Managing the unseen risk of public-private EV models

The EV transition carries a massive long-term opportunity for combined authorities, but only if they don’t take ownership for granted, writes Mike Nugent of Hitachi ZeroCarbon

Despite the relative infancy of the Labour government, one of its calling cards has been to pledge a devolution revolution. Even if you think Labour’s ‘growth mission’ is simply a reformulation of the Conservative ‘levelling up’ agenda, decentralisation looks here to stay.

In fact, the English devolution whitepaper published late last year placed fresh emphasis on the opportunities for combined authorities. These developments are the latest in a shift towards a more devolved funding system, providing greater autonomy to local government.

However power to local authorities is ultimately devolved, new proposed powers would allow mayors to map out long-term regional development such as evolving the transport network. This is already coming to fruition with bus franchising, as more local routes up and down the country become controlled by the public sector with the support of private operators.

At the same time, the increased control and longer-term visibility over budgets will empower combined authorities to consider options like accelerating the transition to electrified transport, which has the potential to improve citizen services, create jobs and decarbonise the environment. But it will also test the limits of the public purse which needs to cover buying electric vehicles (EVs), setting up charging infrastructure and hiring specialist staff to run new systems.

Uncertainty remains over where this budget is coming from, and whether it will be enough to make the EV transition a reality. However, once the initial cost challenges of electrification are overcome, local authorities must consider the unseen risks and opportunities that come with public-private partnerships, to make bus franchising viable in the long-term.

Understanding the unseen risk

To address the financial barriers to electrification, co-ownership models between local government and private operators are increasingly being introduced. These give combined authorities control of vehicle assets and routes, while sharing the ongoing cost and labour requirements of EV fleet operations. Problem solved, right?

But at the crux of this sits the owner-operator challenge. Although asset ownership gives local authorities direct control over service provision, they can’t control how private partners will operate an EV fleet in practice, for which the primary concern will be to maximise output and service delivery during the agreed franchise period. This means careful consideration will need to be taken to ensure transport operators are effectively incentivised to care for the vehicles and the batteries they run on, not just for the franchise period but for the full life of the asset. Local authorities not used to owning their vehicle network must remember that EV batteries will last longer than the franchise term and so must be maintained with care.

If money is an obvious upfront limitation, it is the unseen risk of third-party operation that can financially make or break the feasibility of bus franchising. For example, replacing batteries not managed effectively under warranty conditions is a risk the asset owner needs to pass on to the operator, without impacting service cost to the public. So, how can local authorities overcome this and get maximum value and longevity from EV assets?

Getting to grips with asset usage

After justifying a significant investment in fleet electrification, combined authorities can ensure public money is spent effectively by extracting maximum value from the EVs they now own. This means building on asset ownership by tracking vehicle use and battery health, while optimising charging, to mitigate the risks of hands-off ownership.
 
For example, if the operator damages the asset through inefficient use, its value can be significantly reduced. This reduction in value can’t be proven without effective monitoring or the upfront establishment of contractual penalties for misuse. Current restrictions on local government budgets mean that if an EV asset is ruined, they can seldom afford to replace it.

Beyond the environmental benefits to decarbonised transport, the data generated by digital systems gives vehicle owners another advantage. For combined authorities, this means using data to boost local services by improving route efficiency and optimise charging to ensure service reliability.

But once an EV battery has reached the end of its life, that doesn’t mean its full value has been extracted. For example, combined authorities could develop new revenue streams by using battery assets for fixed storage or building charging infrastructure which can then be offered to third parties. This allows local government to generate extra income and reduce the total impact of electrification on public finances.

The EV transition carries a massive long-term opportunity for combined authorities, but only if they don’t take ownership for granted. Devolution is putting power in their hands, enabling better provision of citizen services, job creation and decarbonisation of the transport system. If local government can look beyond upfront costs of transport electrification and understand how to mitigate the risks of crucial public-private partnerships, the sky is the limit.

Mike Nugent is chief revenue officer at Hitachi ZeroCarbon

For more information on how Hitachi ZeroCarbon is working with both local authorities and private bus operators to oversee the EV transition, please visit the website at: https://www.hitachizerocarbon.com/