Written evidence submitted by Destination Net Zero Consortium (BUS0021)

1.0  INTRODUCTION:  ABOUT DESTINATION NET ZERO CONSORTIUM

The Destination Net Zero Consortium (DNZ) is pleased to make this submission to the Transport Select Committee inquiry “National Bus Strategy:  One Year On.”

DNZ is working with the following companies:

• BYD UK Ltd
• J.Leon Group
• Mitie Group
• Williams Advanced Engineering
• SSE
• EVENERGI
• ITO World
• Phiphong
• PWC

DNZ has been established with the specific objective to enable the deployment of zero emission vehicles, including bus fleets.  It will do this in two ways, namely:

• through its experience and expertise of the technology and planning requirements to facilitate the vehicle fleet roll-out, supported by guarantees on the technology and analytical and wider vehicle support services; and

• unlocking funding solutions to finance new zero emission vehicles; DNZ will take on financing and maintenance risks, including energy and battery supply, and remove financing constraints from vehicle operators, including bus operators and transport authorities, which might otherwise jeopardise the transition to net zero.

DNZ therefore takes a close interest in the government’s bus policies, as set out most recently in the National Bus Strategy published in March 2021.  DNZ notes, in particular, the government’s intention that as part of its Net Zero strategy all diesel buses should be progressively removed from operation and that the sale of non-zero emission bus fleets should cease by 2032 at the latest (as proposed in the latest consultation “Ending UK sales of new, non-zero emission buses and calls for evidence on coaches and minibuses” issued on 26 March 2022).  There are currently around 38,000 diesel buses in operation so this is a major investment programme, given that only 2% of the current bus fleet is zero emission.

DNZ does not consider it is appropriate to comment on the general direction of the government’s bus policies - that is more appropriate for operators and transport authorities - but it is keen to contribute to the major investment programme to transition the UK bus fleet to net zero, and to bring the consortium’s considerable resources and technical expertise to bear in order to deliver this challenging investment programme.

This submission therefore concentrates on a key question raised by the Transport Select Committee, namely bus funding over the short and long term.

2.0  BUS FUNDING OVER THE SHORT AND LONG TERM

The investment programme to replace all 38,000 diesel buses represents a capital expenditure programme of some £14 billion.  There is also a need to upgrade bus depots and associated infrastructure to accommodate electric vehicle fleets. With bus patronage depressed as a result of the pandemic, and not expected to recover to pre-pandemic levels, bus operators may either be reluctant to invest in new bus fleets on this scale, or be unable to do so. Transport authorities, who are now required by the National Bus Strategy to determine the size and nature of bus networks in their areas, also have limited resources and are also unlikely to be able to invest on the scale required to transition to a net zero fleet.  These funding constraints are acknowledged in the Department for Transport’s latest consultation paper setting out its plans for the removal of diesel buses.

The funding challenge for the industry and government alike is also demonstrated by the mismatch between the ambitions set out in the first Bus Service Improvement Plans which set out investment plans amounting to some £7 billion, and the funding currently available from the government to deliver these ambitions which amounts to £1.2 billion.  As a result there has been considerable speculation that bus operators might start to withdraw significant volumes of bus services in the absence of continued government support to the industry.    

DNZ believes that this funding challenge to transition to net zero bus fleet can be addressed through innovative private sector funding and financing solutions which can substantially ease the funding pressures on the government, transport authorities and bus operators.  DNZ is a consortium made up of companies with significant expertise in the provision of battery technology, chassis design, intelligent charging software, infrastructure design and delivery capabilities, and intelligent battery management and monitoring software to develop financing and maintenance solutions for the significant investment in net zero bus fleets that is required.  DNZ believes that the challenges faced by the bus industry in transitioning to a net zero fleet can be solved by the deployment of specialist expertise, delivered in partnership with operators and transport authorities, and by improved technology performance, guarantees and data analytics which will attract private sector funding.

This consortium will finance, own and manage the bus fleets and would specifically:

• finance the vehicles and make them available to operators for a minimum contractual period;

• provide the associated charging infrastructure, including at depots as required;

• support and maintain the vehicles over the life of the contract, including repair and replacement of batteries and other necessary technical support.

DNZ believes there are a number of public policy benefits to these proposals.  First and foremost it would alleviate to a considerable degree the funding challenge that the public sector (government and transport authorities) and hard-pressed bus operators would otherwise face in transitioning to a net zero bus fleet.  In addition, as battery and charging technology is rapidly evolving there are also considerable technical challenges associated not only with the implementation of the investment programme but also in managing and maintaining the bus fleets. A consortium made up of the right technical capabilities would be able to remove these risks and challenges from transport authorities and operators and place these risks with companies best able to manage them.  It would also help unlock opportunities in the development in battery and charging technology and ensure that development risk was carried by those best able to manage it. 

Finally, operational and performance risks could also be transferred, leaving bus operators and transport authorities able to focus on a primary task of customer care and marketing – two issues that are essential to attracting passengers back to the bus.

3.0  SUMMARY AND CONCLUSIONS

There is no doubt that the bus industry faces real challenges as it seeks to build back patronage following the pandemic, and day-to-day operational funding is likely to remain under real pressure for the foreseeable future.  The investment programme to transition to a net zero fleet adds a further layer of substantial challenge and risk for the industry at a time when it is already under enormous pressure.

A private sector financing and technology solution for this investment programme would go a long way to alleviate the pressures the industry is facing and would ensure that the government’s ambition to transition to a net zero bus fleet can be realised.

DNZ will be engaging with local transport authorities and operators over the coming weeks and months to set out these proposals and ensure that they are developed in a way that is sensitive to the specific needs of authorities and operators alike.

Given the considerable challenges that the industry faces the Transport Select Committee’s inquiry is timely.  But DNZ believes it is important for the Committee to be aware that there are opportunities for innovative financing solutions which can make a material contribution to alleviating these challenges.  However, for a private sector financing and technology solution to work and be viable a number of conditions need to be in play.  These include:

• a commitment to a stable policy environment with clear deadlines for a cessation of the sale of non-zero emission buses; and

• the placement of orders for new zero emission buses at scale and over a consistent timeframe in order to secure supply chain commitment and to reduce unit costs.

The DfT’s latest consultation on the deadline for the cessation of the sale of non-zero emission buses is welcome.  This provides a considerable degree of confidence that the investment programme to transition to a net zero fleet is rooted in clear political and policy commitment – a key ingredient for private sector investment.   

March 2022