Municipal Electric Buses and One Company's Unique Business Model
- Aug 31, 2021 5:13 pm GMT
Across the world, communities are moving away from diesel and transitioning to electric buses. As cities look to cut transportation emissions, bus fleets have become a target. Their smooth, quiet ride makes for a more pleasant passenger experience, while their lack of emissions lends to cleaner air and better health. Decreasing bus pollution matters for school children, who suffer from emissions at a disproportionately higher rate.
China is home to 98 percent of the world’s electric buses, and the City of Shenzhen is the world's first city with an entirely electric bus fleet. Within North America, Toronto operates the largest fleet of electric buses with a total of 60. Several of the largest U.S. cities have pledged to transition to electric buses, including: the Metropolitan Transit Authority in New York City, which will only buy electric buses beginning in 2028; Los Angeles, the second largest bus fleet in the U.S, which will move all 2,300 buses to electric by 2030; and San Francisco, which will be all electric by 2035.
But for cash strapped local governments, transitioning a bus fleet is easier said than done. Higher up-front costs despite lower operating costs requires an entirely new procurement model. Bloomberg New Energy Finance reports an electric bus costs $750,000, compared with $550,000 for a diesel unit. When considering buying several buses, the costs quickly add up. In addition, electric buses require charging infrastructure and potentially high electricity costs that may put fleet conversion completely off the table. Some cities have used the VW Settlement fund to purchase one or two electric buses, but it is not large enough to convert an entire city’s fleet. And when a community is thinking about real transition, adding just one or two electric buses doesn’t get you all the way there. So how can cities change their traditional procurement model and secure a partnership and financial arrangement that allows a conversion?
One company offering a solution is Highland Electric Transportation, located in Hamilton, Massachusetts. Highland purchases and deploys both the electric buses and charging infrastructure. In addition, the company trains both the school’s drivers and mechanics and then reimburses the schools for the work that the mechanics do on the buses. The municipalities and school districts then lease the buses from them directly. Highland recently signed the largest single electric bus purchase to date with Montgomery County, Maryland for 300 electric buses.
Matt Stanberry, the Managing Director of Highland Electric, explains that the company is currently focused on moving school systems to electric buses – like Montgomery County, MD. He notes in a recent interview, “there are two major challenges in the school bus electrification space – the upfront capital cost differential between an electric and diesel bus (even though the gap is closing every year) and the operational complexity of changing a fleet. While pilot programs with one or two electric buses are great, we offer a turnkey solution where we plan out the charging infrastructure, manage it, and provide all the electric buses. We let the schools focus on what they are good at – pupil transportation.”
Highland has raised a quarter of a billion dollars from two major investors: Vision Ridge Partners, a company focused on the sustainable infrastructure space, and Fontinalis, a company which invests in mobility. In this way, Highland moves all their projects directly onto their balance sheet and depreciates the assets while taking advantage of the substantial operational and maintenance savings from the electric buses.
Matt notes that while their core business is the school system market, the company is also looking at all municipal services such as transit and solid waste. “One of the advantages of school buses is that they sit unused a lot of the time. Solid waste trucks are used a lot more than school buses, but they are also heavy vehicles with a large battery bank. They are not used at night; some have very short routes. Transit and light duty trucks also round out the municipal fleets”.
In all, this sort of arrangement where a third party owns the electric buses is particularly suited for a municipality that is risk averse. And it allows an asset manager such as Highland to keep up with the changing technology. To date, there is no one manufacturer that has been in business the entire life of a bus, roughly 12 years, so it is a very new industry. Highland is adding a new employee a week to handle all the work coming their way, so the future for them looks bright indeed.
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