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Green Tech Financing for Municipalities – A Case Study

Date: Mar 26, 2013 @ 07:00 AM

Clean. Quiet. Innovative. Green. Transit agencies and municipalities are eager to display these labels on their fleets, but the current climate of tight budgets continues to slow their progress in cutting operating costs and reducing pollution.

“In transit, it’s a unique situation,” explains Ian Shackleton, vice president of sales and marketing for Proterra Inc., maker of the United States’ only zero-emission battery-electric fast-charge transit bus, the EcoRide™. “The majority of transit agencies buy with federal funds, which cover about 80% of the cost. However, with shrinking budgets or stagnant budgets, transit agencies haven’t been able to keep up with their purchasing.”

While transit agencies benefit from 80% Federal Transit Authority grants for bus purchases, they often can’t make up the additional funds needed to cover the total cost.

“We realized early on, many people can’t just write a check for these buses,” Shackleton notes. “They require financing.”

So the Greenville, S.C.-based company set out to find a financing solution, which it announced in February in partnership with Key Equipment Finance, one of the nation’s largest bank-held equipment finance companies and an affiliate of KeyCorp.

With Financing, Transit Agencies Can Convert To Cleaner Energy Fleets Faster

Proterra’s financing solution through Key Equipment Finance is a simple, straight-forward package available to municipalities, transit agencies, corporations and others seeking to purchase the company’s buses. Purchasers of the company’s 35-foot-long EcoRide™ buses can receive up to 100% financing for each bus, which allows for payments to be spread over time while providing a capital cushion to address challenging economic conditions.

“This tool is unique to the industry,” Shackleton says. “There is no one out there promoting it as a turn-key solution. We truly bring the bus, the finance mechanism, and a way to get the bus into operation.”

Municipalities and transit agencies want and need to upgrade or expand their aging fleets, but typically don’t have the budget to do so. The pressures they face include increasing ridership while reducing fuel use and lowering emissions. To achieve these goals, they need buses that are easy for their drivers to operate, lightweight, quiet, long lasting, safer, and easier and less expensive to maintain.

Proterra’s financing package is one example of the type of innovative public/private partnership encouraged by the Federal Transit Authority and a viable option for agencies to meet their needs in times of fiscal uncertainty. These needs include being able to operate for up to 20 hours a day, stop for 10 minutes or less per hour to recharge, and operate at an average a speed of between 5 and 20 miles an hour.

“With financing, Proterra is removing the capital outlay barrier for municipalities wanting to purchase these greener transit solutions,” explains Don Phillips, vice president of sales for Superior, Colo.-based Key Equipment Finance. “These communities are then able to spread the purchase cost over time while realizing the significant cost savings and operational benefits of the Proterra buses. The same cash flow they would otherwise earmark for diesel bus fuel and maintenance is adequate to cover the monthly payments for the greener bus.”

Municipalities and transit agencies also worry about covering the costs of installing charging stations for clean tech buses, including bringing in power and having electronics installed. With financing, they can bundle those associated costs with the bus purchase for a complete solution, Phillips notes.

Proterra Makes Case for Reduced Operation Costs

Proterra has proven its buses reduce fleet operating expenses through significant fuel and maintenance cost savings, which agencies and corporations can use to pay bus financing costs over time, Phillips says. “Financing essentially converts the capital outlay to a monthly, annual cash flow that is offset by fuel savings.”

Since 1999, diesel costs have risen 150% compared to 38% for electricity, Shackleton notes. In addition, electricity’s ability to substitute different fuel sources allows for increased reliability because fuel mix for electrical power in the U.S. can change depending on supply and price fluctuations.

Proterra’s EcoRide™ is currently the most fuel-efficient bus on the road and offers the lowest carbon footprint of any bus on the road, Shackleton says.

These benefits include:

  • $750,000 in fuel savings versus diesel over 16-year life cycle.
  • 44% less carbon than compressed natural gas.
  • 87,000 lbs of carbon savings annually versus compressed natural gas.

The City of Seneca, SC is projecting savings of between $40,000 and $80,000, mostly in the elimination of diesel fuel costs, after its fleet of four Proterra buses begins operating, making the city the first rural transit authority in the nation to operate an all-electric fleet.

“People will come from all around the globe to visit our city and ride on our buses,” notes Greg Dietterick, Seneca city administrator, in a press conference announcing the move to an all-electric fleet funded by a $4 million federal Transit Investments in Greenhouse Gas and Energy Reduction grant. “Proterra and their investors will use this working bus system as their model to demonstrate to the rest of the world how efficient these South Carolina-made electric buses can make their communities, their cities, their states, and their countries.”

Clean Tech Expected To Transform Transit Landscape

Currently, the U.S. transit market is a tale of two systems. The vast majority of transit systems operate fleets of traditional, lower-cost, less-energy efficient diesel buses, which are easier to replace and fund with the 80% Federal Transit Administration grants. But there also exists a small but growing list of transit systems incorporating higher-cost electric buses and other green vehicles.

Proterra, which already has agreements with transit agencies serving San Antonio, TX; Tallahassee and Tampa, FL; Seneca, SC; Worcester, MA and Stockton, CA, believes its financing option will open the doors for more customers to build greener fleets, lower costs, reduce pollution and give their customers a more quiet and clean public transportation experience.

Despite not having the benefit of third-party financing, these transit agencies have managed to add more fuel-efficient vehicles to their fleets through creative partnerships that spread costs between joint systems or by successfully competing for the federal clean technology grants.

Those grants, however, are dwindling at the same time there is a growing movement toward more sustainable transportation. In this climate, Proterra and Key Equipment Finance believe their financing solution will garner interest not only from municipalities and other government entities, but also from commercial buyers, including corporations and colleges and universities, who are also accustomed to equipment financing.

“There are a lot of opportunities to go green,” Shackleton explains. “Our electric buses are one example. One of our buses weighs about 28,000 pounds. If our bus runs for one year, we take about 56,000 pounds of carbon per year out of the air, and it’s in excess of 600,000 lbs of carbon by one bus in its lifetime.”

In addition, when a municipality or transit agency chooses an electric bus over a diesel bus, it keeps the power generation in the state, which in turn benefits from the income tax of the power generation employees, the power generation tax, and any new construction benefits.

Conversely, Shackleton notes, “If you are buying diesel fuel – that money goes to a foreign national or to a big oil company like Exxon.”

Traditional buses also differ from battery-electric buses in how they impact the communities they serve. From an urbanization standpoint, this means municipalities and transit agencies, by adding battery-electric buses into their fleets, can expand their routes to go off main routes and into residential settings without anyone complaining about it.

“When our bus drives by you, you don’t hear it,” Shackleton says. “It’s like an electric golf cart. It’s a whole new experience.”

Stacey Hartmann
Stacey Hartmann is a Colorado-based writer.
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