Alternative Financing Methods Help Overcome High Upfront Cost of Battery Electric Buses

Bus electrification efforts are growing around the world thanks to the many potential benefits that can be realized by fleets, governments, and passengers. China’s market has seen tremendous growth in the last decade but has begun to plateau due to market saturation and a scale back of national and regional incentives for EVs. That leaves the rest of the world to play catch up. Guidehouse Insights, as reported in its most recent Electric Buses report, expects a significant amount of the growth in the battery electric bus (BEB) market over the next decade to take place in North America and Europe. Increasing technology developments, new and existing incentive programs, and increasingly stringent polices regarding air quality and emissions are anticipated to drive these markets.

There are many potential benefits of BEBs. For one, BEBs can have considerable effects on local air quality, given they have zero tailpipe emissions—a big plus in removing point sources of particulate matter and ground-level ozone. Additionally, BEBs are more efficient and generally produce less greenhouse gases than their fossil fuel equivalents. BEBs already have lower life cycle emissions than other bus fuel types everywhere in the US, including areas that rely predominantly on coal and natural gas power plants. This "efficiency moat" over fossil fuel-powered buses only continues to widen as electric grids incorporate more renewable energy into their portfolios. 

From a financial perspective, BEBs have the potential to reduce the total cost of ownership through reduced maintenance and fuel costs, though fleet charging needs to be closely managed to obtain favorable rates and avoid demand charges. However, fleets still find the upfront sticker cost to be a barrier. 

More Than One Way to Electrify a Bus Fleet

While prices are falling due to battery improvements and economies of scale, BEBs can still have a 50%-100% premium over conventional buses. Fleets struggle with the delayed ROI and the ability to identify the additional capital required. Given these challenges, it is no surprise that many are looking to create new alternative options to ease the adoption: 

• Partnering with the utility: Fleets and utilities are beginning to work more in tandem in the effort to electrify fleet vehicles in their service territory. These partnerships include utility ownership of capital and enabling of vehicle-to-grid services, the latter of which can result in cost sharing of the vehicle/battery to guarantee use of the vehicle as a grid resource at a specified time. Dominion Energy’s intent of rolling out 1,000 electric school buses is an example of this. 

• As a service or Pay As You Save (PAYS): Fleet managers may look at solutions allowing them to pay for electrification incrementally. As a service models (such as AMPLY) would allow private capital to finance the purchase of vehicles and equipment and pay an amount per mile or per kilowatt-hour. PAYS models would enable utilities to make upfront payments and fleets to payback these investments as a fixed charge on their utility bill. 

• Battery leasing: Fleet managers may also consider the outright purchase of the vehicle while leasing the battery from the vehicle manufacturer. Since the battery pack is the single most significant factor in the high cost of BEBs, removing the battery from the purchase cost and making monthly or yearly lease payments would go a long way in improving the case for BEBs.