Can Latin America inspire worldwide electric bus adoption?

Chile and Colombia are among the countries increasingly replacing fossil fuel-powered buses with battery-powered vehicles. This thanks to innovative business models that can be replicated around the world, according to a recent report.

Amid the gloomy news about the worsening and prolonging of the Covid-19 pandemic, Latin America offers a glimmer of hope: the region can inspire the world to increasingly adopt electric buses, which will ultimately help post-pandemic cities become more sustainable. This is among the main findings of the study Leading a Clean Urban Recovery with Electric Buses – Innovative Business Models Show Promise in Latin America, by the World Bank Group’s private sector arm, the International Finance Corporation (IFC), and C40 Cities, a worldwide network of cities committed to curbing climate change.

The study highlights the significant progress made by countries such as Chile and Colombia. In the Chilean capital, Santiago, 776 electric buses are already operating under private contracts. Colombia’s capital city Bogotá, meanwhile, announced in January last year that it would add 596 new buses to its Transmilenio fleet, bringing the total of battery-powered vehicles to 1 485  (the largest electric fleet outside China).

According to the authors, IFC’s Anthony Courreges and C40’s John Graham, Latin America’s secret lies in innovative public-private partnerships (PPPs). These PPPs are concession models in which fleet providers finance, procure, own, and maintain the equipment. The providers offer stable, long-term e-bus fleet contracts to operators and municipalities, thus “unbundling” ownership and operation: “The ‘unbundled’ model allows all parties to do what they do best,” says the report.

This model differs from the usual models found in most cities worldwide, wherein buses are owned either by a public authority or single private operator which procures, operates, and maintains the fleet as per contract requirements. “For different reasons, neither of these players is ideally positioned to lead a large-scale, investment-led transition to electrified fleets without changes to underlying business models,” argues the study.

This is all the more worrying considering the impact of Covid-19 on municipal transport agencies. Between March and April 2020, public transit ridership was down by between 70 and 90% on average. This has caused revenues to fall, while the costs of additional safety and sanitation measures have significantly increased. In Brazil, for example, the Transformative Urban Mobility Initiative (TUMI) indicated that urban transport systems were losing as much as one billion Brazilian reais (roughly R2,76 billion) every day just to keep the system running.

In an environment where traditional players are unable to lead the transition to e-buses, commercial models such as leasing – already a key component of successful fleet operations in other industries such as freight, train, cars, and aircraft – could help cities update their fleets with fewer risks and greater chances of success, according to the report.

Despite the numerous challenges, there is good news: as the costs of acquisition and operation drop, e-buses are increasingly emerging as a cost-effective alternative to fossil fuel-powered buses.

“While e-buses and associated charging infrastructure can still be as much as two- to three-times more capital-intensive, (up-front) as equivalent diesel bus options, battery costs and annual operating expenses are falling. The performance and reliability of e-buses are also improving fast. Manufacturers are producing lighter, more efficient buses with longer battery life and more reliable performance backed by better warranties,” says the report.

“At the same time, transit agencies are taking note that the total cost of ownership (TCO) – which takes into account upfront capital investment as well as operation, maintenance, and other indirect costs over the life of the asset – for electric buses has already reached parity with diesel buses,” it continues. “Taking things a step further, when the calculation includes air quality improvements and the reduction to greenhouse gas emissions, the scales tip further in favour of e-buses.”

The report identifies risks and opportunities similar to those faced a decade ago by solar and wind energy sector players. Solar and wind capacity has grown ever since, thanks to improved technology and gains of scale. “With the brute force of technology, track record and scale of production, the same will happen with the e-bus market, driven by governments wanting to clean their transit systems and a host of private sector stakeholders (including investors, banks, manufacturers and insurers) wanting to invest in the sustainable infrastructure space,” say the authors. “The trick is to align this complex network of stakeholders in order to create competition, transparency and reasonable returns for the parties involved.”

Developing sustainable mass transit solutions was already a crucial concern prior to the pandemic, as cities were already beginning to suffer from the negative impacts of climate change, such as more intense droughts and/or rains. These considerations will become even more immediate in the near future, as the world emerges from the grip of Covid-19. Stronger and safer infrastructure will play a pivotal role in the post-pandemic recovery; the adoption of electric bus fleets is likely to have an ever-increasing role to play.