mobility and city streets: deciphering business models for complex investments by pawan mulukutla

DECIPHERING BUSINESS MODELS FOR

COMPLEX INVESTMENTS:

LOW- AND ZERO-EMISSION BUSES

Pawan Mulukutla – [email protected]

FOTO POR MARIO ROBERTO DURÁN ORTIZ

2

LOW- AND ZERO-EMISSION BUSES ARE A REALITY AROUND THE

WORLD. HOWEVER THERE ARE STILL BARRIERS FOR

IMPLEMENTATION, PARTICULARLY IN THE DEVELOPING WORLD

3

Financial products

Delivery mechanisms

Funding sources

SOME EXAMPLES FROM CLEAN BUS INVESTMENTS

173048

Revenues

Incentives

Own budgets

Contracts

Institutional frameworks

Ownership structures

Equity

Debt

De-risking

• Battery Leasing agreement• Bus operating Lease• Lease-Purchase Contract/Agreement • Purchase-Leaseback agreement • …

• CAPEX/OPEX/R&D grants• Corporate tax breaks• Import duty reductions• Preferential Electricity Prices• Value-Added Tax (VAT) reductions• …

• Green Bond • Commercial loan• Concessional loan • …

4

WHAT DID WE LEARN FROM STUDYING BUSINESS MODELS

FOR LOW AND ZERO EMISSION BUSES?

6

RESEARCH AND INTERVIEWS CARRIED OUT BY WRI

ALLOWED US TO IDENTIFY SOME OF THE MAIN

BARRIERS FOR IMPLEMENTATION

More expensivevehicles and

infrastructure

Fear of changeand lack of knowledge

Technologyreadiness (e.g.

range)

Outdatedprocurement

models

7

Seattle: Hybrid-electric, Opportunity charging

Foothill: Battery electric

Toronto: Hybrid-electric

Philadelphia: Hybrid-electric

Bogota: Hybrid-electric

Curitiba: Hybrid-electric

Auckland: Hybrid-electric, Battery electric

Tianjin: Battery Electric

Zhuhai: Battery Electric

Shenzhen: Battery Electric

Nanjing: Battery Electric

Gumi: Opportunity Charging

Berlin: Opportunity Charging

Turin: Opportunity Charging

Colombo: Hybrid electric, Battery electric

Singapore: Hybrid electric, Battery electric

London: Hybrid electric, Battery electric

Paris: Hybrid electric, Battery electric

Gothenburg: Hybrid electric, Battery electric Stockholm: Hybrid electric

Rome: Battery Electric

Americas Asia/Pacific Europe

N. America S. America Asia Oceania Europe

6 2 7 1 9

WE ALSO CONDUCTED RESEARCH TO UNDERSTAND WHAT 25

CITIES AROUND THE WORLD HAVE BEEN DOING TO ACHIEVE

IMPLEMENTATION

41%

15%

44%

Technology mix

Batteryelectric

Opportunitycharging

Hybrid-electric

8

WE FOCUSED ON UNDERSTANDING HOW THESE CITIES HAD BUILT

THEIR BUSINESS MODELS, AND HOW THESE ELEMENTS LED TO

IMPLEMENTATION

9

WE IDENTIFIED SEVERAL SUCESS FACTORS THAT SOME CITIES

HAVE BEEN DEPLOYING TO ACHIEVE IMPLEMENTATION

1.Technological innovations

2.Public funding

3.Reducing the cost of

financing

4.New stakeholders

10




2.Public funding


financing

4.New stakeholders

11

MANUFACTURERS, OPERATORS AND AUTHORITIES

DEVELOPING NEW WAYS OF OPERATING

• Smaller batteries and

opportunity charging

schemes – e.g. Tianjin

• Fast top-up stations –

e.g. Torino

• Battery swapping

schemes – e.g. Rome

12




2.Public funding


financing

4.New stakeholders

13

IN MOST REVIEWED CASES, THERE ARE GRANTS

PROVIDED BY NATIONAL OR SUB-NATIONAL

GOVERNMENTS

• Providing grants to pay for additional investment costs– One-time payments

– Throughout the life of the asset

e.g. USA, London

• Tax incentives– Corporation tax

– Import duties

– VAT

e.g. Bogotá

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2.Public funding


financing

4.New stakeholders

15

FINANCIAL MECHANISMS THAT CAN HELP REDUCE

THE ADDITIONAL RISK

• Reducing the cost of financing by providing guarantees and concessional loans e.g. Bogotá

• Longer depreciationperiods to pay foradditional costs e.g. Brazil

• Providing other ways of paying for the most

expensive assets (e.g. buses, batteries,

charging infrastructure) such as by leasing

them e.g. Shenzen, USA

16




2.Public funding


financing

4.New stakeholders

17

MANUFACTURERS BECOMING MORE INVOLVED AND

ELECTRICITY COMPANIES ENTERING THE

TRANSPORTATION BUSINESS

• Manufacturers assuming new

responsibilities

– Tranining for operators and

longer maintenance contracts.

– Providing financing

– Offering complete solution

packages that include charging

infrastructure.

Retrieved from Google Map

• Electricity companies providing:

• Long-term electricity price stability and lower prices

(i.e. bulk discounts) - Foothill

• Paying for charging infrastructure

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2.Public funding


financing

4.New stakeholders

19

WHAT OTHER MECHANISMS CAN TRANSIT

AUTHORITIES IMPLEMENT TO MAKE THESE

INVESTMENTS A REALITY?

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DISCUSSION QUESTIONS

• Should your city introduce changes in the current contractual model (model

of acquisition, ownership, operations, etc.)?

• Is public funding (grants, tax breaks, etc.) a possibility in your city, to

support the incremental cost of low- and -zero emission buses?

• What should be the role of public authorities in supporting the public sector

operators in overcoming the technology risk and fear of change?

• Should public authorities introduce specific requirements for low-emission

fleets (e.g. 10% of fleets should be low-emission), or should they only

introduce incentives for the market to respond? What incentives could the

public sector introduce in its contracting?

• What responsibilities and risks should be taken by vehicle suppliers to make

these technologies take off more massively?

How can cities deliver complex investments such as low-and zero-emission buses?

22

AGENDA

WHAT IS A BUSINESS MODEL? BUSINESS MODEL METHODOLOGY.

1. A global look at bussines models.

2. Investment components.

3. Funding sources.

4. Financial Products.

5. Delivery mechanisms.

23

AGENDA


1. A global look at bussines models


3. Funding sources.



WHAT IS A BUSINESS MODEL?

The elements that make-up an investment in low emission buses


The sources of funding availableto pay for theseinvestments



Financialproducts thatcan be used to mobilize third-party capital




The distribution of risks and responsibilities amonginvovled parties



Financialproducts thatcan be used to mobilize third-party capital

WHAT CAN WE FIND INSIDE EACH ONE?

33

AGENDA




3. Funding sources.



Land(Charging Zones)

(Foothill)

ChargingStations &

Infrastructure(Turin, Paris)

Buildings& Additional

Infrastructure (e.g. to Change Batteries)

(Rome)

Buses& Batteries

INVESTMENT COMPONENTS

Tangible Assets

Processes Intangible Assets


(Foothill)

Planning& Preparation

(Gumi)

ChargingStations &


Building& Installing

(Sweden:Siemens-Volvo)



(Rome)

Operating, and training

(Bogota)

Buses& Batteries

Maintenance(Shenzhen)


Tangible Assets



(Foothill)

Planning& Preparation

(Gumi)

Safety & Health (Turin)

ChargingStations &


Building& Installing

(Sweden:Siemens-Volvo)

ResourceEfficiency

(Fuel / Foothill)



(Rome)

Operating, and training

(Bogota)

Reputation& Brand

(Noise, Air Quality, Appropriation,

Driver’s Experiences)(Turin, Gotenburg)

Buses& Batteries

Maintenance(Shenzhen)

Affordability(Singapur)


Tangible Assets


38

KEY POINTS

• An investment can have different

combinations of investment components

depending on the objectives being

pursued.

• Intangibles can be used as long-term

sources of income.

39

AGENDA




3. Funding sources.



FUNDING SOURCES

Investment Proceeds

Investment Incentives

Other Budgets

Fare-box Revenues

Land Value capture in depots

and stations(Singapur)

Advertisingin Stations andInfrastructure

OperationalSavings(London)

FUNDING SOURCES

Investment Proceeds


Other Budgets

Fare-box Revenues

Subsidies(NAMA Sri Lanka)

Land Valuecapture in depots


Taxes(Bogotá, Colombo)


PreferentialPrices

(e.g. electricity tariffs)(China, Foothill,

Colombo)


FUNDING SOURCES

Investment Proceeds


Other Budgets

Fare-box Revenues

Subsidies(USA)

IntergovernmentalTransfers

(Korea)

Land Valuecapture in depots


Taxes(Bogotá, Colombo)

Taxation& Fees

(Paris)


PreferentialPrices

(e.g. electricity tariffs)(China, Foothill,

Colombo)

Sale of Assetsand Scrapping


44

KEY POINTS

• The non-refundable resources used to pay

for the investment components.

• Needed to unlock third party capital.

45

AGENDA




3. Funding sources.



FINANCIAL PRODUCTS

Equity Debt De-risking

Private Investors(Direct or Indirect)

(Bogota)

Public Funds(Italy)

FINANCIAL PRODUCTS


(Bogota)

Bank Loans(Public or Private)

(Bogota)

Public Funds(Italy)

InternationalLoans or

Climate finance(Bogota)

Green Bonds(Tianjin)

Concesionaldebt

(Curitiba)


FINANCIAL PRODUCTS



(Bogota)

Bank Loans(Public or Private)

(Bogota)

ContingencyFunds

(Bogota)

Public Funds(Italy)

InternationalLoans or

Climate finance(Bogota)

ProvisionContracts

Green Bonds(Tianjin)

Concesionaldebt

(Curitiba)

50

KEY POINTS

• Resources generally reimbursable and

with expectation of gain because of

inherent risk.

• They can be mechanisms to reduce the

cost (reduce risk associated with the

investment).

51

AGENDA




3. Funding sources.



DELIVERY MECHANISM

Contracts Legal EntitiesInstitutional Frameworks

ProcurementContracts

(Public, private, leasing entity)

(Nanjing)

Leasing(Vehicle,

batteries, land)(Shenzhen)

Purchase leaseback

(Vehicle, batteries)(Shenzhen)

Concessions(e.g. Charging

Infrastructure)



(Nanjing)

Public(USA)

Leasing(Vehicle,


Private(e.g. SPV)

Purchase leaseback


Public-PrivateMix

(China)


Infrastructure)

DELIVERY MECHANISM

..




(Nanjing)

Public(USA)

Plans & Goals (Paris, Shenzhen)

Leasing(Vehicle,


Private(e.g. SPV)

Regulations& Requirements

Purchase leaseback


Public-PrivateMix

(China)

EnablingLegislation

(e.g. LEZ, green bonds)


Infrastructure)

DELIVERY MECHANISM

..


56

KEY POINTS

• The delivery mechanisms are the

contractual, legal and commercial

relationships through which the

investments can be carried out.

• They serve to distribute responsibility,

manage risks, and align the interests of

different actors.

Summary

58

Loans

(bank, international)

Bonds

Private Investors

Procurement Contracts

Rental

Public

Private

Public-Private Mix

Plans & Goals

Regulations & Requirements

Concessions Enabling Legislation

Contingency Funds

External Factors

Concesional Financing

Public Funds

Provision Contracts

Leasing for Purchase

Equity

Debt

De-risking

Tangible Assets Processes Intangible Assets

Investment Proceeds


Other Budgets

Contracts Legal Entities Institutional Frameworks

Intergovernmental Transfers

Taxation & Fees

Sale of Assets and Scrapping

Preferential Prices

Taxes

Subsidies

Operational Savings

Advertising in Stations and Infrastructure

Land Value Capture

Farebox Revenues

Safety & Health

Resource Efficiency

Reputation & Brand

Affordability

Planning & Preparation

Building & Installing

Operating, Maintaining & Upgrading

Maintenance

Land

Charging Stations &Infrastructure

Buildings & Additional Infrastructure

Buses & Batteries

Interactive exercise

60

NOW YOU

• What combination of elements do you think

will work for your city?

– What works/doesn’t work, why/not?

– What are the prerequisites for each?

• What would you take forward to put up for

dialogue with your mayor, and other key

stakeholders?

• What are the big questions that come up

when you are deciding on different options?

DECIPHERING BUSINESS MODELS FOR

COMPLEX INVESTMENTS:

LOW- AND ZERO-EMISSION BUSES

Sebastián Castellanos – [email protected]

FOTO POR MARIO ROBERTO DURÁN ORTIZ

62

Business model for hybrid busesBogotá case study

Anne Maassen – [email protected]

Sebastián Castellanos – [email protected] ROSS CENTER FOR SUSTAINABLE CITIES

63

Operations- 113 km of BRT

- Integrated Transport System (SITP) - 9 operators on 13 zonesand 24 year concessions

- 1.600 articulated and bi-articulated buses in theBRT + 10000 small and medium sized buses

BOGOTÁ

Hybrid buses- 282 hybrid 12m buses (80

pax)

- Mixed traffic + BRT (2 doors)

- 2 private operators

- US$250,000/bus withoutthe battery (leased by themanufacturer at US$0,15/km)

64

HOW THE PAYMENT TO OPERATORS WORKS

Operators PassengersTransmilenio

Trust fund

Payment / km (90%)Payment / Passenger (10%)

Farecollection(through3rd party)

• Infrastructure• Planning• Supervision

Vehicles

Manufacturers

Sell buses

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HOW THE PAYMENT TO OPERATORS WORKS

Operators PassengersTransmilenio

Trust fund

Payment / km (90%)Payment / Passenger (10%)

Farecollection(through3rd party)

• Infrastructure• Planning• Supervision

Vehicles

Manufacturers

Sell buses

Additionalpayment

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PAYING FOR THE ADDITIONAL COSTS

Others- Reduction in import duties (38% to 5%)- No VAT (16%)- Tax credit of 100% of the cost of the vehicle (cap at 20% of

tax return)- Maintenance and training contracts with manufacturers- Battery leasing

Financing

CTF Operator Purchase to manufacturers

50%-$ $ $ $Bancoldex

Commercialbanks

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Business model for hybrid busesBogotá case study

Anne Maassen – [email protected]

Sebastián castellanos – [email protected] ROSS CENTER FOR SUSTAINABLE CITIES

mobility and city streets: deciphering business models for complex investments by pawan mulukutla

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