E-Bus Economics: Fuzzy Math?

Electrifying the global urban vehicle fleet depends on the convergence of several economic, technological, and political factors. However, the big shift to electric vehicles will likely take place only when the economics of owning and operating electric becomes a no-brainer. Using the example of electric buses, two factors must fall into place before the electric option can take off: first, the upfront cost needs to come down and second, there needs to be a change in procurement culture towards lifecycle cost or total cost of ownership (TCO). If utilities can structure out fluctuations in power costs (through PPAs) and the marketplace moves to leasing and other fixed-price operations and maintenance arrangements, these calculations can standardize across the board quickly. This is when the math starts to get a lot less fuzzy.

Electrifying the global urban vehicle fleet depends on the convergence of several economic, technological, and political factors. However, the big shift to electric vehicles will likely take place only when the economics of owning and operating electric becomes a "no-brainer." Using the example of electric buses, two factors must fall into place before the electric option can take off: • First, the upfront cost needs to come down. Electric buses are prohibitively expensive in some markets as compared to their diesel and hybrid counterparts.
(This is also the case with other electric vehicles, which tend to be pricier upfront.) The price differential is bigger in markets where there are no domestic manufacturers and equipment must be imported. A large 12-15-meter diesel bus generally costs between $200,000-$300,000, depending on jurisdiction, while electric equivalents can cost anywhere from $400,000-$800,000 (note: all dollar figures here are U.S. dollars). While China and some OECD countries provide generous subsidies to municipalities for bus acquisitions, this largesse is generally not available in developing markets. This means that the economics have to stand on their own.
• Second, there needs to be a change in procurement culture towards lifecycle cost or Total Cost of Ownership, or TCO. For decades city transit officials have acquired buses based on the lowest cost, which is simple, verifiable, and easy to defend in the court of public opinion. Unfortunately, the upfront purchase price is a poor determinant of the overall lifecycle cost of a vehicle, which includes operations, maintenance, financing, and insurance, among others. A shift to procurement based on total costs would provide an "apples-to-apples" comparison, which would give electrics a fighting chance.

BREAKING DOWN TCO
TCO refers to the total cost to acquire, operate, and maintain a vehicle, as well as the associated fueling infrastructure. TCO is usually reflected on a cost-per-kilometer basis and generally includes some combination of the following (again, sticking with the example of urban buses): Any positive cash resale value of the depreciated vehicle. Battery resale will also become a more prominent source of resale value as the "second life" market for batteries expands.
Fuel/Power Cost Annual cost to power the vehicle, which is driven by vehicle efficiency, distance traveled, and source of power/fuel.
Routine Maintenance Tires, parts, fluids, and other required maintenance of the bus in question. This also includes the cost of insurance.

Major Maintenance (Bus Overhaul)
For bus purchases that do not include a warranty for the life of the vehicle, a major mid-life overhaul would include the cost of battery replacement for electric buses and engine overhaul for conventional buses.

Infrastructure Maintenance
Where not already included in the retail fuel price, this includes the cost of infrastructure maintenance and operations.

World Bank TCO Analysis
The World Bank conducted TCO analyses based on a variety of local, national and international data sources, including technical literature and manufacturer information, exercising professional judgment when city or country-specific data were not available.
The selection of the bus technologies for TCO analysis for each city was based on consultations with local experts, considering implementation potential and the availability of cost data. 12 Appendix A summarizes the key input data and assumptions used for these analyses. Staff costs refers only to bus operators. Administrative staff costs or common costs to all the technologies, such as tires or fixed costs, are not included.
The TCO estimates for each of the five cities are presented in the following figures. 13

Buenos Aires TCO Estimates
World Bank TCO Analysis indicates that CNG buses in Buenos Aires have the lowest TCO of the analyzed technologies. Due to higher fuel costs and fuel taxes, TCO for diesel buses is higher, but the fuel cost is subsidized for concessionaires (negative bars). Biofuel buses have TCO 6% higher than CNG, due primarily to higher fuel cost and fuel taxes. Despite lower fuel and maintenance costs, BEBs TCO are higher than the rest of the technologies.

Mexico City TCO Estimates
BEBs in Mexico City have the lowest TCO of the technologies considered to be due primarily to lower fuel and maintenance costs. Hybrid buses have TCO 15% higher than diesel buses, although their fuel cost is lower. Although the TCO for BEBs is lower than the rest of the technologies, no private concessionaires have tested these buses.
12 For example, certain vehicle types or fuels might be excluded from analysis if unavailable in the local market. 13 Amounts in USD. Note that these TCO graphs do not reflect emission reduction benefits. See the next section on cost effectiveness which addresses emissions.

Figure 2.1: World Bank TCO Buenos Aires estimates ($/km)
Source: Steer for the World Bank based on various sources summarized in Appendix A.

Santiago TCO Estimates
BEBs in Santiago have the lowest TCO of the technologies analyzed, on average, 9% lower than for diesel buses. Despite higher vehicle acquisition costs, the low TCO for BEBs is due primarily to lower fuel costs. CNG buses have TCO 8% higher than BEBs due primarily to higher fuel costs, and diesel buses have TCO 9% higher than BEBs due to higher fuel and maintenance costs.    Energy Finance predicts that electrics will start to reach TCO parity in most locations in the next two to three years, while upfront cost parity will probably take another decade (currently estimated at around 2030).

TCO TAKEAWAYS
Based and en-route fast "opportunity" charging -both wireless and overhead contact systems), each with its own associated driving range (e.g. km/ day). BEB selection and TCOs are influenced by the daily distance they are required to travel. BEBs with larger batteries can travel greater distances without en-route charging and cost more upfront.
The TCOs of BEBs improve in comparison to diesel as the daily travel distance increases ( Figure  2.2). This is true even for buses with smaller (110 kWh) batteries coupled with more expensive wireless charging systems. BEB range can also be impacted by topography (e.g. navigating hilly terrain requires more energy than flat areas) and climate (e.g. air conditioning leads to faster battery discharge). There is no substitute for local measurement of BEB performance in actual driving conditions. While BEBs currently have higher TCOs than diesel buses, Bloomberg (2018) projects that within 2-3 years most BEB configurations will have lower TCOs than diesel, and that upfront BEB costs will be the same as for diesel buses by around 2030. Growing demand for BEBs could reduce battery prices even faster, resulting in cost parity by the mid-2020s.
Both the World Bank TCO analysis and Bloomberg TCO findings show that in terms of costs, BEB is the best alternative when its lifecycle Buenos Aires and Montevideo, where BEBs are less competitive with other technologies. In some cases, competitive processes (e.g. Santiago) can lower costs. Therefore, green financing mechanisms offer significant benefit in countries with high interest rates.
Having presented findings on the total costs of ownership of clean buses, the next chapter explores the cost-effectiveness of various clean bus technologies in reducing CO2 emissions.
The World Bank conducted a cost-effectiveness analysis of the marginal abatement cost (MAC) of reducing a tonne of CO2-equivalent (CO2e) emissions when switching from Euro V diesel buses 14 to clean bus technologies. The analysis considered the TCO for each technology, as well as the externality costs of air pollution (NOx and PM). Cost-effectiveness analysis is dependent on a set of factors that vary over time and context, and is subject to local interpretation. 15 Therefore, the results summarized below should be taken as a depiction of the current situation at the time of publication and broader generalizations are not advised.
14 We assume a base technology of Euro V diesel buses. This is a conservative estimate since the buses in the five cities have higher real-world emission performance than the standards claimed for the European contexts. 15 In the presentation of the results below we consider a technology to be "cost effective" if the marginal abatement cost is negative, i.e., generating a net cost savings compared to the base technology. Each city or country may have its own threshold regarding what $/tonne level is desirable given the other mitigation options and co-benefits considered.
Source: Bloomberg New Energy Finance, AFLEET, Advanced Clean Transit Notes: Diesel price at $0.66/litre ($2.5/gallon). Electricity price at $0.10 kWh, annual km. traveled -variable. Bus route length will not always correspond.  This is when the math starts to get a lot less fuzzy.

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