Challenge 2: New financial models supporting decarbonisation

World we wish to see:

  • A mix of operators owning their own trucks/energy infrastructure while others access a vibrant leasing market with both traditional and new “as a service” offerings which smooth the high initial costs of decarbonisation over an asset’s lifetime, benefitting all parties.
  • Small fleet operators can access the commercial investment and economies of scale available to larger fleets with a vibrant second-hand market also developing over time.
  • Commercial investment is available as required for both battery electric and hydrogen HGVs and their associated infrastructure.
  • The risks involved in financing HGV decarbonisation are equitably shared by all parties including operators, financiers, OEMs, those contracting fleet services and (where required to initially unlock the transition) government.

Already happening

The high initial costs of transitioning to battery electric vehicles will in time be offset across the vehicle’s lifetime by lower operational costs. Independent modelling by the Green Finance Institute and the International Council on Clean Transportation for HGVs demonstrates this for UK operations with similar evidence developing in many other EU and international contexts. A comparable trajectory has already been realised for battery electric buses and investors are acting on this understanding.

Business models for vehicle-as-a-service (a service whereby the operator pays a monthly or per km fee to access vehicles and infrastructure) and battery-as-a-service (a service that leases the battery separately) are in operation in the UK for buses, vans and other vehicles.

The Green Finance Institute brought together global experts to develop solutions for financing zero emission HGVs and their energy infrastructure. The results are set out in Delivering Net Zero: Unlocking Public and Private Capital for Zero Emission Trucks, and the GFI will work with interested parties to demonstrate how they can be used to mobilise capital at scale.

Commercial investors are well engaged with HGV charging, including various energy-as-a-service models.

Truck-as-a-service is already available in the UK for battery electric HGVs and Hydrogen Vehicle Systems is working with partners to develop truck-as-a-service for its hydrogen fuel cell HGVs.

Taskforce actions:

  • The Scottish Government will develop a forum for operators who are open to leasing battery-electric vehicles to share information with finance/ energy/ leasing sector bodies who are developing such products and services.
    • Organisations within the finance/energy/leasing sectors will look to develop innovative new products, services and business models that can make battery electric HGVs more affordable for SME hauliers. For example, they may be able to lower the monthly lease rate of battery electric HGVs by leasing them over a longer period, or by using the battery in second life applications such as grid storage.
    • The Scottish Government will build on the work done by the Green Finance Institute to increase understanding of the risk factors affecting finance and leasing costs and seek to identify routes to reduce those risks and therefore improve affordability.
    • The Scottish Government will consider any reasonable requests for short-term de-risking of the first mover initiatives that can demonstrate a genuine requirement for public sector support.
  • SMMT will work with OEMs and operators to identify the tax incentives and capital allowances that could encourage operators to invest in zero emission vehicles/infrastructure.
  • Logistics UK and RHA will facilitate and promote the merits of voluntary demand aggregation with their members, recognizing that small operators require access to models enabling them to access the commercial investment and economies of scale available to larger fleets.
  • RHA will facilitate a programme of knowledge-raising for financiers to enable and encourage the development of appropriate financial products. The finance sector will be encouraged to bring forward financial products that enable operators to transition to zero emission HGVs.

Case Study

Infinium support commercial fleets by providing large scale charging sites. Fleets using the site pay no upfront capital expenditure costs – the land is owned by Infinium and all site upgrades and hardware installation are paid for by them. Instead, operators pay a bay rental cost and electricity costs which are benchmarked at below market rate for renewable power for the duration of the contract.

Cost savings can be made by operators using this model with projections demonstrating notable savings compared to operators electrifying their own sites. These savings accrue from Infinium’s use of a mix of on-site power generation; battery storage to minimise peak electricity use; appropriate use of energy trading markets; and in some cases public ultra rapid charging for cars and contracting an on-site food beverage franchise (e.g. Starbucks).

Among their current locations, Infinium own a 16 acre site in Banbury split between a large warehouse, charging for 500 electric vans, a food and beverage location and 3 ultra rapid chargers for the public. The key to enabling this has been the identification of anchor tenants who commit to large scale utilisation for a sizeable period (minimum 4 years), in this case Amazon and Starbucks. This satisfies the requirements of the investors backing Infinium by guaranteeing sufficient return on investment and allows the purchase and electrification of the site using investment capital. Additional operators can then contract for access to separate areas of the site at a much smaller scale.

Infinium are exploring the operation of truck stops with full security and welfare facilities and are actively seeking HGV projects.

Other companies operate similar models acting as an intermediary between investors, the energy sector and haulage operators (either energy infrastructure or both vehicles and infrastructure). They include options to electrify depots or sites owned by the haulier. Examples include GRIDSERVE; FOR:EV; Fleete and Schneider Electric.