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A group of investors have launched a £100 million fund to help finance the electrification of London’s iconic red buses.
Insurer Aviva and UK-based rolling stock owner and asset manager Rock Rail have teamed up with Britain’s state-owned Infrastructure Investment Bank to come up with a new way of financing the costly decarbonisation of the UK’s fleet of more than 35,000, mostly diesel buses.
The partnership said it has committed an initial sum of £100 million to fund up to 250 zero-emission buses across the UK. The first 60 battery-powered buses will be leased to Go-Ahead Group, one of Britain’s largest transport operators, and will run on routes across London.
The UK bus industry is at a turning point as it faces the costly task of converting its diesel buses into electric or hybrid vehicles. An electric double-decker bus costs around £450,000, compared to £250,000 for a typical diesel vehicle.
Mark Swindell, chief executive of Rock Rail, estimated that switching to a zero-emission fleet would cost between £10 and £15 billion, as only 2,000 of the UK’s 36,500 buses are currently electric.
“If you’re a bus operator, you don’t have that kind of investment available to you. . . it’s about finding a way to bring in institutional money,” she said.
The UK Infrastructure Bank is providing £50m of debt financing to the project, alongside lender HSBC. The buses will ultimately be owned by a joint venture controlled by Rock Rail and Aviva.
The UKIB was established in 2021 to invest private sector finance in projects that help meet the Government’s net climate targets, as well as tackling regional inequality.
“Replacement [diesel buses] with a cleaner, greener alternative will be key to decarbonising the transport sector and achieving the UK’s net zero targets,” said UKIB chief executive John Flint. “This will require a massive increase in investment.”
Rock Rail’s Swindell said the deal marks the first time the leasing model used to finance new trains in the UK has been used on a large scale in the bus sector.
Rolling stock leasing companies, or Roscos, owned by financial investors, were created to supply new trains to UK railways following privatization in the 1990s and have proved highly profitable.
According to the rail regulator, Roscos paid £409.7 million in dividends to shareholders in the financial year ending March 2023, at a time when the rest of the rail sector is struggling financially and has received significant help governments.
In the past, buses in the UK have generally been purchased outright by operators, leased from traditional banks or financed by local authorities.
The British government has also subsidized some electric vehicles for local transport authorities in England outside London.