Tariffed On-Bill Finance to Accelerate Clean Transit

Transit agencies around the world are looking for ways to buy zero-emission electric buses to replace diesel buses – and eliminate their air and noise pollution. Electric bus manufacturers have recently reached cost parity with diesel buses in key markets when evaluated on a lifecycle basis, yet the upfront cost premium can be above 50%, creating a barrier for procurement.  Because many transit agencies are operating in financially constrained conditions, accelerating retirement of the dirtiest diesel buses in favor of zero-emission buses requires a financing solution.

Harnessing a utility’s business model can accelerate investment

Utilities have sold electricity for nearly a century under a terms of service agreement called a tariff, and in the last decade, innovations in the field of energy efficiency for buildings have yielded an opt-in tariff for upgrades like better lighting or heat pumps.  These utility tariffed on-bill programs accelerate investment in cost effective upgrades by resolving the upfront cost for customers and providing net benefits from the start.  When applied to the transportation sector, these programs can break through the upfront cost barrier for batteries and charging stations by allowing a utility to invest directly in the equipment that drives the premium cost of electric buses.

Here’s how it works: Financing Transit Bus Upgrades with an Opt-in Tariff

First, the utility establishes a terms of service agreement (a tariff) for investing in the battery and charging station for each new electric bus sought by a transit agency in its service area.  Second, the transit authority opts into a terms-of-service agreement (a tariff) that allows the utility to put a charge on the agency’s monthly bill that is capped at a level below the estimated savings (relative to the cost of diesel fuel for a diesel bus) and to recover its costs within the warranty period of the equipment it has financed. If the equipment has been maintained as per warranty conditions, the utility can call on the warranty to address upgrades that need repair or remedy.

As a result, the transit authority’s upfront cost to replace a diesel bus with electric would be the same as if they were buying a new diesel bus – except that electric is better.  For the transit agencies that opt in, the utility pays for energy saving upgrades to the bus fleet, and the transit authority pays nothing upfront for the premium cost of the zero-emission electric bus.  The utility gains approximately $100,000 in new sales over the life of each electric bus that displaces a diesel bus.  Bus riders and communities served by both the utility and the transit agency are then spared the hazards of air pollution and the nuisance of noise pollution produced by diesel buses.

PAYS diagram for transit busses

The transit authority has no loan, no lien, and no debt associated with this transaction; just lower costs of operation and a better bus fleet.  When the utility recovers its costs, the monthly charges end, and when the transit agency has exhausted a battery used for on-board storage, the utility may opt to buy battery packs for second life applications for stationary storage.

PAYS offers all customers the option to access cost effective energy upgrades using a proven investment and cost recovery model that benefits both the transit authority and utility.  Although the PAYS system has not yet been applied to transit buses yet, recent cost reductions achieved by manufacturers have now put that breakthrough within reach.