Model 4: Private finance and operation of electric buses

Model 3: Disadvantages

Model 3 also has some disadvantages when compared with the typical model 1 structure:

• Higher financial costs. A private concessionaire subject to repayment risk from the PTA will have a higher financial cost than will public financing for public works. • Greater risks if payments are charged to the project. Planners may be tempted to charge payments to the project fares. Doing so would put affordability at risk, which would affect demand negatively and could create the need to defund the operation or increase public subsidies. • Risk of cost overruns if costs are charged to user fares. Tariffs seldom cover operational costs. Thus, a private provider of infrastructure will perceive repayment risk as high if its remuneration for capital costs is associated with tariffs as the only source of revenue. If a private entity agrees to enter into such an agreement, it will charge a higher risk premium or require guarantees from the PTA. • Loss of flexibility in the alignment of routes. As street layouts and routes need to change from time to time, some flexibility in the alignment of infrastructure is desired. However, this realignment is difficult or impossible to achieve if the project is locked into a long-term contract, and changes will most likely require paying additional remuneration to the contracted firms (which may perceive higher risks in the new alignment).

MODEL 4: PRIVATE FINANCE AND OPERATION OF ELECTRIC BUSES

Technological advances and rapidly declining battery costs have created an opportunity for electric buses to penetrate markets at an increasing rate. As the cost of electricity—especially from renewable energy sources—continues to fall, cities can take steps to deliver carbon-neutral public transportation.6 One important point is that technology risks should be allocated to the party with an incentive to foster the technological updates. In the case of electric buses, positive externalities can justify the additional investment required.7

The introduction of electric buses brings with it both opportunities and challenges for planning, operating, and financing a project. Electric buses require additional elements at the planning stage linked to battery-charging plans, selection of the right technology (fast vs. slow charging), and analysis of operational plans that will affect vehicle ranges. Electric buses also require different financing plans due to their higher fleet costs, the need for charging infrastructure, and the possible need for an increase in the capacity of the local electricity grid. Finally, their introduction involves a new set of stakeholders, such as electric utilities and battery manufacturing companies. Utilities are particularly interested in creating a new electricity market segment and can be included in the project structure by undertaking the following:

• Providing charging infrastructure and equipment • Retaining batteries’ obsolescence risk by providing the batteries, offering guarantees, or committing to buy batteries after their life span in bus operations is complete (as they retain value for energy storage)