 in 2017, began with the observation that with over 20 different operators, the high cost to procure electric buses was prohibitive to many of the small operators in the Los Angeles region, which hindered any significant progress in the deployment of electric buses on a large scale. The State-led joint procurement would establish a schedule of pre-specified vehicles from a number of bus manufacturers that cities could choose from, and would result in significant cost savings through economies of scale. The case study demonstrates that regional collaboration is absolutely feasible, and in many regards, necessary to save cost, share experiences, and accelerate the transition to electric buses. Based on reactions from other guests, it seems this example of collaboration on a regional level is a model that some other cities now consider replicating.
Constanza Movsichoff, Clean Mobility Manager for Buenos Aires, showcased a recent pilot project through which the city will deploy 8 vehicles across 4 different lines, to assess the operational viability of electric buses as an option to meet the city’s ambitious emissions reduction goals by 2035. The financing of this pilot has been highly innovative, combining public and private capital, along with changes in taxes and regulation. This project is an example of beneficial collaboration between the City of Buenos Aires and the Argentinian ministries of Transport, Energy, Environment, and Industry. The national government agreed to temporarily wave the 35% import tax on all 8 vehicles as part of a wider initiative to amend national regulations to accommodate a technological transition towards cleaner transportation. In addition, the city of Buenos Aires will be providing the funds to build the charging infrastructure, for a total amount of around US$300,000. As a result of these efforts, the buses will be provided by a joint venture between Chinese manufacturers, importers and operators, at no cost to the City of Buenos Aires and its taxpayers.
Building on the momentum of a successful Clean Bus Finance Academy, the FSCI will continue to support cities to find innovative financing tools and ownership models that can accelerate the transition to electric buses. In particular, the FSCI will shortly open the application process for the new phase of the Technical Assistance Program. As part of this effort, the FSCI will provide funding, along with project management, procurement, technical or financial advice to cities who apply with a robust project. This will constitute the second phase of the FSCI Technical Assistance Program, which produced incredibly impactful work in 2018, with the Bloomberg TCO research, an E-Bus roadmap for the City of Tshwane, and a grid resilience study for the City of Auckland.