London and Manchester are leading the way in electric bus roll-out, with large fleets due to be operational in both cities later this year.1 Martyn Bellis, Sales Manager, Transportation, Siemens Financial Services in the UK, discusses the latest financing models which help to deliver an end-to-end electric bus solution.
Transport accounted for 28% of all UK greenhouse gas emissions in 2017, making it the sector with the highest level of emissions in the UK economy.2 The resulting poor air quality is estimated to contribute to more than 40,000 premature deaths in England each year, with emissions from cars and vans estimated to cost £6 billion annually to the NHS and society.3 Recent research indicates that electric vehicles (EV) have the potential to reduce greenhouse gas emissions by over 50% compared with equivalent conventional petrol and diesel vehicles over the lifetime of their use.4 A growing number of transport operators are therefore moving away from traditional diesel models and investing in ‘greener’ buses which, given the high emissions of diesel-fuelled commercial vehicles, will have significant benefits for reducing carbon emissions and improving air quality. As well as contributing to a reduction in carbon emissions, electric vehicles are also quieter and provide a smoother ride than diesel buses.5
While battery weight has limited the role of electrification in heavier and long-distance vehicles, the one segment of the commercial sector that has proved to be well-suited to electrification is fleet vehicles that operate from a central hub and along fixed routes – namely public bus fleets.6 The predictability of schedules and recharging times allows for overnight charging (depot charging), rather than relying on opportunity charging throughout the day,7 thus rendering public bus fleets an area where the EV transition can be implemented relatively easily.
This summer, the largest double-decker electric bus fleet in Europe is due to be deployed by Transport for London. 68 new electric double-deckers will join the city’s bus fleet, increasing the number of electric buses by more than tenfold. Two routes run by Metroline from Barnet to central London will be exclusively operated by electric double-decker buses.8
Manchester is following suit. It was recently announced that Stagecoach’s plan for £9.6 million investment to deliver a new 32-vehicle fleet of zero emissions buses won £6.9 million of funding from Government’s Ultra-Low Emission Bus Scheme. Due to be introduced between 2019 and 2020, the combined £16.5 million investment will represent one of Europe’s largest single investments in electric buses.9
London and Manchester are moving to electric buses because they have many benefits, however, these represent substantial financial investments that not all bus operators are able to undertake. Even with the cost of batteries and chargers gradually declining alongside technological advancements, the upfront costs of most electric vehicles are still substantially higher than their internal combustion engine (ICE) equivalents.10 While this disparity is reversed after acquisition, as the total cost of ownership (TCO) is less given the lower cost per kilometre of running on electricity compared to diesel,11 the financial barrier to the EV revolution goes beyond acquiring a new bus fleet. At present only 1,600 technicians nationwide are qualified in electric vehicle and hybrid maintenance, and they are almost exclusively employed within manufacturers’ franchised dealer networks. This has ramifications for the cost and convenience of repairs.12
Furthermore, poor provision of charging infrastructure in the UK is one of the greatest barriers to growth of the domestic electric vehicle market.13 The existing charging network in England is lacking both in size and geographic coverage, and there are substantial disparities in the provision of public charge points across the country,14 with ‘rapid’ chargers – a fastest type of charger which operates at between 43kW to 50kW of power – being particularly scarce.15 Bus operators therefore face a key challenge to invest in a charging infrastructure to support their electric fleets.
Plug-in hybrids can alleviate ‘range anxiety’, as they combine a plug-in battery with a diesel fuelled internal combustion engine, which re-charges the battery when it’s depleted. Whilst these vehicles could play an important role in reducing vehicle emissions in the near-term transitional period, they are not compatible with the UK’s long-term decarbonisation strategy of reducing them to zero, given their partial reliance on diesel.
These combined investments – in fleets, maintenance and charging infrastructure – require considerable capital expenditure, yet the Government has substantially cut grants for pure electric vehicles, and entirely removed those for plug-in hybrid vehicles. 16
Innovative finance solutions have been developed in response, which enable bus operators to sustainably invest in low emission technology. For instance, a finance model can take into account the total cost of ownership (TCO) of a fleet, including its maintenance and associated infrastructure, rather than the cost of an individual vehicle, and analyses fleets on the basis of cost per kilometre. In this way, financial solutions can be directly compared and incorporate the full range of costs including capital expenditure, operating expenditure and any financing cost. These bespoke, consultative models are built around the capital needs of the customer, designed to be long-term and offer the flexibility to accommodate future changes to technology. These packages can cover an ‘end-to-end’ solution; financing not only electric vehicles but the associated charging points and infrastructure. By having one finance agreement, operators only need to manage one contract and liaise with one financier. In addition, considering the whole ‘electric bus system’ rather than just the buses themselves, can give a more comprehensive view of the associated benefits which can impact the terms of the financing model. Instead of viewing costs of vehicles in isolation, operators can work with financiers which analyse the whole fleet, building a collaborative, consultative approach towards energy efficient technology as it continues to develop.
This sort of approach is only available from a financier with direct expertise in the field. Generalist financiers and banks are unlikely to understand the application of the technology and the benefits it can bring.
With continued government and media focus on improving air quality,17 transport operators are under pressure to embrace more environmentally friendly fuel sources. Electric buses are at the forefront of this movement, but the investment required – in fleets and the associated infrastructure – is substantial. But financing models are evolving to facilitate progress, and drive the roll-out of more environmentally friendly vehicles.
1 ‘London to have Europe’s largest double-decker electric bus fleet’, Mayor of London, 20 June 2018 https://www.london.gov.uk/press-releases/mayoral/london-to-have-europes-largest-electric-bus-fleet
2 ‘Electric vehicles: driving the transition’, House of Commons Business, Energy and Industrial Strategy Committee, 19 October 2018
4 ‘Electric vehicles: driving the transition’, House of Commons Business, Energy and Industrial Strategy Committee, 19 October 2018
5 ‘Electric vehicles: The pros and cons’, Just Energy Solutions, 8 February 2019 https://www.justenergysolutions.com/electric-vehicles-pros-cons/
6 ‘Electric vehicles: driving the transition’, House of Commons Business, Energy and Industrial Strategy Committee, 19 October 2018
7 Mckinsey, ‘The European electric bus market is charging ahead, but how will it develop?’, July 2018 https://www.mckinsey.com/industries/oil-and-gas/our-insights/the-european-electric-bus-market-is-charging-ahead-but-how-will-it-develop
9 ‘Government Backs Stagecoach Plans to Deliver Major Investment in Electric Buses’, Stagecoach, 6 February 2019, https://www.stagecoachbus.com/news/manchester/2019/february/government-backs-stagecoach-plans-to-deliver-major-investment-in-electric-buses
10 ‘Electric vehicles: driving the transition’, House of Commons Business, Energy and Industrial Strategy Committee, 19 October 2018, https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/383/383.pdf
11 ‘The European electric bus market is charging ahead, but how will it develop?’, McKinsey, July 2018, https://www.mckinsey.com/industries/oil-and-gas/our-insights/the-european-electric-bus-market-is-charging-ahead-but-how-will-it-develop
12 ‘Electric vehicles: driving the transition’, House of Commons Business, Energy and Industrial Strategy Committee, 19 October 2018, https://publications.parliament.uk/pa/cm201719/cmselect/cmbeis/383/383.pdf
15 ‘UK needs six-fold increase in electric vehicle charging points by 2020, finds report’, The Independent, May 2018, https://www.independent.co.uk/news/business/news/uk-electric-vehicle-charging-points-increase-ev-tesco-a8362926.html
16 ‘Electric vehicles: driving the transition’, House of Commons Business, Energy and Industrial Strategy Committee, 19 October 2018
17 ‘New air pollution plans improve on EU rules, government claims’, The Guardian, 14 January 2019 https://www.theguardian.com/environment/2019/jan/14/new-air-pollution-plans-improve-on-eu-rules-government-claims