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Challenges that Hinder Financing E-Buses

Challenges that Hinder Financing E-Buses
Passengers boarding a white E-Bus in the streets of Nairobi, Kenya.

Developing innovative financing strategies and policy frameworks is crucial for accelerating the transition to cleaner, more efficient transportation systems, given the challenges that could be faced during E-Bus implementation.

This article will focus on:

  • private operators handling finance, bus operations, battery afterlife, and more, in the E-Bus market
  • risk disruptions burdening private operators
  • the main challenge to E-Bus project adoption is upfront cost; Latin American markets are cost-sensitive
  • slower economic growth, dampening willingness to invest in E-Buses with lengthy returns
  • policy uncertainty.

Financing Challenges for E-Bus Projects

Having gained a broad understanding of the benefits of E-Buses, we will now address the obstacles that arise during their deployment. Several operators are currently implementing hundreds of E-Buses.

While some areas have already achieved total cost of ownership parity, others may need to explore cost-saving measures and implement forward-looking fiscal and tariff policies to reach that level.

An image of an E-Bus in form of a drawing E-Bus icon. PEM Motion (2023)

Which are the main challenges?

Economic Viability

Economic viability in financing E-Bus projects involve generating sufficient revenue to cover costs and achieve long-term return on investments.

High upfront capital costs and other factors like:

  • operation and maintenance expenses
  • fuel and energy costs
  • ridership demand, which can hinder E-Bus financing.

This challenge is amplified in emerging markets like Latin America and Africa, where cost sensitivity prevails due to factors such as low-income levels and limited financial support. As a result, the economic viability of purchasing E-Buses becomes compromised in these regions.

Economic viability predominantly impacts emerging markets, where the sensitivity to costs influences decisions to purchase E-Buses despite the high initial investment.

Side view of an zero-emission bus. Zero-Emission Bus. SNOTPG (2013)

Political Environment

The political environment can cause barriers to E-Bus project implementation. This section emphasizes the financial influence of governments. The political setting can impede E-Bus financing due to:

  • budget constraints
  • government policies
  • competing for resources.

In many cases where there are budget constraints, industries find themselves competing for government resources, which are usually allocated to urgent factors such as health care and education. Government policy deficiency around E-Bus projects can be an absence of subsidies that help incentivize E-Bus purchases, for example.

A group of people sitting together in a government assembly. Overview of a government asembly. Kristenson, M. (2022)

Economic Environment

A nation’s economic conditions can also hinder E-Bus financing. Economic conditions are impacted by nations:

  • economic growth
  • economic activity
  • inflation, interest rates, etc.

For example, COVID-19 has had a profound impact on the economy due to job loss and supply chain disruptions, which have slowed down the economy and delayed E-Bus project implementations.

The economic environment can influence the electrification of bus fleets through factors such as inflation and a lack of economic growth due to COVID-19.

Another example involves the anticipated adverse impact of rising interest rates in the United States and the strengthening of the dollar on Latin American countries burdened with substantial amounts of dollar-denominated debt. As economic growth in Latin America decelerates, the inclination to invest in E-Bus projects, which entail a lengthy payback period, may decline.

Course Mascot talking about the impact COVID-19 had in the E-Bus implementation, causing delays all over the world. Course Mascot. PEM Motion (2023)

Financial Challenges Examples

Philadelphia Example

The Philadelphia case study serves as an example of how a lack of knowledge and high infrastructure costs impacted the implementation of a second E-Bus fleet project.

The Southeastern Pennsylvania Transportation Authority (SEPTA), Philadelphia’s transit agency, encountered challenges when launching its E-Bus project. Initially, their plan involved equipping the E-Buses with small autonomy batteries and providing intermediate pantograph charges at route ends, using bus shelters.

However, SEPTA later embraced a different approach, adopting a recently introduced E-Bus model that focused on depot charging, in contrast to the use of overhead charging canopies. The considerable expenses and potential land acquisitions associated with overhead charging canopies prompted a shift in the planned technology. Though depot charging was chosen as an alternative, it brought unforeseen challenges, including limited electricity capacity in the existing depots.

SEPTA reduced their planned second E-Bus fleet from 25 to 10 due to infrastructure costs. Expanding the E-Bus fleet posed a significant challenge for SEPTA due to electricity requirements and associated infrastructure costs.

A lot of passengers boarding in two E-Buses in a crowded city Urban transportation landscape. Minramun, B. (2018)

Madrid Example

Madrid is an example where operators struggled to expand their E-Bus fleets beyond the pilot projects, and had ambitious goals for future E-Bus procurements, and even went through 11 years of E-Bus pilot testing. Despite their ambitious project, Madrid has failed to increase the size of its E-Bus fleet for more than a decade.

One reason why Madrid did not progress in its E-Bus pilot projects is that the high initial cost of the E-Buses was covered by a one-time subsidy, which did not provide a scalable financing option for future E-Bus purchases.

While these subsidies were crucial in helping introduce E-Bus projects to Madrid, the case study highlights that such subsidies do not offer an extendable, long-term financing option for scaling up E-Bus fleets. This demonstrates that while subsidies are vital for initiating E-Bus projects, a one-time financing approach might not always be a scalable option.

An overview of Madrid, Spain with an E-Bus in the background. Madrid’s streets. Elboletin.com (2023)

Conclusion:

In this article, the focus was on the influence of factors like economic viability, the political environment, and the overall economic situation on E-Bus project financing. Cities equipped with sufficient budgets find it easier to financially justify the adoption of new technologies, such as E-Buses.

On the other hand, in regions characterized by lower budgets and heightened cost sensitivity, justifying E-Bus project implementation becomes more challenging.

Nonetheless, various financial models can assist in E-Bus financing, especially as environmentally friendly projects gain prioritization and heightened support due to their benefits.

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