Help Your Community Fund Electric School Buses in the U.S.

For many districts looking to get electric school buses on the road, one of the main barriers is the upfront price premium of the buses as well as the cost of purchasing and installing charging equipment, including any necessary facility upgrades.

The good news is that momentum toward electric school bus adoption is building, spurring a growing range of funding and financing opportunities from the federal and state governments, electric utilities and local agencies to help communities overcome these initial economic barriers.

The Real Cost of Electric School Buses (Is Lower Than You Think)

While upfront costs of electric school buses are substantial, experts anticipate significant price declines over the next decade as battery costs decline and the electric vehicle (EV) industry achieves efficiencies of scale in component markets and manufacturing. In fact, the real lifetime cost of electric school buses can be much closer to that of their diesel counterparts, due to significant savings on operational expenditures — such as fueling and maintenance — that build up over the years a vehicle is in use. These savings can range from an estimated $4,000 to $11,000 per school bus every year. Market experts expect that the lifetime costs of electric school buses will be around the same as diesel buses — based on estimations of total cost of ownership — by the end of this decade.

Breaking it Down: How to Access Financial Support

Here we explain a variety of sources for funding from federal, state and local governments and utilities as well as tips on potential financing approaches:

1. Federal Funding

Significant opportunities for federal funding to support school bus electrification are rolling out this year. The Infrastructure Investment and Jobs Act (IIJA) that was signed into law in November 2021 created a new?Clean School Bus Program?at the U.S. Environmental Protection Agency (EPA), including $2.5 billion dedicated exclusively for electric school bus procurements, and another $2.5 billion dedicated for clean school buses for which electric buses are eligible, alongside alternative fuel buses.

In addition, many schools have made use of EPA funding for school buses through Diesel Emission Reduction Act rebates. Past awards of up to $65,000 can be enough to cover the cost of some diesel-to-electric repower retrofits or reduce the lifetime cost premium of an ESB by more than 50 percent. Other districts, such as Knox County R-I School District in Missouri, have made use of U.S. Department of Agriculture Rural Development’s?Community Facilities loan & grant program to fund electric school buses for their communities.

There are also new?funding programs under the IIJA?that could support electric school buses, including:

• $3 billion for the Smart Grid Investment Grant Program that funds customer systems like energy storage devices and EVs that enable smart grid functions;
• $7.5 billion for a national EV charging network, which could supplement charging infrastructure sited at bus yards and depots; and,
• $500 million for the State Energy Program, which states can leverage to administer funding programs like the state of Maryland’s Solar Canopy with EV Chargers Grant Program.

2. State Funding

States are also an important source of funding for school bus electrification. California began providing funds for school districts through its California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP)?in 2018 and has since awarded over $116 million for electric school buses through the program. New York States Truck Voucher Incentive Program and Massachusetts Vehicle-to-Grid Electric School Bus Pilot Program are other early examples of states providing funding for electric school buses. The state funding landscape has seen a lot of activity due to the Volkswagen settlement funds, however, many of these programs are oversubscribed and funding has run out, as has happened in Texas and in Ohio.

3. Local Agency and Utility Funding

Increasingly, local agencies and electric utility companies are also stepping in to help communities pursue the electrification projects they envision — and may offer additional funds besides state and federal support. Some examples of the entities that can be sources for funding follow.

• Electric utility companies and their counterparts, municipal cooperatives, and community choice aggregators are central partners in all electrification projects and can also be a source of funds for bus electrification. Some utilities help school districts cover costs required to make a site ready for electric school buses, such as through Arizona Public Services Take Charge AZ Pilot, which provides chargers and electrical infrastructure at no cost to fleets. Others, like Duke Energy North Carolinas EV School Bus program, provide additional funds as well as the charging infrastructure. Rural cooperatives can look to the example of Associated Electric Cooperated Incorporated and local affiliate Lewis County REC, which have provided funds for school bus electrification.
• Air quality management districts offer programs to improve local air quality. Because electrification of fleet vehicles is an effective way to reduce air pollution, it is more and more common for these local agencies to dedicate funds for this purpose. For example, the Regional Air Quality Council that serves the Denver metro area and Northern Front Range offers the Charge Ahead Colorado program, which covers the costs of EVs and charging infrastructure.
• Metropolitan planning organizations can coordinate collective procurement, which can lower upfront prices and spread the administrative burden of contracting across more entities to lighten the load. A recently launched effort from Montgomery County, Maryland for light-duty vehicles is an example of this.

Financing Is Also an Important Tool for Addressing Upfront Costs

To date, most electric school buses have been procured through direct public aid, but where these funds do not cover the full incremental cost of an electric school bus, financing can be a crucial tool.

Financing solutions enable school districts to monetize future maintenance and fuel savings and apply these toward the initial capital investments that electric buses require. Financing allows districts to restructure school bus electrification costs so that they more closely resemble the budget and cash flow characteristics of incumbent diesel vehicles.

A variety of entities are active in the financing space, including private lenders, public lending institutions, the financial institutions associated with vehicle manufacturers that facilitate leasing and tax-exempt financing, and transportation and infrastructure services companies such as Highland Electric Fleets , Levo Mobility, eTransEnergy and Amply Power, where financing is embedded in subscription fees. Another potential source for financing could be the local electric utility through a tariffed on-bill program, where the utility recoups its upfront capital investment via a surcharge on the customer’s bill. School districts and local municipalities may also have direct access to capital markets through their bonding authorities and can issue bonds to cover electric school bus costs.

School districts looking to electrify are likely to find they can combine, or stack, multiple funding streams, as was done by Stockton Unified School District in California. After applying any of a number of these approaches, electric school buses offer benefits both for children and for a district’s balance sheet.