Cutting the Total Cost of Electrification for EV Bus and Truck Fleets

Green Tech Media

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Electric trucks and buses may be approaching cost parity with their fossil-fueled counterparts, and they’re certainly cheaper to fuel over the long run — and that’s not counting their carbon and pollution emissions benefits.

But that’s just a slice of the costs of switching bus and truck fleets from fossil fuels to batteries. Unexpected costs and bottlenecks in charging infrastructure, fleet operations and maintenance, and permitting and financing weigh on cities and states mandating electric bus fleets, as well as private companies with large-scale delivery-truck electrification goals.

Solving this “total cost of electrification” equation will be a critical step in pushing EV trucks and buses from the margins to the mainstream in the coming decade, according to a report released Wednesday by Environmental Defense Fund, MJ Bradley and Vivid Economics.

“We’re seeing the technology increasingly ready and capital increasingly eager to invest in sustainability” via fleet electrification, Andy Darrell, EDF’s chief of global energy and finance strategy, said in an interview. “And yet the deployment, especially in the medium- and heavy-duty sector, might not be moving as quickly as we’d like to achieve big climate goals.”

Estimates on the global market for electric trucks and buses range into the tens of billions of dollars over the coming decade, he noted. Cities including Los Angeles, Seattle, New York and Houston have set aggressive zero-emissions goals for bus fleets. California has mandated a completely zero-emissions heavy-duty vehicle fleet by 2045, and other states may follow suit. Companies including Amazon, FedEx, Pepsi and Anheuser-Busch are piloting tens of thousands of electric trucks.

But there is “a pretty wide set of barriers” between pilots and full-scale deployments, Darrell said. Beyond the costs of equipping depots with the EV chargers and grid infrastructure to support them, drivers and mechanics need training to ensure these facilities are run efficiently and avoid expensive downtime. And uncertainties over the long-term value and reliability of EVs “may be hard to quantify, but may still make it hard to get to yes” for fleet operators with tight budgets and margins, he said.

These findings are backed up by similar studies from groups including the Union of Concerned Scientists and the Rocky Mountain Institute. They’re also based on extensive interviews with industry players familiar with the challenges of building an electric fleet infrastructure from the ground up.

The growing pains of electrifying public bus fleets

Take the 5,000-plus electric bus fleet the New York City Metropolitan Transportation Authority wants to deploy by 2040. To prepare for the first tranche of 500 buses by 2025, “they had to solve problems they didn’t know upfront even existed,” Darrell said, including finding space for chargers in their crowded bus depots — eventually “they had to put them on the roof” — and training drivers in the subtleties of using the buses’ regenerative braking to maximize their range.

Los Angeles, which wants to electrify its bus fleet by 2030, also experienced growing pains in its early electric bus rollouts, including lower-than-expected range and battery charge and mechanical problems. Denver’s transit agency charged its EV bus fleet all at once at times of peak grid demand, leading to demand charges that drove operating costs to 60 percent more per mile than were accrued when using diesel buses.

These kinds of mix-ups can be solved by “working with the utility, understanding the rates, putting in some software to make decisions,” said Simon Lonsdale, head of sales and strategy for Amply Power. The startup offers charging-as-a-service contracts to reduce upfront costs for bus electrification and delivers significant savings by staggering charging to avoid demand spikes and tap off-peak pricing.

Amply recently partnered with Aecom to tap the engineering firm’s experience designing and building transit systems for big customers like the Los Angeles Department of Transportation, which needs multiple charging sites in multiple utility territories to charge electric buses on their daily routes.

“They don’t have the luxury of trying to solve these problems on the fly,” said Andrew Bui, Aecom’s national transportation innovation lead. “They need to feel comfortable the infrastructure is going to be there and the rate structures will be cohesive.”

Financing such large-scale projects is challenging for cities and agencies, particularly amid the COVID-19 pandemic, said Victor Rojas, EDF’s senior manager for clean energy finance. Grant funds are being directed to bus electrification in many states, and state green banks can be another source of low-cost finance.

Utilities are another funding source, he noted. U.S. utilities are investing billions of dollars in grid infrastructure to support EV charging, providing incentives for EV purchases, and making arrangements to waive or reduce demand charges at fleet vehicle charging depots.

Utilities have a major stake in coordinating EV fleets to maintain grid reliability and integrate their growing demand into increasingly renewable-powered grids, making them a natural partner with fleet operators, Bui noted.

Finding ways to ease upfront costs through charging-as-a-service programs like Amply’s, or through repayment mechanisms like utility on-bill payments, will be important steps in driving the “significant infusion of private capital to make this happen,” Rojas said. “Public capital won’t be enough to get there.”

Risk management, financing models for private-sector EV fleet investments

Private-sector fleet electrification faces different challenges, Darrell said. Major companies like Amazon, UPS, FedEx and Walmart are testing electric trucks in the tens of thousands. But expanding from pilot projects to full-scale deployment remains a risky proposition for companies that rely on massive fleets for just-in-time delivery and control operating costs on tight margins.

Risk management is a major part of the calculations of total cost of electrification being made by corporate fleet operators, said Matt O’Leary, CEO of electric truck startup Motiv Power Systems. “These customers have very long memories,” he said — and some have been burned before by electric truck makers that went out of business, such as Smith Electric Vehicles. “If you make a mistake, it takes a long, long time for you to win [customers] back.”

Motiv integrates its electric truck drivetrains and control systems into industry-standard chassis and uses batteries and other components certified by Tier 1 manufacturers such as Ford and BMW, he said. It also has a “very high-touch customer support model,” working in advance to assure vehicles with the range needed for daily routes, charging infrastructure to support them, and training for drivers and maintenance staff, with a typical deployment from a handful of test vehicles to hundreds of working trucks taking about two years.

“If you look at total cost of ownership, it’s clear that electric vehicles are lower,” he said. But public grants and incentives including California’s Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project have been critical for Motiv’s early customers to drive down the payback for upfront capital costs to the two to three years most customers are looking for. “The payback without any type of incentives tends to be five to six years today. That’s a bridge too far for most of today’s fleets.”

New financing models to bridge this gap will be important for scaling up private-sector truck electrification, Darrell said. That could include guarantees of vehicle performance, long-term asset value or financing risks, or bundling smaller fleet investments into larger investment vehicles. It could also include leasing structures that shift risk from fleet operators, ranging from the battery leases offered by electric bus maker Proterra to all-inclusive “wet leases” that encompass vehicles, operations, maintenance and asset retirement.

Public-private partnerships to electrify fleets such as drayage trucks that haul cargo from ports to distribution centers could also help reduce diesel emissions in low-income communities disproportionately harmed by their pollution, he said. A recently launched request for information seeking private-sector proposals to zero out emissions from Port of Los Angeles drayage vehicles by 2035 could yield useful models for this economically challenging target.

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