What are inclusive utility investments for clean transport?
With an inclusive utility investment program, electric utilities can capitalize the batteries and charging equipment, which reduces the upfront cost to the bus service provider (the customer). The utility then recovers its cost for the equipment through a fixed charge on the monthly bill for the bus service provider that is lower than the estimated operational savings of the electric bus.
What differentiates inclusive utility investment from a leasing model?
- Financial liabilities: Leasing agreements require the bus service provider to accept a long-term financial liability on their balance sheet. By contrast, an inclusive utility investment does not impose additional financial liabilities on a bus service provider’s balance sheet.
- Eligibility: Leases depend on the creditworthiness of the bus service provider. With inclusive utility investment, utilities rely upon disconnection for non-payment, which is an effective form of security.
Who bears technology risk for equipment capitalized through an inclusive utility investment program?
What are the environmental benefits of electric buses over diesel buses?
How environmentally friendly are electric buses with a ‘dirty’ electricity supply?
Electric buses fueled by an electrical grid powered by carbon intensive sources may have small or even negative carbon emission reductions when compared to diesel. However, the much greater tank-to-wheels efficiency of the electric drivetrain means emissions reductions improve quickly as renewables are added to the mix of supply sources.
What does the utility provide?
Once the bus is in operation, the utility provides electrical service to the charging site. The cost of that electricity is defined in a tariff for electricity service that applies to all customers that qualify for that rate. For that reason, the tariff that defines the electricity rate is separate from the tariff (or tariff rider) that defines the cost recovery charge for the on-board battery and smart charging equipment.
What happens if the equipment does not perform as intended?
What happens if the equipment does not perform as intended?
Is the value of grid services provided by an EV included in the inclusive utility investment?
Why are utilities an important partner in the transaction for electric buses?
- Cost-effectiveness: Utilities are typically much larger and better capitalized than bus service providers, and they access debt markets on a regular basis, at a lower cost of capital and lower transaction cost.
- Counterparty risk: By lending to a utility, a capital provider holds counterparty risk from the utility, which has better capacity than other actors in the transport chain (bus providers or operators).
- Cost recovery: By using an on-bill cost recovery mechanism, the utility can recover its cost for batteries and chargers through the same billing system that it uses to collect revenues for all other services delivered.
What does the bus service provider supply?
What is the role of capital providers in an inclusive utility investment?
- Alternative capital source. If the utility cannot (or prefers not to) finance the purchase of the batteries and charging infrastructure internally, it may seek external capital to provide the financing required. This could be done privately through a bespoke financial instrument, which could include a public debt or bond offering that flows capital through the utility and back.
- Copayment and/or additional financing to buy down the upfront cost or the remainder of the bus to a level that is cost effective. The bus service provider might have to make an upfront co-payment to cover a gap in cost effectiveness. Grant funding where available or traditional financial or concessional capitals will be needed.
- Professional services for initial implementation in a specific market. The legal, consulting, and administrative fees associated with the first-time design and implementation of the inclusive utility investment for a specific market can be paid by the utility, which may seek to have those costs covered by external grant funding as a public benefit.
Would loan financing extended by capital providers to a utility for an inclusive utility investment be on the utility’s general corporate balance sheet?
As with its other investments, the utility is obligated to repay its creditors regardless of the performance of its investments, and as with other investments, the utility’s own risk exposure is low because it would be assured of cost recovery through terms of service (a tariff) that have recourse options, such as disconnection for non-payment, which is the same as unpaid bills for other utility services.
Does the inclusive utility investment model envisage potential retrofitting of batteries on buses to convert them from diesel to electric?
When the bus manufacturer sells a bus, would it implement one purchase-sale contract with two buyers, or two purchase-sale contracts, one for each of the parties?
Separately, the utility offers the bus service provider an inclusive utility investment tariff agreement, and that document establishes the pathway to ownership of the grid-connected equipment for the bus service provider.
This tariff (and the agreement for a customer to opt into it) is set up one time by the utility with approval from its regulator, and then any eligible bus service provider in the utility’s service area can use it as an off-the-shelf document going forward for all future inclusive utility investments of that type.
Is it possible to implement an electric bus purchase where one part (the batteries) is acquired by one legal entity and another part (the rest of the bus) is acquired by another legal entity?
To further underscore that the battery and bus have a commercial value that can be distinguished, the bus and battery often have separate warranty terms, and the battery can be removed from the bus for separate sale for second life applications.