Last month the UCF board discussed a proposal to lease two electric buses. In the last two weeks, I have developed a clearer point of view on how the district should move forward with electric buses, following conversations with the vendor, further information provided by the administration, and listening to comments from our residents. Here are my observations.
- Electric buses have several desirable features, including no tailpipe emissions and quiet operation
- Presently, electric buses are 3x the purchase price vs. diesel. After state and federal grants, tax credits, and the tax shield of accelerated depreciation, electric buses have a net purchase price about 1.5x that of a diesel bus.
- Electric buses have significantly lower operating costs, due to the energy advantage of electric powertrains and the fewer moving parts that can break or wear out.
- Economics of electric buses are improving year over year, as scale and technical improvements lead to lower production costs, due largely to the significant cost decline in Li-Ion battery costs (see chart).
Right now, the total cost of ownership after grants and tax credits still favor diesel by ~15% vs electric.
Based on the districts financial analysis of the proposal, electric buses acquired today will cost us $50,000 more per bus on a total cost of ownership (TCO) basis over the 12 year period. This equates to 14% higher costs. And note that this cost disadvantage of electric is after receiving $175,000 in grants and tax incentives. If we factored in the cost of the incentives, which are borne collectively by all taxpayers, then the TCO is an extra $225,000+ per bus, or 71% more than the TCO of a diesel bus.
The TCO advantage of diesel is likely to narrow and eventually flip in favor of electric, as it has with passenger cars. When utilities like PECO develop V2G programs, that will further enhance electric bus net costs, with the side benefit of stabilizing the grid. The best estimates are that TCO tips in favor of electric around 2025.
Now or later?
Despite the current cost disadvantage of electric, some argue that we should move ahead now anyway. I have heard three reasonable arguments for this.
- First, the district will learn about electric buses, which will position us to be ready to further expand the electric bus fleet in the future. This is a low-risk trial.
- Second, drivers will like the new buses, which will help resolve current challenges with driver recruitment and retention.
- Third, deploying electric buses moves toward our sustainability vision, and is the right thing to do from an environmental perspective.
These are valid points, but are arguments for moving to electric buses at some time. Instead, the critical question is whether to start the conversion to electric now, or wait until the economics improve.
When it comes to learning about electric buses, it is true that there is no substitute for experience. And until we dip our toe into the water, we won’t have first hand experience. But if we wait until 2025, industry experience will continue to accumulate in the interim at a rapid rate. Our potential vendor, Highland Electric, currently has ~150 buses in their fleet. By 2023, they will have ~400. Won’t the vendor know more (and be able to help us more rapidly learn) if we become a customer in 2025, when their fleet is 4x or 5x its current size? In addition, as other early adopter school districts deploy electric buses, best practices will be more readily available to us in 2025 than they are now. In fact the longer we wait, the more knowledge will be accumulated and the easier it will be adopt electric buses. “Fast follower” is often a better strategy than “leading edge”.
With respect to attracting and retaining bus drivers, reports from other districts indicate that bus drivers prefer to drive electric buses when given a choice. This is probably true, as electric buses are quieter, cleaner, and have the ‘cool’ factor. It is difficult to say what impact that might have on recruitment and retention, but I accept that there is likely a benefit there. But is that benefit worth the extra ownership cost of the vehicle? If our goal is the retain and attract drivers, I am confident that increasing wages is a simpler and more effective strategy than spending an extra $50,000 for an electric bus. If we need to retain drivers, let’s spend on driver wages, rather than paying it to a third-party leasing company.
Finally, the environmental accounting of electric buses might be less of a major win for sustainability than it appears on the surface. If we look at our 70 square miles of UCF district air, water, and land, electric is superior to diesel, as the diesel buses pollute our air and the noise disturbs our tranquility. But if we think less parochially, electric vehicles have many negative environmental externalities. The mining and refining of battery metals like lithium, zinc, and cobalt are very dirty operations, are carbon intensive, and often occur in nations with more lenient environmental regulations, resulting in significant long term environmental damage. And while electric motors are emission-free, the Pennsylvania electricity that goes into the bus, is about ~50% sourced from fossil fuels and ~30% from nuclear (which some environmentalists consider non-green). If you add up all of the environmental impacts, electric vehicles are not as clean as they first seem. And if we wait a couple years to start our fleet electrification, each bus will require fewer batteries, the metals in the batteries will be more sustainably sourced, and our electricity in Pennsylvania will be greener in origin. Once again, waiting would bring incremental benefits.
Wait for 2025
Electric buses are a promising development, and I am in favor of adopting them. And Dr. Akki is right to champion the cause and to drive us in that direction. However, I believe we should start the conversion to electric when the total cost of ownership tips in favor of our tax payers. This is likely to be in 2025.
By waiting, we will avoid spending an additional $250,000 of taxpayer money over the next 3 years on electric buses. We will also reduce our risk of adoption, by allowing best practices and learnings to accumulate and filter out from early adopters. Finally, we can use the interim period to develop a stronger fleet conversion strategy that is less reliant on third parties, retains more of the benefits for the District, and gets us to an all-electric fleet sooner.