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Brazilian cities search business models to make clean buses viable

Faced with the need to reduce greenhouse gas (GHG) emissions as part of its climate commitments, Brazil has begun sourcing low-carbon transport solutions able to kick-start a transition process from the ubiquitous diesel buses to cleaner technologies. There is no lack of consensus on the long-term benefits, such as improved air quality, a reduction in direct emissions and even operational costs, as shown in the case of London. Electric vehicles emit practically zero noise pollution, benefiting both passengers and drivers, not to mention the quality of life of citizens in general.

There are, however, a series of hurdles to overcome in Brazil and other Latin American cities. To date, there are very few cases of successful projects in cities in this part of the world. A WRI study has shown that many of these stumbling blocks are common to different nations. Among them:

  • High initial outlay. Generally, the cost of an electric bus, with a battery package included, is 2 to 4 times higher than its traditional diesel-powered counterpart. Current import taxes and diesel subsidies are also factors that weigh in heavily.

  • There is evident fear surrounding technological change and a lack of expertise and technical capacity among several players involved. Public transport companies, for example, already rely on a well-established, diesel-powered framework and market and have expressed concern at not being able to offer services with the same quality.

  • Examples of long-term operations with clean vehicles remain scarce, especially in a Latin-American context. Doubts also persist regarding battery performance in a Brazilian reality, along with the availability of technology and quality guarantees.

  • Concessions, usually executed based on the lowest price, discredit and hinder the adoption of more expensive technologies. Concession contract standards must be reviewed so that low-carbon solutions are able to compete on a fair playing field.

The global team for WRI’s Cities Program, in a joint effort with specialists from WRI Brasil, has been studying solutions to overcome these barriers. Some of the leading points are the development of business models in line with local realities, the engagement of bus companies and public authority, as well as looking to get support from electricity companies and state government.

Positive findings in national tests

Despite only a few examples, one of the most apparent challenges in Brazil is the need to develop an effective business model, one that makes the long-term technology viable, even considering the high initial outlay. This depends on all the actors involved – government, transport companies, financial institutions, manufacturers and technology suppliers – being on the same page to ensure mutually beneficial change and manageable risks for each sector.

According to a WRI methodology, business models rely on four core elements: components of investment (what to invest), funding source (how to pay), financial products (how to raise capital) and delivery mechanisms (how to structure implementation). They help outline exactly how the value around a solution can be built, delivered and captured, with an impact on economic, environmental, social and cultural spheres.

The results of tests conducted in Brazil provide a clearer understanding of how electric buses could replace conventional buses. Curitiba city administration, for example, performed a series of tests with clean vehicles and was able to establish a comparison between the cost per kilometer traveled for each type of vehicle. Diesel vehicles ran at a cost of BRL 1.09, while two hybrid models ran at BRL 0.83 and BRL 0.66, respectively. A fully electric vehicle ran at a cost of BRL 0.63. The tests were conducted by Urbanização de Curitiba S/A (Urbs).

The Urbs survey also highlighted the difference in emissions for each model, based on the GHG Protocol, and using a standard average monthly mileage of 4,418.4 km/month for all vehicles. The diesel-powered vehicle emitted 5.69 tons of equivalent carbon dioxide (tCO2e). The hybrids emitted 4.53 tCO2e and 3.88 tCO2e, while the electric vehicle emitted 1.35 tCO2e – a result of indirect emissions relative to the generation of electricity, which sometimes originates at thermal power plants connected to the national energy grid.

The effectiveness of electric buses in terms of emissions is measured through the source of the electricity, which demonstrates the importance of involving the power industry in planning this shift. One possible solution is the installation of solar panels, which could supply over half the energy required by vehicles, as revealed in the case of São Paulo. Electric buses, with batteries, generally cost up to BRL 1.25 million, while conventional buses cost around BRL 400,000. Estimates show that, with a good business model, this difference could be paid off in less than ten years. As the vehicles have a service life of 15 years, they could even have an impact on reducing long-term fares.

One way of building a suitable business model that favors technology is by considering and incorporating amortization for buses throughout their entire service life. In certain Brazilian municipalities, vehicles are depreciating at a faster rate than their service lives – which weighs heavy on fares. An analysis of several scenarios by WRI Brasil indicates that, when considering the 15-year service life of electric buses, implementation and operation are favorable both environmentally and financially.

An example of a successful business model in Brazil comes from the city of Campinas, where 11 electric vehicles have been in operation since 2015. The city plans to increase the number to 150 by 2020, according to its target plan, and promises that the next collective transport tender will include requirements for the acquisition of a minimum quota of electric buses.

Belo Horizonte begins to outline its transition process

Belo Horizonte is also looking to update its fleet with electric buses and has already taken initial steps to implement a pilot project. The goal is to add at least 25 electric buses to its conventional fleet by 2019. WRI Brasil has contributed to this effort by bringing together players with a stake in the proposal, while also promoting workshops to discuss, plan and present scenarios involving potential fleet composition. The most recent workshop was staged on August 10 and included the participation of representatives from the Belo Horizonte Transport and Traffic Company – BHTrans –, as well as government departments for planning, the environment and public works, potential investment banks, such as Caixa and the BNDES, electricity companies and BYD, an electric vehicle assembler with a plant in Brazil.

WRI Brasil presented a study with three scenarios, incorporating national and international sources of funding, with economic and environmental impacts. The model adopted by Bogotá, in Colombia, was also presented as a case study. Bogotá has 500 hybrid buses and results thus far reveal a 25% cut in fuel spending, a 39% drop in CO2 emissions and a 50% fall in NOx. In this case, the business model was structured around several initiatives, such as governmental subsidies, tax incentives, and financing through international funds and state-owned and private banks.

Participants at the workshop in Belo Horizonte enjoyed an opportunity to collaboratively debate and construct a potential business model to make a pilot project for 25 buses viable. Options raised included tax incentives, advertising quotas and access to national and international funds. The most difficult part of financing electric buses comes down to batteries, which are more expensive than bus chassis and bodies. Batteries could be acquired through a direct leasing system from manufacturers or by means of a partnership with electricity companies.

According to Daniel Marx from BHTrans, questions related to the acquisition of vehicles must advance for this shift in transports matrices to effectively happen. “Issues on taxation, guarantees, considering a business model on a wider scale that involves financing, acquisition, maintenance and oversight throughout the entire test phase, and whether or not this will cause an imbalance in terms of fares, all these issues need to move forward. We are not at a point where we can expect users to cover these costs. But there may be light at the end of the tunnel, as, during the workshop, an idea was introduced regarding the participation of other industries, such as electricity companies and banks, which may offer an interesting model considering the type of vehicle – electric and clean –, and which should be approached from a different angle compared to our conventional system”, he stated.

Future meetings will be held with all stakeholders in order to consolidate the ideal business model for the Belo Horizonte pilot project and to guarantee that the implementation of technology, with subsequent environmental gains, becomes a reality in the capital of Minas Gerais.

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