Scenarios and prospects of electrification of public road transport and Total Cost and Revenues of Ownership (TCRO): an innovative benchmark analysis

The integration of low and zero environmental impact buses in local public transport fleets contributes to two interconnected objectives as highlighted by international and European policy guidelines, namely sectoral efficiency and environmental sustainability. The importance of having access to sustainable, safe and affordable transport systems, as well as of reducing negative environmental impacts in cities especially concerning air quality, are indicated as specific priorities by the UN 2030 Agenda for Sustainable Development. 

This strategic course of action has become particularly complex in recent years due to a number of factors and requires a new approach to analysis that is capable of including new elements of both costs and potential revenues over the entire useful life of the vehicle. Its complexity is determined by the rapid and pervasive growth of a range of innovations aimed at greater environmental and economic sustainability of buses for local public transport, namely: 

· Policy and regulation innovations at different levels (international, national and local); 

· Organizational innovations creating synergies between local public transport operators, energy utilities and the financial sector; 

· Industry innovations, with the entry of new players in the vehicle supply market. 

Enel Foundation and Bocconi University put forward an innovative methodology to provide a systemic view on the costs and revenues components of local public transport fleets across their lifetime. In particular, the Total Costs and Revenues of Ownership (TCRO) approach integrates vehicles and infrastructure costs, operational management and maintenance expenses, with circular economy elements such as second life management of batteries and Bus2Grid as revenue streams for electric buses. 

This innovative approach provides guidance for an efficient selection of solutions to be deployed in different contexts and time scenarios, allowing through sensitivity analyses a better understanding of potential effects of policy instruments, as well as possible modifications in operational parameters as mileage. 

TCRO analysis is accompanied by an assessment of market readiness considering policy and industrial factors, evaluating the potential of national markets to set up local public transport models capable to embrace technological innovations, such as new power supplies for buses.

Italian case study

The innovative methodology was firstly applied to Italy for several reasons. The integration of low or zero environmental impact buses in local public transport fleets is a key part of the National Strategic Plan for Sustainable Mobility (Piano Strategico Nazionale per la Mobilità Sostenibile, PNMS) of the Ministry of Infrastructures and Transports of 2019, and of the Urban Plans for Sustainable Mobility (Piani Urbani per la Mobilità Sostenibile, PUMS) of many Italian cities such as Milan and Turin. In particular, the National Integrated Plan Energy and Climate dated January 2020 (Piano Nazionale Integrato Energia e Clima) and the National Action Plan for Green Public Procurement dated July 2021 (Piano d’Azione Nazionale sul Green Public Procurement) provides for an obligation on the part of public administrations to purchase electric or methane-powered buses at an accelerated rate compared with EU directives: by 2022, 30% of purchases for the renewal of bus fleets for urban services must belong to these types of vehicles. The quota rises to 50% by 2025 and 85% by 2030. This objective is further strengthened by the investments envisaged in the National Resilience and Recovery Plan (PNRR) to promote the development in Italy of competitive supply chains in the areas of greatest growth of bus manufacturing that make it possible to reduce dependence on imported technologies and, indeed, to make them a driver of employment and growth.

For more details on the policy and market context, the innovative proposed methodology and the estimates of TCRO of different type of buses for Italy in 2021, 2025 and 2030, download the full report on the Italian case study (in Italian) here, the position paper summarizing the main findings (in Italian) here and a presentation (in Italian) here.

Evaluation of environmental externalities

The second step of our analysis aimed at including also social costs in the methodological approach and among TCRO components. In particular, we estimated the economic value of the main environmental externalities – emissions of greenhouse gases (CO₂) and local pollutants (nitrogen oxides, particulates and non-methane hydrocarbons) measured according to the logic production-to-tank (for fuel-powered buses) and tank-to-wheel (for BEBs and fuel cell hydrogen buses), as well as acoustic emissions: this is a cost component borne by the community as the economic quantification of externalities represents a potential indirect cost saving both in terms of premature deaths avoided and for the health system in general.

For more details on the methodology and for the application to the first case study, download the report (in Italian) here.

Deep-dive on the European and Italian framework of climate change litigation

The growing awareness of climate change has resulted in a series of international and national regulatory initiatives inspired by principles such as the precautionary principle defined “do not significant harm” and the one according to which “the polluter pays”. We are currently witnessing a greater legal actionability of environmental issues and the consequent judicial protection of the rights associated to them. The introduction of stricter environmental standards has contributed to the growth of a dispute aimed at ensuring compliance by both public and private entities. Thus, “climate change litigations” encompass the decisions, addressed both to States and to private subjects, that deal with matters that - directly and indirectly - refer to environmental issues and the fight against climate change.

Starting from an analysis of the environmental standards that are increasingly characterizing the sector of local public transport at various levels, we delineated the possible scenarios of the applicable judicial protection. The analysis focused on the electrification of local public transport and considered the rules already in and some EU legislative proposals on their way to be approved. We also made a reference to some relevant factors in the context of the Italian legal framework that could lead to an evolution of the dispute on this subject such as the recent constitutional changes.

For more details on the deep dive, please download the report (in Italian) here.

The role of subsidized financial instruments and of the reduction of ESG-oriented risk appetite

We also conducted a deep dive on the role of subsidized financial instruments and of the reduction of ESG-oriented risk appetite in order to highlight the financial benefits for the local public transport operators arising from the valorization of higher public contributions, in turn derived by the synergy with environmental policies and by the support of financial intermediaries which are investing in sustainable buses. In particular, these benefits lie in the terms of lower financing costs, easier access to credit, warranties from financial institutions supporting national public policies and direct access to non-repayable contribution instruments or to subsidized finance instruments provisioned by international financial institutions. Investments for public transport e-buses are considered a priority in the transport lending policies of major international banks, such as the European Investment Bank, thanks to the capacity of achieving simultaneously multiple objectives under the SAGE framework (safety and security, accessibility, greenness and resilience, efficiency).

For more details on the deep dive, please download the presentation here.

A benchmark analysis and a sensitivity based on the role of externalities and incentives for 9 selected countries

In order to broaden the geographical scope, the analysis elaborated for Italy and the benchmark approach among different management models and power supply alternative have been applied to the following eight countries: Spain, UK, US, Mexico, Brazil, Colombia, Chile, Peru.

Furthermore, a sensitivity analysis complements the TCO and TCRO models taking into account the role of environmental externalities and specific public incentives to reduce initial investments in sustainable public transport fleets. To compare the effects of potential revenues from second life batteries and B2G, available incentives and monetary evaluation of negative externalities, three scenarios were built for all the nine selected countries:

·       A current policy scenario which combines TCO plus the available incentives;

·       A comprehensive scenario which includes TCRO plus incentives and externalities;

·       A long-term market scenario which includes TCRO plus the externalities.

For more details and to read the results, please download the presentation here.

Socio-economic and environmental benefits of 12 meters urban bus fleet electrification in Europe

We further extended the analysis estimating the socio-economic and environmental benefits of the electrification of the 12 meters urban bus fleet in the EU27 plus United Kingdom, Norway and Switzerland under three market scenarios at 2030 and 2040.

The analysis considers and evaluates in monetary terms:

- the operational benefits due to the reduction of costs resulting from lower operating and maintenance costs for Local Public Transport (LPT) companies;

- the environmental benefits for the society resulting from the reduction of greenhouse gas emissions, local pollutants, and noise;

- the new revenue streams for LPT operators deriving from the valorisation of the residual value of batteries (second life of the batteries) and from the synergies with electricity grid such as the bus-to-grid (B2G) opportunities

For the projections of the electrified bus fleets, three market scenarios designed to achieve long-term climate policy objectives have been assumed:

- a baseline scenario: in line with the policies approved at European level based in particular on the "Fit for 55" package and on the Clean Vehicle Initiative regulations;

- an acceleration scenario: anticipating of the 2 years the European-level targets;

- a best practice scenario: aligning the targets of the 27 EU countries at the level of the most virtuous country (the Netherlands) in terms of speed of adoption of the Battery Electric Bus (BEB).

For more details and to read the results, please download the presentation here and the executive summary here.