US schools can subscribe to an electric school bus fleet at prices that beat diesel

Electric school buses are a hot commodity. Billions of dollars of federal and state grants and incentives are flowing to U.S. school districts to help them electrify their fleets. By replacing diesel buses with clean and quiet battery-powered models, they can slash fuel and maintenance costs and cut air and noise pollution.

For school districts that still struggle with the higher upfront costs of electric buses and the charging equipment needed to keep them running, companies including Highland Electric Fleets and Thomas Built Buses have deals to help them get over the hump.

On Thursday, the Massachusetts-based startup and the North Carolina–based school bus manufacturer announced a plan to offer ​“electric school bus subscriptions through 2025 at prices that put them at cost parity with diesel.” This is essentially a nationwide extension of Highland Electric’s ​“turnkey solutions provider” business model, backed by a big bus maker as its partner.

Highland provides the buses and charging infrastructure, pays for the electricity to charge them, covers maintenance costs and manages the other complexities of going electric. The school district or transit authority pays an all-inclusive subscription fee, one that’s structured to be lower than its current budget for owning, fueling and maintaining its existing diesel fleets.

Highland, which has raised $253 million in venture capital funding, has projects in 17 states and two Canadian provinces, including one of the largest single electric school bus deployments in the U.S., in Montgomery County, Maryland, outside Washington, D.C. While most of its projects have started small, CEO Duncan McIntyre sees the Montgomery County project — now at 25 electric buses and set to expand to 326 over the next four years — as the model for the future.

“We are in the business of helping communities that want to complete a full fleet-electrification effort,” McIntyre said in an interview. ​“They don’t have to commit to that upfront — but there’s usually an interest in going beyond a few-vehicles pilot.”

Other companies are also pulling together private-sector financing to tackle this public-sector market. Nuvve, a publicly traded EV-charging and vehicle-to-grid provider, has formed a financing joint venture that’s teamed up with school bus manufacturer Blue Bird Corp. to offer similar electric bus leasing and infrastructure offerings with school districts in California, Colorado, Illinois and other states.

And Canadian EV maker Lion Electric has teamed up with Zūm, a San Francisco–based startup offering transportation-as-a-service for a number of school districts, in a project aiming at replacing half of Oakland, California’s school buses with electric models in the coming year.

Such large-scale electric bus projects remain the exception rather than the rule, however. Out of the roughly 500,000 school buses in the U.S., less than 1 percent — just over 1,800* — were electric as of the end of 2021, according to data from the World Resources Institute’s Electric School Bus Initiative. And of the 354 U.S. school districts that have committed to buying electric buses, only 28 plan to deploy 10 or more, according to WRI data.

This relatively low rate of adoption is bound to accelerate as the economics of electric school buses grow more attractive, however. A 2020 study conducted by Atlas Public Policy for Washington state indicated that falling battery costs and rising manufacturing volumes should bring electric school buses within total-cost-of-ownership (TCO) parity with fossil-fueled buses by 2030.

Total cost of ownership — a metric that bundles long-term fueling, operating, maintenance and insurance costs and a vehicle’s residual value into one single figure — can be brought down with structures that reduce costs or open up revenue-generating opportunities for the fleets in question, Nick Nigro, Atlas Public Policy’s founder, said in an interview. The right combination of structures could allow electric buses to come into TCO parity with diesel buses as soon as 2025, he said.

Hitting the right total-cost-of-ownership targets

In setting the subscription rates they charge school districts, companies like Highland need to take a large number of costs and revenue opportunities into account to ensure they’re able to both beat the comparable price for diesel buses and still make money for themselves.

That starts with phasing the purchase and deployment of electric school buses — which still cost two to three times more than their diesel counterparts — to take advantage of expected declines in cost over the coming years, McIntyre said.

Partnering with a major manufacturer like Thomas Built is ​“powerful” in that regard, he said. ​“We’re able to make much larger commitments, which offers [Thomas Built] more certainty to their order book,” while ​“passing on to us at least some of the benefit of EV buses getting cheaper.”

Then there are the operational savings to manage, he said. Buses with electric drivetrains and batteries should cost less to fuel and maintain than diesel buses with internal combustion engines. But as reports of problems with early electric bus rollouts indicate, these savings aren’t guaranteed.

“We’re essentially betting on what those cash profiles look like over the life of an electric bus,” he said. 

Districts also need to work with their local utilities to ensure that their bus depots have enough grid capacity to handle the megawatt-scale charging needs of electric fleets, or phase the growth in charging needs to match utilities’ grid upgrade schedules. Once bus fleets are plugged in, their charging schedules need to be carefully managed to avoid overstressing grid circuits or racking up outsize electricity bills.

“Infrastructure, and the phasing of infrastructure, is really critical,” Michelle Levinson, manager of eMobility Financial Solutions with the World Resources Institute’s U.S. Energy Program, said in an interview. ​“It’s not a big deal when you’re talking about one or four buses,” but ​“it becomes a much more salient question when you’re talking about transitioning a fleet.”

On the other hand, school buses are likely to be less of a strain on the grid than city transit buses, garbage trucks or other medium- and heavy-duty electric vehicles, Nigro said. That’s because they spend less time on the road and more time parked, as shown in this Atlas Public Policy chart of typical vehicle miles traveled of different classes of vehicles.

Shorter routes and longer idle periods mean that school buses can be charged at lower intensities over longer periods of time than commercial vehicles that have to charge quickly to get back on the road, Nigro said. ​“If you have a depot of hundreds of buses, you might in the aggregate have a decent amount of power” being pulled from the grid, he said. ​“But I’m not nearly as worried about that as I am about the bigger commercial fleets, where the business is dependent on quick charging times.”

This time spent parked and plugged in also creates opportunities for electric school buses to earn revenue from utility demand-response programs or wholesale energy markets — including the potential for vehicle-to-grid (V2G) activities that inject extra bus battery power into the grid.

School buses are a prime target for V2G, given that they’re often parked in late afternoons and evenings when power grids tend to face the most stress that batteries can help relieve. Highland’s first project with the city of Beverly, Massachusetts is now earning roughly one-third of its revenue from V2G income, reducing the city’s transportation costs, he said.

Nuvve CEO Gregory Poliasne cited V2G revenue as a major opportunity to drive down electrification costs for school districts. That value can be captured at a small scale, as with the company’s project in Durango, Colorado, which is tapping a single bus battery for grid services in partnership with the region’s electricity cooperative.

This approach can also scale up to hundreds of fast chargers and megawatts of capacity, as Nuvve is doing with bus manufacturing partner Blue Bird at its factory in Fort Valley, Georgia, using buses that have been built but are awaiting delivery. That helps Blue Bird manage its utility electricity costs and keeps new bus batteries in an optimal state of charge to avoid degradation before they’re delivered, he said.

Government funding and utility incentives for electric school buses

Weighed against all of these factors, funding from federal and state programs represents a relatively small portion of the overall value proposition for electric school bus projects that Highland is undertaking, Highland CEO McIntyre said. But government investments have certainly been vital to getting initial projects off the ground.

Many states have launched electric school bus pilots through their share of funds from the Volkswagen Dieselgate settlement, which directed $3 billion to state agencies to spend on projects that reduce air pollution. But that’s a one-time funding source that some states have already depleted, WRI noted in a January report, leaving a gap to be filled.

Last year’s federal infrastructure law includes $2.5 billion in grants for electric school buses and another $2.5 billion for ​“clean” school buses, which include electric and alternative-fuel vehicles. The grants cover 100 percent of the upfront costs of buses and equipment. Projects that receive those grants could reduce overall total costs of ownership by about 10 percent, McIntyre estimated.

Many states are pouring money into electric school buses. California is well ahead of the rest of the country, with more than $116 million in incentives awarded to date and $122 million set aside for 2022. Governor Gavin Newsom’s (D) budget request calls for $1.5 billion in electric school bus funding over the next three years.

New York has pledged to convert its statewide school bus fleet to all-electric by 2035, to be paid for through a green bond Governor Kathy Hochul (D) has asked state lawmakers to approve this year. Massachusetts has awarded grants to school districts to test electric school buses as grid assets, and Colorado Governor Jared Polis (D) has proposed spending $150 million over six years on electrifying school bus fleets.

Electric utilities are another source of capital for electric school buses, WRI’s Levinson said. That can come in the form of installing charging equipment, as many utilities around the country are doing, or directly funding vehicle purchases, as is being done in pilot projects by Duke Energy in North Carolina, Dominion Energy in Virginia and DTE Energy in Michigan.

Utilities that are anticipating big growth in EV charging loads are looking at electric school bus fleets as an early opportunity to tap their batteries to support the grid, added Jacqueline Piero, Nuvve’s vice president of policy. Nuvve is working with its hometown utility, San Diego Gas & Electric, on a pilot project with the Cajon Valley Unified School District that could scale up to 1.5 megawatts of battery capacity available to supply power when the state’s grid faces summer emergencies, she said.

Finally, Levinson noted that school districts themselves can raise low-cost capital through bonds or state green bank loans to fund electric school bus transitions on their own.

“It varies across districts, and there are plenty that have maxed out their bond-raising capacity,” she said. ​“But generally their cost of capital is really, really low,” since schools can raise money with bonds at relatively low interest rates compared to private-sector financing.

No matter how they get their funding, school districts need plenty of support to craft and execute a bus electrification plan, Levinson said. A typical project requires about two years of planning and coordination with utilities, technology providers and the various agencies that provide the grants and incentives to make a project pencil out economically, as this WRI graphic indicates.

Cleaning up the air for students

Building electric buses into broader energy-efficiency and clean-energy projects is another way to help pay higher initial costs through savings across a school district’s overall energy budget, Levinson said.

That’s how California’s Stockton Unified School District went about its electrification journey. It started with an energy services contract aimed at reducing energy waste in its buildings. That led to solar installations that now provide about 60 percent of the district’s annual electricity supply, and then batteries to store that solar power to reduce utility bills.

In 2019, the district started working on a bus electrification plan, eventually tapping a total of $8.2 million in stimulus funding, grants and rebates from various sources that allowed it to buy 11 electric school buses. Global energy services firm Schneider Electric designed the project, and the chargers are operated by The Mobility House, one of a number of companies in the business of managing EV charging to minimize utility costs.

The Stockton school district planned ahead for enough charging capacity to expand its share of electric buses to about a third of its 96-bus fleet in the coming years, said Gil Rosas, the district’s energy education specialist. ​“We’re charging off the solar panels we have out in the yard and cutting emissions around kids.”

That last factor is the most important one for school districts, he noted. Diesel bus emissions don’t just pollute their surrounding environment; they actually accumulate within the buses themselves at levels that are unhealthy to the children riding them, according to multiple studies.

Stockton, a city in California’s Central Valley, has some of the worst air pollution and among the highest rates of asthma in the state. Like many other communities facing these burdens, it also has high levels of poverty — nearly 80 percent of the district’s students qualify for federal free and reduced-cost lunches.

Cleaning up the air these kids breathe is a farsighted investment — and one that more leaders should make, Rosas said. ​“Surely every state should be able to find $5 million in their budget to help a disadvantaged community change its future.”

*Update: A previous version of this story used out-of-date figures for the total number of electric school buses that have been committed to being deployed in the United States. The correct figures are more than 1,000 as of mid-2021 and more than 1,800 at the end of 2021.