Financing the transition to electric truck and bus fleets
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Financing the Transition: Unlocking Capital to Electrify Truck and Bus Fleets
While diesel-powered trucks and buses make up only about 4% of vehicles on U.S. roads, they have an outsized impact on our climate and health.
Policymakers, fleet owners, utilities and financiers all recognize the urgency and opportunity of electrifying these vehicles. But key barriers stand in the way of financing this transition at scale.
Our Financing the Transition report and Total Cost of Electrification toolkit show how to negotiate these barriers.
The opportunity for cleaner fleets, cleaner cities, and cleaner investments is before us.
Richard Kauffman, Chair of the Board of Directors, Generate Capital
Total Cost of Electrification
Many fleet electrification barriers - like vehicle upfront costs - are known and accounted for in traditional Total Cost of Ownership calculations. However, various softer costs, risks, uncertainties and market frictions, like those that stem from emerging technologies, local permitting and changes to operational patterns must also be considered.
Total Cost of Electrification (TCE) is a new framework that can help policymakers, fleet owners, utilities and financiers begin to account for and better understand these diverse barriers.
TCE Toolkit
An array of solutions are needed to overcome the highest-priority barriers to Total Cost of Electrification – and they must be tailored to specific fleet types, geographies and goals.
The TCE Toolkit is a first-of-its-kind resource that matches the most significant barriers to innovative financing approaches and non-financial support tools to overcome them.
Overview
TCE toolkit
Roll-over a term for detailsHard costs
Public-backed "soft" loans
Public-backed "soft" loans are loans with low interest rates, longer maturity, reduced collateral requirements, grace periods or subordinated debt that can support MHDV fleet electrification investments not suitable for commercial-term borrowing. These were used by the Inter-American Development Bank for Bogota’s e-bus rapid transit system, allowing for the purchase of e-buses with significantly higher purchase prices than traditional diesel buses.
Interest rate reductions
Interest rate reductions can incentivize the uptake of MHDV fleet electrification investments. These may be provided by public or private lenders with public "buy down" of interest rates. The Wyoming Business Ready Community Program uses this approach for public infrastructure development that benefits the business community.
Equity investments
Equity investments can support an MHDV fleet electrification enterprise or project, spur the establishment and growth of businesses, and signal investability to the broader financial sector.
Financial grants
Financial grants are direct transfers to fleets or owners that reduce the purchase price of new vehicles and/or infrastructure by covering part of the capital cost of new assets. Direct grants have been used frequently in the past but exhaust public capital quickly, and so are best used in a targeted way to prioritize deployments in overburdened communities and support investment when other financing approaches are not available or practical.
Commercial bonds
Commercial bonds are debt instruments issued by private businesses engaged in MHDV fleet electrification that entitle creditors to interest “coupon” payments. These can help businesses raise capital to finance large upfront costs for corporate projects.
Green bonds
Green bonds are public or commercial bonds that generate capital to fund high upfront costs where proceeds are earmarked for environmental projects, including MHDV fleet electrification. The "green" credentials of these instruments can attract heightened interest from investors and could lead to lower interest payments.
Municipal bonds
Municipal bonds are debt instruments issued by public entities engaged in MHDV fleet electrification that entitle creditors to interest "coupon" payments. These can enable public entities to raise capital to finance large upfront costs for municipal projects.
Aggregation / Warehousing
Aggregation / Warehousing involves bundling together smaller MHDV fleet electrification investments to attract investors looking for larger opportunities. This approach can transform one-off, non-traded assets into standardized, tradable assets and has been used in other clean economy sectors (e.g., renewable energy, energy efficiency) to catalyze the flow of capital at scale.
Soft costs
Operational expenditure grants
Operational expenditure grants include cash grants, rebates or reimbursements for operational costs connected to electric MHDV fleets, such as electricity and maintenance. These can help to reduce ongoing costs for fleet owners and operators.
Performance guarantees
Performance guarantees, or government-backed guarantees, reduce investment risk by protecting electric MHDV purchasers from under-performance of vehicles or batteries.
Operational leasing
Operational leasing, where the electric MHDV fleet operator rents both the vehicle and battery from the manufacturer or an intermediary, reduces upfront purchase costs and the risk from uncertain residual values of assets.
"Wet" (all inclusive) leasing
"Wet" (all inclusive) leasing is a leasing model where the lessor provides the vehicle, battery, maintenance, and, in some cases, the insurance and operational staff, to the electric MHDV fleet operator. This reduces upfront purchase costs, risk from uncertain residual values of assets and the need to invest in maintenance or the training of staff.
Lease-purchase agreements
Lease-purchase agreements, where the electric MHDV fleet operator rents vehicles and batteries with the option to buy upon termination of the contract, reduces upfront purchase costs and risks from uncertain residual values of assets, while preserving the exclusive option to purchase assets at the end of the lease.
On-bill financing
On-bill financing allows electric MHDV fleet operators to finance a share of the upfront costs and repay this over time on their utility bill. This reduces upfront purchase costs, links repayments to standing relationships, and provides a new guaranteed revenue source to utilities. The Pay-As-You-Save (PAYS) model is a specific case of on-bill financing.
Risks & uncertainties
Asset residual value guarantees
Asset residual value guarantees protect investors or purchasers against future low residual or resale value of electric MHDVs by specifying a guaranteed minimum value, through direct purchase or making up price differentials.
Political risk guarantees
Political risk guarantees protect investors or purchasers of electric MHDVs against losses due to a specified set of political risks — such as changes in climate, vehicle or fuel regulations or policies — to reduce investment risk.
Financial risk guarantees
Financial risk guarantees protect investors in electric MHDV fleets against losses due to debt servicing defaults on the part of the borrower for any reason, including under performance of assets. The Title 17 Federal Loan Guarantees for Renewable Energy Projects and Energy Efficient Projects is a framework that addresses projects of similar size and scope as large transportation-related infrastructure and vehicle purchases.
Building secondary markets for vehicles & batteries
Building secondary markets for vehicles and batteries, through commitments to purchase assets or the provision of other incentives for the private sector, would reduce uncertainty and risk around residual values of assets.
Battery health programs
Battery health programs that monitor electric MHDV battery performance, rectify performance issues, and/or replace faulty or under-performing batteries, reduce uncertainty and risk around battery performance and residual values of assets.
Frictions
Non-financial grants
Non-financial grants are transfers of nonfinancial assets or support (such as land, infrastructure, maintenance, training, etc.) to reduce upfront or ongoing costs for electric MHDV fleet owners and operators.
Policy reform for new approaches
Policy reform for new approaches could enable easier uptake of new financing approaches that support electric MHDV fleet transitions. Examples include reforms and policies that allow electric vehicles to acquire additional value through their operation as grid assets via bi-directional charging and discharge, or to acquire monetizable emissions credits that can be used within financing agreements, and adjustments to accounting or investment rules to enable the use and combination of new financing approaches.
Technical assistance for using financing
Technical assistance for public and private fleet owners would enable easier uptake of new financing approaches that support electric MHDV fleet transitions.
Guidance on financing compliance with regulations
Guidance on financing compliance with regulations is particularly important when combining financing approaches or funding sources in new ways.
Clean vehicle standards
Programs such as emission standards for new vehicles or fleet performance standards can be used to incentivize or accelerate fleet transitions.
Legend
Capital instruments: Financing instruments that increase access to capital
or other resources and/or reduce the cost of capital.
Risk reduction instruments: Financing instruments that reduce exposure to risk or uncertainty.
Cost smoothing instruments: Financing instruments that reduce and smooth upfront
and/or recurrent costs.
Technical support: Support for technical management of electric MHDVs
and technical assistance for financing approaches.
Policy action: Policy measures to enable financing and encourage
fleet transitions.
Hard costs
Hard costs are costs from investment in new assets and fixed infrastructure.
Public-backed "soft" loans are loans with low interest rates, longer maturity, reduced collateral requirements, grace periods or subordinated debt that can support MHDV fleet electrification investments not suitable for commercial-term borrowing.
These were used by the Inter-American Development Bank for Bogota’s e-bus rapid transit system, allowing for the purchase of e-buses with significantly higher purchase prices than traditional diesel buses.
Capital instrumentInterest rate reductions can incentivize the uptake of MHDV fleet electrification investments. These may be provided by public or private lenders with public “buy down” of interest rates. The Wyoming Business Ready Community Program uses this approach for public infrastructure development that benefits the business community.
Capital instrumentEquity investments can support an MHDV fleet electrification enterprise or project, spur the establishment and growth of businesses, and signal investability to the broader financial sector.
Capital instrumentFinancial grants are direct transfers to fleets or owners that reduce the purchase price of new vehicles and/or infrastructure by covering part of the capital cost of new assets. Direct grants have been used frequently in the past but exhaust public capital quickly, and so are best used in a targeted way to prioritize deployments in overburdened communities and support investment when other financing approaches are not available or practical.
Capital instrumentCommercial bonds are debt instruments issued by private businesses engaged in MHDV fleet electrification that entitle creditors to interest “coupon” payments. These can help businesses raise capital to finance large upfront costs for corporate projects.
Capital instrumentGreen bonds are public or commercial bonds that generate capital to fund high upfront costs where proceeds are earmarked for environmental projects, including MHDV fleet electrification. The “green” credentials of these instruments can attract heightened interest from investors and could lead to lower interest payments.
Capital instrumentMunicipal bonds are debt instruments issued by public entities engaged in MHDV fleet electrification that entitle creditors to interest “coupon” payments. These can enable public entities to raise capital to finance large upfront costs for municipal projects.
Capital instrumentAggregation / Warehousing involves bundling together smaller MHDV fleet electrification investments to attract investors looking for larger opportunities. This approach can transform one-off, non-traded assets into standardized, tradable assets and has been used in other clean economy sectors (e.g., renewable energy, energy efficiency) to catalyze the flow of capital at scale.
Capital instrumentSoft costs
Soft costs are costs from additional activities and processes needed to switch to electric MHDVs.
Operational expenditure grants include cash grants, rebates or reimbursements for operational costs connected to electric MHDV fleets, such as electricity and maintenance. These can help to reduce ongoing costs for fleet owners and operators.
Capital instrumentPerformance guarantees, or government-backed guarantees, reduce investment risk by protecting electric MHDV purchasers from under-performance of vehicles or batteries.
Risk reduction instrumentOperational leasing, where the electric MHDV fleet operator rents both the vehicle and battery from the manufacturer or an intermediary, reduces upfront purchase costs and the risk from uncertain residual values of assets.
Cost smoothing instrument"Wet" (all inclusive) leasing is a leasing model where the lessor provides the vehicle, battery, maintenance, and, in some cases, the insurance and operational staff, to the electric MHDV fleet operator. This reduces upfront purchase costs, risk from uncertain residual values of assets and the need to invest in maintenance or the training of staff.
Cost smoothing instrumentLease-purchase agreements, where the electric MHDV fleet operator rents vehicles and batteries with the option to buy upon termination of the contract, reduces upfront purchase costs and risks from uncertain residual values of assets, while preserving the exclusive option to purchase assets at the end of the lease.
Cost smoothing instrumentOn-bill financing allows electric MHDV fleet operators to finance a share of the upfront costs and repay this over time on their utility bill. This reduces upfront purchase costs, links repayments to standing relationships, and provides a new guaranteed revenue source to utilities. The Pay-As-You-Save (PAYS) model is a specific case of on-bill financing.
Cost smoothing instrumentRisks
Risks & uncertainties are costs and uncertainties that make financing more expensive or make electric MHDVs appear less cost competitive.
Asset residual value guarantees protect investors or purchasers against future low residual or resale value of electric MHDVs by specifying a guaranteed minimum value, through direct purchase or making up price differentials.
Risk reduction instrumentPolitical risk guarantees protect investors or purchasers of electric MHDVs against losses due to a specified set of political risks — such as changes in climate, vehicle or fuel regulations or policies — to reduce investment risk.
Risk reduction instrumentFinancial risk guarantees protect investors in electric MHDV fleets against losses due to debt servicing defaults on the part of the borrower for any reason, including under performance of assets. The Title 17 Federal Loan Guarantees for Renewable Energy Projects and Energy Efficient Projects is a framework that addresses projects of similar size and scope as large transportation-related infrastructure and vehicle purchases.
Risk reduction instrumentBuilding secondary markets for vehicles and batteries, through commitments to purchase assets or the provision of other incentives for the private sector, would reduce uncertainty and risk around residual values of assets.
Technical supportBattery health programs that monitor electric MHDV battery performance, rectify performance issues, and/or replace faulty or under-performing batteries, reduce uncertainty and risk around battery performance and residual values of assets.
Technical supportFrictions
Frictions are limitations that increase the psychological or practical cost of switching to electric MHDVs.
Non-financial grants are transfers of nonfinancial assets or support (such as land, infrastructure, maintenance, training, etc.) to reduce upfront or ongoing costs for electric MHDV fleet owners and operators.
Technical supportPolicy reform for new approaches could enable easier uptake of new financing approaches that support electric MHDV fleet transitions. Examples include reforms and policies that allow electric vehicles to acquire additional value through their operation as grid assets via bi-directional charging and discharge, or to acquire monetizable emissions credits that can be used within financing agreements, and adjustments to accounting or investment rules to enable the use and combination of new financing approaches.
Policy actionTechnical assistance for public and private fleet owners would enable easier uptake of new financing approaches that support electric MHDV fleet transitions.
Technical supportGuidance on financing compliance with regulations is particularly important when combining financing approaches or funding sources in new ways.
Technical supportClean vehicle standards: Programs such as emission standards for new vehicles or fleet performance standards can be used to incentivize or accelerate fleet transitions.
Policy actionOverview
TCE toolkit
Hard costs
Public-backed "soft" loans
Interest rate reductions
Equity investments
Financial grants
Commercial bonds
Green bonds
Municipal bonds
Aggregation / Warehousing
Soft costs
Operational expenditure grants
Performance guarantees
Operational leasing
"Wet" (all inclusive) leasing
Lease-purchase agreements
On-bill financing
Risks & uncertainties
Asset residual value guarantees
Political risk guarantees
Financial risk guarantees
Building secondary markets for vehicles & batteries
Battery health programs
Frictions
Non-financial grants
Policy reform for new approaches
Technical assistance for using financing
Guidance on financing compliance with regulations
Clean vehicle standards
Legend
Capital instruments: Financing instruments that increase access to capital or other resources and/or reduce the cost of capital.
Risk reduction instruments: Financing instruments that reduce exposure to risk or uncertainty.
Cost smoothing instruments: Financing instruments that reduce and smooth upfront
and/or recurrent costs.
Technical support: Support for technical management of electric MHDVs and technical assistance for financing approaches.
Policy action: Policy measures to enable financing and encourage
fleet transitions.
Hard costs
Hard costs are costs from investment in new assets and fixed infrastructure.
Public-backed "soft" loans are loans with low interest rates, longer maturity, reduced collateral requirements, grace periods or subordinated debt that can support MHDV fleet electrification investments not suitable for commercial-term borrowing.
These were used by the Inter-American Development Bank for Bogota’s e-bus rapid transit system, allowing for the purchase of e-buses with significantly higher purchase prices than traditional diesel buses.
Capital instrumentInterest rate reductions can incentivize the uptake of MHDV fleet electrification investments. These may be provided by public or private lenders with public “buy down” of interest rates. The Wyoming Business Ready Community Program uses this approach for public infrastructure development that benefits the business community.
Capital instrumentEquity investments can support an MHDV fleet electrification enterprise or project, spur the establishment and growth of businesses, and signal investability to the broader financial sector.
Capital instrumentFinancial grants are direct transfers to fleets or owners that reduce the purchase price of new vehicles and/or infrastructure by covering part of the capital cost of new assets. Direct grants have been used frequently in the past but exhaust public capital quickly, and so are best used in a targeted way to prioritize deployments in overburdened communities and support investment when other financing approaches are not available or practical.
Capital instrumentCommercial bonds are debt instruments issued by private businesses engaged in MHDV fleet electrification that entitle creditors to interest “coupon” payments. These can help businesses raise capital to finance large upfront costs for corporate projects.
Capital instrumentGreen bonds are public or commercial bonds that generate capital to fund high upfront costs where proceeds are earmarked for environmental projects, including MHDV fleet electrification. The “green” credentials of these instruments can attract heightened interest from investors and could lead to lower interest payments.
Capital instrumentMunicipal bonds are debt instruments issued by public entities engaged in MHDV fleet electrification that entitle creditors to interest “coupon” payments. These can enable public entities to raise capital to finance large upfront costs for municipal projects.
Capital instrumentAggregation / Warehousing involves bundling together smaller MHDV fleet electrification investments to attract investors looking for larger opportunities. This approach can transform one-off, non-traded assets into standardized, tradable assets and has been used in other clean economy sectors (e.g., renewable energy, energy efficiency) to catalyze the flow of capital at scale.
Capital instrumentSoft costs
Soft costs are costs from additional activities and processes needed to switch to electric MHDVs.
Operational expenditure grants include cash grants, rebates or reimbursements for operational costs connected to electric MHDV fleets, such as electricity and maintenance. These can help to reduce ongoing costs for fleet owners and operators.
Capital instrumentPerformance guarantees, or government-backed guarantees, reduce investment risk by protecting electric MHDV purchasers from under-performance of vehicles or batteries.
Risk reduction instrumentOperational leasing, where the electric MHDV fleet operator rents both the vehicle and battery from the manufacturer or an intermediary, reduces upfront purchase costs and the risk from uncertain residual values of assets.
Cost smoothing instrument"Wet" (all inclusive) leasing is a leasing model where the lessor provides the vehicle, battery, maintenance, and, in some cases, the insurance and operational staff, to the electric MHDV fleet operator. This reduces upfront purchase costs, risk from uncertain residual values of assets and the need to invest in maintenance or the training of staff.
Cost smoothing instrumentLease-purchase agreements, where the electric MHDV fleet operator rents vehicles and batteries with the option to buy upon termination of the contract, reduces upfront purchase costs and risks from uncertain residual values of assets, while preserving the exclusive option to purchase assets at the end of the lease.
Cost smoothing instrumentOn-bill financing allows electric MHDV fleet operators to finance a share of the upfront costs and repay this over time on their utility bill. This reduces upfront purchase costs, links repayments to standing relationships, and provides a new guaranteed revenue source to utilities. The Pay-As-You-Save (PAYS) model is a specific case of on-bill financing.
Cost smoothing instrumentRisks
Risks & uncertainties are costs and uncertainties that make financing more expensive or make electric MHDVs appear less cost competitive.
Asset residual value guarantees protect investors or purchasers against future low residual or resale value of electric MHDVs by specifying a guaranteed minimum value, through direct purchase or making up price differentials.
Risk reduction instrumentPolitical risk guarantees protect investors or purchasers of electric MHDVs against losses due to a specified set of political risks — such as changes in climate, vehicle or fuel regulations or policies — to reduce investment risk.
Risk reduction instrumentFinancial risk guarantees protect investors in electric MHDV fleets against losses due to debt servicing defaults on the part of the borrower for any reason, including under performance of assets. The Title 17 Federal Loan Guarantees for Renewable Energy Projects and Energy Efficient Projects is a framework that addresses projects of similar size and scope as large transportation-related infrastructure and vehicle purchases.
Risk reduction instrumentBuilding secondary markets for vehicles and batteries, through commitments to purchase assets or the provision of other incentives for the private sector, would reduce uncertainty and risk around residual values of assets.
Technical supportBattery health programs that monitor electric MHDV battery performance, rectify performance issues, and/or replace faulty or under-performing batteries, reduce uncertainty and risk around battery performance and residual values of assets.
Technical supportFrictions
Frictions are limitations that increase the psychological or practical cost of switching to electric MHDVs.
Non-financial grants are transfers of nonfinancial assets or support (such as land, infrastructure, maintenance, training, etc.) to reduce upfront or ongoing costs for electric MHDV fleet owners and operators.
Technical supportPolicy reform for new approaches could enable easier uptake of new financing approaches that support electric MHDV fleet transitions. Examples include reforms and policies that allow electric vehicles to acquire additional value through their operation as grid assets via bi-directional charging and discharge, or to acquire monetizable emissions credits that can be used within financing agreements, and adjustments to accounting or investment rules to enable the use and combination of new financing approaches.
Policy actionTechnical assistance for public and private fleet owners would enable easier uptake of new financing approaches that support electric MHDV fleet transitions.
Technical supportGuidance on financing compliance with regulations is particularly important when combining financing approaches or funding sources in new ways.
Technical supportClean vehicle standards: Programs such as emission standards for new vehicles or fleet performance standards can be used to incentivize or accelerate fleet transitions.
Policy actionWorking in collaboration with MJ Bradley & Associates and Vivid Economics, EDF interviewed over 30 fleet operators, public and private finance professionals, as well as EV public policy experts to inform these resources.
Policymakers, fleet owners, utilities and financiers can use this report as a roadmap to spark a new level of collaboration and accelerate demand for electric trucks and buses, while reducing barriers to investment.
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