Electric school buses don’t just eliminate the carbon and pollution emissions of their diesel-fueled counterparts; they also cost less to fuel and maintain over the long haul.
Unfortunately for cash-strapped school districts, the upfront cost to purchase an electric school bus is still more than twice as much as the cost of a diesel bus today. And that’s not counting the cost of new charging infrastructure or the risk that those charging costs may drive a district’s electric bills through the roof.
Highland Electric Transportation says it can remove those barriers for school districts and transit authorities by taking on the financing and management of an EV school bus fleet in exchange for a fixed annual leasing fee. In the past week, the Hamilton, Mass.-based startup has won two votes of confidence in its business model.
The first came last week, with the close of a $253 million venture capital investment led by Vision Ridge Partners with participation by previous investors and Fontinalis Partners, the venture fund co-founded by Ford Motor Co. executive chairman Bill Ford.
The second came this week when Maryland’s Montgomery County Public Schools awarded Highland a contract to supply it with what will be the country’s largest electric school bus fleet. The deal will start with 326 buses to be delivered over the next four years, along with charging systems at five bus depots.
The cost of that service, $169 million, will be spread out over 16 years, and will fit into the existing budget structures for its existing diesel bus fleet, said Todd Watkins, the district’s transportation director. After seven years of budget-neutrality, the contract will end up saving the district money compared to what it could have expected to spend on its existing bus fleet, he said.
And the district won’t be stuck with the uncertainties of what it will cost to install charging stations, pay for the electricity they use or keep the buses running, because all of that is Highland’s responsibility.
While the district did have access to a small amount of upfront electrification funds from the Volkswagen “Dieselgate” settlement, Watkins said he is “not a huge fan of grant-supported pilot programs in any area, because if you can’t sustain it, it’s too risky.”
Highland’s contract — which is backed by terms that will protect the district from liability if the company goes out of business — “takes the risks that I think school districts across the country are not so willing to take,” he said. If all goes well, the program could expand to replace all 1,400 of the district’s school buses over the coming decade and a half.
“We knew eventually that electric buses would become cheaper than diesels, or at least affordable. But what this deal with Highland did was move that time to now.”
Shouldering the uncertainties of fleet electrification
Highland’s approach is designed to overcome some major stumbling blocks for public and private fleet owners looking at electrifying their buses, trucks and other vehicles, as documented by multiple studies from groups including the Environmental Defense Fund and RMI.
“I would say that the cost and complexity represent the two biggest barriers that have prevented adoption in the past,” said Highland CEO Duncan McIntyre. While many school districts have deployed a handful of electric school buses, moving to a wholesale fleet replacement “in a way that’s aligned with their budget in a relatively unsubsidized environment” is a trickier proposition.
Last year’s 130-bus contract between the Los Angeles Department of Transportation and China’s BYD held the record of the country’s biggest electric bus deployment prior to this week. But an earlier, smaller-scale rollout with L.A. Metro, a separate transit entity in Los Angeles County, ran into challenges with driving range and maintenance that required correction before the broader rollout could commence. *
McIntyre, who founded renewable energy marketplace startup Altenex and sold it to Edison International in 2015, started Highland with the express purpose of taking on those costs and complexities for school districts. Its first deal, made last March with the city of Beverly, Massachusetts, will deploy 27 electric school buses.
Montgomery County’s contract will use the same combination of buses from Thomas Built equipped with batteries from Proterra but at a much larger scale. That brings significantly more risks in terms of managing the costs, but also greater opportunity to improve efficiencies of — and even earn money from — the charging infrastructure involved.
For example, Highland has been working for nine months on plans to equip the five bus depots it’s targeting for charging loads that will eventually grow to 5 megawatts apiece, he said. It ended up prioritizing one depot first, based on the relatively lower cost of connecting it to the existing utility grid infrastructure. The other four depots will be equipped over the next 18 months.
Four of those depots are served by utility Pepco, and the fifth is served by Allegheny Power. Each has unique needs in terms of expanding grid infrastructure to support those big new loads. And unlike states such as California, Maryland hasn’t passed regulations to allow utilities to rate-base those investments as “make-ready” infrastructure, putting the onus on Highland to cover those costs, he said.
Maryland also hasn’t designed special EV charging rates, which means that Highland will be carefully managing how it charges the buses under existing medium and heavy commercial rate tariffs that include significant demand charges, he said.
“We can avoid the vast majority of those demand charges by charging almost entirely off-peak,” mainly during overnight hours, he said. Highland can also shop for competitive electricity suppliers under Maryland’s deregulated energy market structure, he added.
Expanding grid values for EV fleets
Then there’s the opportunity for vehicle-to-grid (V2G) revenue. Maryland is part of the wholesale market structure of mid-Atlantic grid operator PJM, which has been a vanguard in allowing electric vehicles to discharge excess battery power to the grid to serve in its frequency regulation markets.
The Federal Energy Regulatory Commission’s Order 2222, passed last year, will require PJM and the country’s other interstate grid operators to expand market access for EVs and other distributed energy resources to their broader energy and capacity markets, “which is really opening the door to giving those assets appropriate value,” he said.
Getting enough EVs together to “have enough scale to actually be relevant assets to begin with” is a key step in making the economics of V2G work in Highland’s favor.
In some states, utilities are seeking to become the overarching provider of school bus electrification services, with Dominion Energy’s 50-bus pilot being the prime example. But Dominion has yet to win Virginia lawmakers’ approval to expand its program to 1,000 electric school buses by 2025, with competing bills proposing other methods to open the market to non-utility competitors. In North Carolina, utility Duke Energy has launched a fleet EV charging subsidiary after seeing a proposed charging pilot program scaled back by state regulators.
McIntyre believes that non-utility actors should be given a chance to compete against utilities’ entrenched market advantage, to ensure that private capital can be deployed at a scale needed to rapidly expand vehicle electrification to meet local, state and federal decarbonization goals. At the same time, he’s supportive of policies that can align utilities’ investments in a way that supports the EV charging build-out that will be needed to shift from fossil fuels to cleaner electricity.
Nat Kreamer, CEO of Advanced Energy Economy, highlighted the different roles for utilities and fleet electrification specialists in a world where transportation is expected to become a major new electrical load.
“For utilities, electrifying transportation is a huge growth area,” he said, with commensurate support for policies that can “let them do that make-ready [investment] so they can grow that business.” But when it comes to fleet owners, he recommends that firms “just sell the customer what they’re really paying for, which is a mile driven with clean electricity. That ends up being a really powerful business model.”
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* UPDATE: An earlier version of this story incorrectly conflated an electric bus deployment with the Los Angeles County Department of Transportation with an earlier deployment with county transit agency L.A. Metro.
