What’s Preventing the Rapid Deployment of Electric Buses Worldwide?

A blurry picture of a transit bus

Holmes Hummel explores this question and shares our recent work with The Global Innovation Lab for Climate Finance  and Convergence on Pay As You Save® (PAYS®) for Clean Transport in a guest post on the NextBillion Blog:

Electrifying Transportation: Can This Innovative Financing Model Make Electric Buses a Global Reality?

Electrifying transportation at scale is critical to fighting climate change and urban pollution. In the context of both near-term Paris Agreement commitments through 2030 and long-term greenhouse gas mitigation paths through the end of the century, rapid electrification is vital to success in every conceivable climate stabilization scenario. Mass adoption of electric vehicles would also contribute to the reduction of harmful urban pollutants that contribute to seven million pollution-related deaths each year and cause nine in 10 people around the world to breathe polluted air.

Within the transportation sector, transit buses present an excellent business case for electrification. Between declining battery costs and lower fuel and maintenance expenses, electric buses have life-cycle costs that are increasingly competitive with diesel buses in many markets. Their electricity usage patterns are regular and predictable, and buses can often charge during off-peak periods of excess electricity supply, minimizing both the cost of electricity and the strain potentially placed on the grid by the presence of other electric vehicles and/or intermittent energy sources.

So, what is preventing the rapid deployment of electric buses worldwide?

THE BARRIER TO ELECTRIFICATION

High upfront costs are the primary barrier to electrification. Electric buses have up to 40 percent higher upfront costs than diesel buses, primarily due to the cost of batteries and charging infrastructure. This increased cost can be prohibitive to many bus service providers who might otherwise be interested in electrifying.

However, primarily due to savings on operating and maintenance costs, electric buses can actually have lower total operating costs (TCO) over the life of the bus than their diesel counterparts. A 2018 report by Bloomberg New Energy Finance showed that the TCO for most configurations of electric buses is already less than the TCO for diesel buses, and with falling battery costs, electric buses may be fully cost-competitive on a TCO basis within two to three years.

A WAY FORWARD: PAY AS YOU SAVE® (PAYS®)

To overcome the upfront cost barrier and accelerate the electrification of global bus fleets, Clean Energy Works is applying an innovative financing solution called Pay As You Save® (PAYS®) to the transportation sector.

With PAYS, utilities cover the high upfront costs of eco-friendly/sustainable upgrades, and recover their costs over time. This model has been successfully applied to energy efficient appliances in India and building upgrades in the United States, but it has never been applied to the transportation sector.

Under a PAYS for Clean Transport program, the utility would buy the bus batteries and charging infrastructure, lowering the upfront costs and allowing bus service providers to buy electric buses at no additional cost over diesel buses. The utility company then would recoup the cost of the batteries and infrastructure over time through a tariff, which would be calibrated to ensure that the operating costs of the electric buses remain lower than those of diesel buses. Once the utility’s costs are fully recovered, the bus service provider would own the battery and charger assets.

financial analysis conducted by the Global Innovation Lab for Climate Finance indicates the strong potential for impact in this approach. For example, in Santiago, Chile, a PAYS investment for 100 buses could leverage more than $70 of investment capital for each grant dollar, while reducing overall grant requirements by 97 percent, generating $25 million in electricity sales revenues, and eliminating 62,000 tons of CO2 emissions. Modeling for Bogota, Cape Town, Mexico City and Belo Horizonte demonstrated that at a 100-bus scale, electric buses with PAYS are already cheaper over their lifecycle than diesel buses in some cities. Electric buses with PAYS support require far less grant funding to be viable, and are a significantly more effective use of grant funds, also leveraging a greater proportion of private finance than a non-PAYS transaction.

The utility is a key part of this transaction. Utilities are typically much larger and better capitalized than bus service providers, which means they can access the capital needed for these upfront costs with a lower cost of capital and lower transaction cost. The utility benefits from this transaction by gaining significant new electricity sales from the electric bus fleets, along with an updated business model that could be used to finance other solutions at the grid edge such as solar panels and storage batteries.

WHAT’S NEXT?

Clean Energy Works spent most of 2018 working with the Global Innovation Lab for Climate Finance to refine the PAYS for Clean Transport concept and model scenarios in locations that are promising for implementation. After receiving the endorsement of the Lab in September, and a Design Funding grant from Convergence in October, we are preparing to undertake a feasibility study of PAYS for Clean Transport in a Latin American city (to be determined).

But Latin America is not the only region where PAYS can have an impact. Many cities and states in the U.S. are great candidates for a PAYS for Clean Transport program, and there is promise for its application in countries such as Vietnam, India, Jordan and South Africa. PAYS can go beyond transportation, too. Once regulators approve PAYS tariffs, they can be used for any cost-effective solutions at the grid edge, from water heaters and energy efficiency upgrades to solar.

As we work towards our first implementation, programmatic support is needed to establish PAYS model in each country, design tariffs, and catalyze scale-up and replication. Other investment opportunities include debt lent to a creditworthy utility for investment in batteries and charging infrastructure, and for any remaining gaps after cost-effective utility investment.

By leveraging utilities’ balance sheets to mobilize capital for clean transport at scale, innovative financing solutions like PAYS will be critical to upscaling investment in climate action and supporting mitigation efforts. As the benefits of PAYS become more widely accepted, we believe it has the potential to disrupt the transportation sector as we know it, and model advancements in scaling other grid-edge technologies. It holds the potential to unleash the  benefits of reduced pollution and greenhouse gas emissions by innovating within a utility sector that can deliver the benefits of the clean energy economy to all.

This post was originally published on NextBillion.

PAYS® for Clean Transport receives Design Funding Award

Convergence Logo

Clean Energy Works has received a Design Funding grant from Convergence to undertake a feasibility study of Pay As You Save® (PAYS®) for Clean Transport in a Latin American city.

“We found the PAYS model compelling, not only because it presents an innovative off-balance sheet solution for bus service providers smartly borrowed from other applications, but also because it shows potential to be catalytic for the clean transport space,” says Joan Larrea, CEO of Convergence. “Our mission is precisely to bring to light initiatives like PAYS that drive blended capital to where it is needed most and provide learnings for the broader market.”

PAYS has received significant traction from governments, development finance institutions, investors and philanthropies worldwide, including endorsement from the members of The Global Innovation Lab for Climate Finance in September. Convergence’s funding will allow Clean Energy Works to complete the necessary feasibility work to narrow down the pipeline of cities in Latin America to a candidate city for a first implementation project.

Financial analysis indicates strong potential for impact in emerging markets cities. For example, in Santiago, Chile, a PAYS investment for 100 buses can leverage more than $70 of investment capital for each grant dollar, while reducing overall grant requirements by 97%, generating $25 million in electricity sales revenues, and eliminating 62,000 tons of CO2 emissions.

Clean Energy Works will present an online briefing for those interested in learning more about the PAYS for Clean Transport model in the coming weeks. To receive more information about that event, please register here.

The Lab endorses PAYS® for Clean Transport

Logo of the Global Innovation Lab for Climate Finance

The Global Innovation Lab for Climate Finance announced today that it endorses Pay As You Save® (PAYS®) for Clean Transport, starting with battery electric transit buses.

Members of the Lab, including governments, private investors, philanthropies, and development finance institutions convened at the Rockefeller Foundation in New York during Climate Week to endorse and formally launch new investment vehicles for implementation including PAYS for Clean Transport. Public and private investors also committed to financial, technical, and political backing to take these rigorously developed instruments to market. Barbara Buchner, Executive Director of Climate Policy Initiative and the Lab Secretariat said, “The instruments are already on their way to making significant impact on the ground, at a time when swift and catalytic solutions for climate action are needed more than ever.”

Clean Energy Works participated in the 2018 Lab process as a proponent for the concept of PAYS for Clean Transport. PAYS harnesses a utility’s capacity to reduce the upfront cost of electric vehicles by investing in the on-board batteries and charging equipment that connects them to the grid. The utility recovers its costs through a service charge for the transit provider that is less than the expected savings, providing a path to ownership for the transit agencies without a loan or lease obligation.

Dr. Holmes Hummel, founder and principal of Clean Energy Works, noted the business opportunity for utilities. “With PAYS, utilities have a growth opportunity at the grid edge as electricity gains market share in a historic transition to clean energy on both the grid and in the transportation sector. Our aim in advancing this solution is to accelerate investment without expanding utility monopolies by introducing instead business models fit for many distributed energy innovations in the 21st century.”

Along with the endorsement, the Lab also released a brief overview and an instrument analysis with more detail. Clean Energy Works will present an online briefing for those interested in learning more about the PAYS for Clean Transport model in the coming weeks. To receive more information about that event, please register here.

VERGE Vanguard Awards recognizes Dr. Holmes Hummel

GreenBiz Group has recognized Dr. Holmes Hummel, founder of Clean Energy Works, with a VERGE Vanguard Award for breaking barriers to affordable clean energy solutions. GreenBiz Group selected the honorees through a search for leaders who are accelerating an equitable transition to a clean power grid, a zero-emissions transportation system, and a circular economy.

Dr. Hummel was chosen for championing solutions that make renewable energy and energy-efficiency upgrades at the edge of the electric grid more accessible to all customers. One of these solutions is inclusive financing, based on the Pay as You Save® system. It simplifies the steps for residential and commercial utility customers to lower their energy use and choose renewable energy. Clean Energy Works is also applying this system to accelerate electrification in the transportation sector by mitigating the increased upfront cost of deploying electric buses.

“The transition to a sustainable and low-carbon economy won’t happen without visionaries and leaders,” said Joel Makower, chairman and executive editor at GreenBiz Group. “The VERGE Vanguard award honors those who are showing the way, setting the path for companies, cities and all of us to follow. We are pleased to honor this year’s cohort as exemplars of the important and inspiring change we all want to see in the world.”

“I’m honored to be among those chosen for the VERGE Vanguard 2018,” said Dr. Hummel. “We look forward to continuing to work with utilities, solution providers, city officials, and community stakeholders to make sure that the transition to the clean energy economy is open to all.”

At the VERGE18 summit next month in Oakland, California, Dr. Hummel will lead the plenary on Creating a Clean Economy for All followed by a dedicated session on Financing a Clean Energy Economy for All. In addition, Dr. Hummel will join the Fleet Electrification Summit, sharing work with the Global Innovation Lab for Climate Finance on accelerating investment in EVs for shared mobility starting with transit.

Financing Innovations featured at the Global Climate Action Summit

Global Climate Action Summit Logo

Dr. Holmes Hummel of Clean Energy Works will be participating in an affiliate event at the Global Climate Action Summit on innovation in mobilizing capital. The focus of this session is on solutions that can unlock investments, especially from the private sector, or create enabling conditions that will be crucial to achieving climate and sustainable development goals.

Across the globe, cities are implementing their climate commitments by acting locally, and front-runners are taking steps to keep global temperature rise to well below 2ºC above pre-industrial levels by the end of the century.

At this event, experts representing development finance institutions, government, and the private sector will share their insights on the barriers and opportunities in mobilizing investment at the city level.

The second half of this invite-only event will explore emerging innovative solutions to unlock investment at the city level, including solutions incubated by the Global Innovation Lab for Climate Finance. Dr. Hummel has been championing Pay As You Save (PAYS) for Clean Transport through the 2018 Lab process and will be matched with an investor for a short interview on this system of unlocking investment for city-level climate action.

Financing Sustainable Cities Initiative includes PAYS for Clean Transport at Clean Bus Finance Academy

Electric Bus

Time and time again, the high upfront cost of electric buses when compared to diesel buses is a major hurdle that cities face when trying to clean up their carbon footprint. The benefits of electric buses are undeniable, including reduced pollution, savings on operation and maintenance of buses, and increased public health benefits. But even if the transit agency, the local government, citizens, and other stakeholders are all aligned on wanting zero-emissions transit options, the biggest question they have to answer is: How can they afford this increased upfront cost?

Our colleagues at the Financing Sustainable Cities Initiative (FSCI) are working to help city governments and investors bridge from innovation to implementation and tackle questions such as this. FSCI is a partnership between C40 and the WRI Ross Center for Sustainable Cities, funded by the Citi Foundation, to help accelerate and scale up investment in sustainable urban solutions like electric buses through their annual Clean Bus Finance Academy.

At the second Clean Bus Finance Academy held in Quito, Ecuador this May, Dr. Holmes Hummel was invited to present on Pay As You Save (PAYS) for Clean Transport, an innovative model where a utility can offer to pay the upfront cost of bus batteries and charging equipment and then recover its cost with a fixed payment on the operator’s electricity bill. This approach reduces dependence on grants to overcome the upfront cost barrier, and as a result, cities can advance their clean transit goals much more quickly.

The Academy was attended by senior officials from nine different cities in Latin America, India, Europe, and North America as well as financial and technical experts.

The Lab features Pay As You Save for Clean Transport

Logo of the Global Innovation Lab for Climate Finance

The Global Innovation Lab for Climate Finance has published a new profile for PAYS for Clean Transport as part of the The Lab: Driving Sustainable Investment class of 2018.

PAYS for Clean Transport was selected from a pool of over 100 crowd-sourced, competitive ideas to mobilize needed investment for low-carbon, climate-resilient development.

From the profile:

“Meeting transportation decarbonization targets by 2030 is essential in every climate stabilization scenario and requires accelerating transit electrification today. PAYS for Clean Transport will implement debt-financed iterations of the transaction for creditworthy utilities in leading emerging-market cities. Analysis to-date suggests Mexico City, Santiago, Bogotá, and Cape Town may be particularly suitable for pilot projects; however, there remains significant potential in many other parts of the world.

Later iterations of PAYS for Clean Transport will utilize a project finance capital structure that insulates capital providers from balance sheets of less-creditworthy utilities, and allows PAYS to accelerate electrification in a wider variety of contexts. Once operating at scale, a larger pipeline of PAYS for Clean Transport projects with well-documented environmental benefits can form the basis of a bespoke green bond issuance for greater liquidity, investor diversification, and accessible low-cost capital in many markets.”

Buses, Buildings, and Beyond: Inclusive Financing on the Main Stage

Clean Energy Works is pleased to announce two upcoming presentations by Dr. Holmes Hummel on inclusive financing and how Pay as You Save (PAYS) programs for buildings and buses to accelerate the transition to a clean energy economy.

On April 19, Dr. Hummel will give a keynote address at the Advancing Renewables in the Midwest conference. This talk will focus on PAYS programs for energy efficiency upgrades in buildings that are or have been operating in seven U.S. states. Most of these have been implemented by cooperative and municipal utilities and have secured millions of dollars of low cost capital for investment in service areas recognized for persistent poverty. Dr. Hummel will not only share lessons learned from these programs already in place, but also discuss how PAYS can be applied in other sectors, such as transportation, and how inclusive financing can be a win-win-win situation for utilities, all of their customers, and the climate.

In June, Dr. Hummel will be delivering a mainstage talk at VERGE Hawaii. Last year, Dr. Hummel spoke at VERGE Hawaii on how inclusive financing can help scale clean energy investments in distributed energy solutions from better buildings to clean transit. This year, in an address titled “The Road to 100%: An Energy Transition for Everyone,” Dr. Hummel will focus on charting a path to connect local governments’ commitments to achieving 100% clean transport and the value proposition to their utilities.

Videos of these presentations will be shared when they are available. In the meantime, to learn more about PAYS for buses or buildings and how Clean Energy Works can support those interested in adopting or promoting inclusive financing, visit our website or send an email to info@cleanenergyworks.org.

The Lab selects utility financing as a top finance instrument

Logo of the Global Innovation Lab for Climate Finance

The Global Innovation Lab for Climate Finance has selected utility financing for clean transport among fresh concepts for scaling up investment in low carbon development. Clean Energy Works championed this approach, advancing from field of more than 100 contenders.

Electric buses and other high-use EVs have the best business case for electrification, yet the upfront cost can still be 50 percent higher than a fossil fueled vehicle. To clear this barrier and accelerate deployment of clean transport, utilities can offer to finance the on-board batteries and charging station.

Using a system called Pay As You Save® (PAYS®), multiple utilities have experience financing energy efficiency upgrades in buildings through a terms of service agreement. Clean Energy Works proposed a similar approach to the transportation sector, starting with clean transit, a win-win for the power sector and the public.

The Global Innovation Lab for Climate Finance will work with experts and investors to analyze and stress-test this concept, catalyze partnerships in both the public and private sectors, conduct rigorous financial analysis, and connect Clean Energy Works with decision-makers who can apply this breakthrough solution.

2017: An Award-winning Year for Inclusive Financing. What’s Next in 2018?

Inclusive Financing Wins Top Award in Search for Breakthrough Climate Strategies

The Climate Strategies Accelerator recognized Dr. Holmes Hummel, founder of Clean Energy Works, with a top award for advancing an innovative utility financing concept to accelerate electrification of the transportation sector.  Dr. Hummel was among eight fellows initially selected for the Accelerator from a pool of more than 500 hailing from 89 countries.

To make the case, Dr. Hummel drew on a body of work on utility tariffed investments in better buildings, upgrading their energy performance. A similar approach can catalyze rapid electrification in the transportation sector, starting with vehicles that tend to have the best business case – transit buses.  

How does it work?  By offering to make a site-specific investment and recover its cost on the monthly bill for that site, utilities can cut the upfront cost of batteries and charging stations.  The result is more value delivered to the customer, more electricity sales, and lower emissions for transportation as the grid continues to grow cleaner every year.

The Accelerator’s two-year award made through the Silicon Valley Community Foundation will assist Clean Energy Works with strategy development and stakeholder engagement.

Mainstage Presentation at VERGE 17

At VERGE 17, Dr. Hummel addressed GreenBiz’s premier sustainability conference to make the case for harnessing the power sector to accelerate transformation in the transportation sector. In front of 2,000 leaders from government, nonprofits, and the corporate and tech sectors, Dr. Hummel laid out the opportunity to capture market share in transportation fuels by addressing the upfront cost barrier for electric vehicles, starting with transit.

Dr. Hummel’s talk, “Inclusive Financing for Clean Energy — Paving the Way with EVs,” laid out a vision to drive oil out of the transportation sector and surging investment in EVs. Widespread adoption of inclusive financing tools, such as a utility tariff, can accelerate this transition and help cities and transit agencies achieve their commitments to sustainability.

What’s Next for Clean Energy Works?

In 2018, Clean Energy Works will expand its field of activity to collaborate with allies and key stakeholders, including utilities, transit agencies, manufacturers, policy-makers, and NGOs.  Harnessing the strength of aligned interests, Clean Energy Works will focus on creating conditions for broader use of inclusive financing. This model has proved effective in energy efficiency building upgrades, and plummeting costs for batteries and other distributed energy solutions are opening the door for EVs and more.

We will continue to provide advisory services and technical support to those interested in adopting inclusive financing. For example, the Southeast Energy Efficiency Alliance (SEEA) sponsored a series of open-access briefings and webinars to dozens of champions for public interest in SEEA’s Inclusive Financing Learning Circle. This group is made up of practitioners who are exploring a specific application of inclusive financing, and they receive technical assistance on designing and implementing utility tariffs.

As we continue to build on the momentum of the Climate Strategies Accelerator award, we will continue to seek ways to go to scale faster, both inside the U.S. and beyond.  If you have an interest in exploring your potential, please be in touch:  info@cleanenergyworks.org.