As published in Economic Times.
Imagine a scene: an Indian city stretches into the distance, the air crisp and clear. A sleek electric bus glides past, its silent hum a stark contrast to the sputtering diesel giants of the past. This vision, once a futuristic dream, is now closer than ever to becoming reality. However, a critical question remains – how can we incentivise private bus operators, the backbone of India’s bus transport network, to become active participants in this electric revolution? The answer lies in a powerful approach: leasing.
India’s bus landscape is vast, with about 18 lakh buses operating currently1, catering to over 30 crore daily passenger trips2. To achieve India’s ambitious 2070 net-zero vision, the electrification of buses is essential. Studies have shown that e-buses can significantly reduce emissions and propel the decarbonisation of the transport sector.
Of these, the private sector owns and operates a whopping 93%. However, only a negligible fraction of these buses are electric. To achieve 100% electrification of the private sector by 2050, a massive leap is needed, with over 760,000 e-buses3.
The primary hurdle for private operators lies not in adopting the change in technology from diesel/CNG to electric buses but in the high upfront cost of e-buses compared to traditional diesel counterparts. This barrier, coupled with difficulties securing financing due to the perceived risks associated with new technology, can easily derail the transition. Leasing can be a game-changer, offering a practical and financially attractive solution for private players to embrace e-mobility.
Leasing of e-buses
The acceleration of e-bus adoption requires new business models to propel the transition. One such emerging model is leasing. In the lease model, the lessor (a bank/bus manufacturer/ rolling stock company, etc.) can provide the bus, including an Annual Maintenance Contract (AMC), battery replacements and insurance, while the lessee (the operators) can bear the staff, permit, and energy costs associated with operating an e-bus. Under the current model, where the buses are owned and operated by the private sector, the operators bear all these responsibilities, leading to significant losses during the first two years of operation and will be able to achieve the same profit margin as diesel buses only after four years. The lease model,
on the other hand, can offset the capital expenditure to financers while utilising the operational expertise of the private operators.
By mitigating upfront costs and offering operational advantages, leasing removes a significant barrier for private players to enter the e-bus market. Widespread adoption of e-buses enabled by the leasing model can contribute significantly to India’s clean air and sustainability goals by reducing tailpipe emissions and fostering a cleaner transport ecosystem.
The financial and operational advantages of leasing
E-buses are more viable than diesel buses in the long run due to reduced energy consumption per kilometre travelled, cheaper cost of energy/fuel and fewer moving parts as compared to diesel/CNG buses. This lowers maintenance requirements and costs, thus resulting in overall lower cost per kilometre (CPK) over its lifetime. However, the high upfront cost of e-buses can create a significant initial financial burden for the operators. Leasing dismantles this barrier by spreading the cost of the e-bus over the lease term, significantly reducing the required upfront investment. This allows operators to conserve capital for core business operations and growth initiatives. E-buses require a minimum lease period of 9 years to make them financially viable, with a lease rent ranging from INR 1.5 – 2.5 lakh per month. With leasing, operators can earn around INR 4.5 per km – matching current profits.
Figure: Cumulative and year-on-year profits (in INR per km) for owning a diesel vs leasing an e-bus4
The profits made due to e-bus transition can be shared to create lease models that are more attractive for financers, ensuring estimated profits for the lessor to the tune of INR 0.5 – 2 crore over a 12-year life of the bus.
The benefits of leasing extend far beyond just finances. Leasing models often come with comprehensive maintenance contracts, including battery replacements and insurance coverage. This frees up valuable time and resources for operators, allowing them to focus on core competencies like route planning, scheduling, and customer service. Additionally, lessors typically have expertise in e-bus technology and maintenance. Operators can leverage this expertise to ensure optimal performance and uptime of their e-buses, maximising efficiency and profitability.
Enabling the leasing of e-buses in India through regulatory support
There are several ways to ensure that the leasing model works in India:
- Nudging financiers to provide buses on lease and developing risk-hedging mechanisms: The national government can promote e-bus leasing by nudging banks and financial institutions to provide e-buses on a leasing model, potentially through supportive policies. However, the risks associated with technological advancements, market volatility, and regulatory changes pose significant challenges. To mitigate these risks, the government must establish robust risk-hedging mechanisms. These mechanisms, which are currently underdeveloped, require comprehensive planning and collaboration between stakeholders, including policymakers, financial institutions, and bus manufacturers.
- Legalising transferable permits: State governments should consider legalising transferable permits to accommodate lease models where different entities can own and operate e-buses. This would allow permit holders to operate self-owned or leased e-buses on designated routes. Doing so will create a more flexible environment for private operators, allowing even small operators to transition to electric buses easily.
- Flexible scheduling in permits: Regional Transport Authorities (RTAs) should consider permitting flexible trip schedules and extend service times by 2-3 hours to compensate for the additional charging time needed for e-buses. This is necessary because opportunity charging, while beneficial for extending the range of e-buses, requires additional time compared to traditional refuelling methods for CNG/diesel buses. By doing so, RTAs can ensure e-buses have adequate charging time without disrupting service reliability. This would also ensure that the transition to e-buses does not compromise the convenience and accessibility of public transport.
Way Forward
Leasing offers a compelling path for private sector participation in India’s e-bus revolution. By overcoming the financial hurdles and leveraging operational expertise, leasing can empower private bus operators to embrace clean technologies and contribute to a more sustainable future.
The path towards a greener future requires a collaborative effort involving all stakeholders. The government can play a vital role by creating a policy environment that incentivises leasing and simplifies the regulatory framework for e-buses. Financial institutions can develop innovative financing solutions tailored to the needs of the e-bus sector. Bus operators must be open to exploring new business models like leasing and actively seek partnerships with lessors with proven expertise.
As the silent hum of e-buses replaces the roar of diesel engines, we will know we are collectively paving the way for a cleaner and healthier tomorrow.
Written by Vaishali Singh, Manager – Transport Systems and Electric Mobility