All About Series | October 17, 2022
All About Funding and Financing Options for Electric School Buses

The real cost of electric school buses is lower than you may think.

Electric school buses charge in a parking lot.

With benefits for air quality, climate and student health compared to diesel buses, electric school buses are the right option for communities nationwide. But the higher upfront price of electric school buses can pose a challenge to districts and private fleet operators interested in electrifying their school bus fleets. 

Over time, the savings electric school buses offer on operational expenses like fueling and maintenance add up and can offset the upfront price of the bus. In fact, the real lifetime cost of electric school buses can be much closer to that of their diesel-burning counterparts. And as batteries become cheaper and the industry achieves efficiencies of scale in manufacturing, the total cost of ownership (TCO) – the combination of the initial purchase cost and costs over time – of an electric school bus is expected to equal that of diesel buses in the second half of this decade.  

Once that happens, electric school buses will start to produce savings for school districts compared to the use of diesel-burning buses! And with subsidy programs available through governments and electric utilities today, many current electric school bus purchases already achieve TCO parity with diesel-burning school buses. For school districts and fleet operators looking to take advantage of these savings, finding the right funding and financing options to cover the upfront price of an electric school bus is crucial. Here’s what to know. 

With subsidy programs available, the total cost of ownership for many electric school bus purchases is already on par with diesel-burning school buses.

Types of funding and financing 

As momentum towards electric school bus adoption builds, there is a growing range of funding and financing opportunities from the federal government, state governments, electric utilities and local agencies to help communities overcome initial economic barriers.  

However, these opportunities can be complex to navigate. There are many types of funding mechanisms that have been used to deliver financial support to districts for electric school buses, with different advantages and disadvantages. They include: 

  • Grants: awards made to qualifying applicants, for a specific purpose or use case, deemed the worthiest based on a set of criteria
  • Rebates: reimbursements after certain eligible purchases of pre-approved equipment 
  • Vouchers: credits applied “on the hood,” immediately at purchase, that lower the price paid by the recipient 
  • Financing (e.g., loans): arrangements that provide capital for costs today, to be paid back over a future period, often with a small premium (interest) 

Finding the right funding and financing option 

For school districts seeking to electrify a substantial number of buses, it’s helpful to understand the range of options and opportunities for leveraging multiple funding sources, where they may exist and the best strategies for accessing support. Some helpful resources include: 

  1. The Electric School Bus Initiative's Clearinghouse of Electric School Bus Funding and Financing Opportunities, which contains information regarding type of funding, program eligibility, funding levels, and more.
  2. The American Cities Climate Challenge’s Federal Funding Opportunities for Local Decarbonization tool can aid local governments in navigating, prioritizing and leveraging federal funding that advances the energy transition.
  3. The U.S. Department of Energy’s Alternative Fuels Data Center is a go-to resource for finding opportunities dedicated to transportation and includes many programs offered by state and local governments and utilities. 
  4. The Electric School Bus Initiative’s blog post outlining some of the ways communities can fund electric school buses, including federal, state, local and utility programs. 

Additionally, many original equipment manufacturers, charger companies and fleet/energy management firms track public funding information, support clients through application processes and provide private financing options. 

To date, most electric school buses have been purchased with the help of public subsidies, but where these funds do not cover the full incremental cost of an electric school bus, financing can be a crucial tool. Even once electric school buses reach TCO parity with diesel buses, low-cost financing and alternative business models are likely to play a role in enabling districts to accommodate the higher comparative capital requirements of an electric bus fleet. 

The EPA’s Clean School Bus Program: a historic opportunity 

As part of the Bipartisan Infrastructure Law, Congress authorized up to $5 billion that can be used to purchase electric school buses and charging infrastructure through the EPA’s new Clean School Bus Program. This represents a historic shift in the funding environment for electric school buses, and the best opportunity yet to cover some of the purchase price of electric school buses with federal funds. 

The program: 

  • Offers $5 billion to replace existing school buses with zero- or low-emission ones through rebates and grants  
  • Has thus far prioritized electric school buses with higher levels of funding than other school buses 
  • Prioritizes low-income and high-need areas, rural districts and tribal communities as directed by Congress and in alignment with the Justice40 Initiative 

The Clean School Bus Program is expected to have multiple rounds of funding, which will open for applications at different times. To stay up to date on this historic opportunity, be sure to sign up for updates from the EPA and from the Electric School Bus Initiative.

Picking the right electric school bus business model for your situation 

Historically, school bus business models have been relatively static, with most school districts directly owning and operating (including leasing) fleets and the remainder contracting with private operators. But the growing interest in fleet electrification has prompted the emergence of new, distinct business models that address the unique challenges and opportunities associated with electric school buses.  

With so much on the line, how should districts navigate the decision around selecting a business model that works best for them? To understand business model options, districts need to identify the assets (buses and infrastructure) and associated roles of bus electrification, consider ownership options and stakeholders, and weigh their appetite to absorb risk and make the most of opportunities. 

Understanding the key roles featured in electric school bus business models can help districts weigh tradeoffs between different approaches. The key roles include: 

  • Bus owner: entity that holds bus on books as capital asset 
  • Energy/fuel manager: entity that provides charging/energy management services 
  • Bus maintenance provider: entity responsible for vehicle service 
  • Bus operator: entity that operates buses (e.g., provides drivers) 
  • Charger owner: entity that holds charger on books as capital asset 
  • Electricity customer: entity that covers electricity cost 
Graphic depicting the various roles in an electric school bus ownership model. They include: Energy/Fuel Manager; Bus Owner; Bus Maintenance Provider; Bus Operator; Charger Owner; Electricity Customer

There are various entities that could fulfill each role, with potential benefits and tradeoffs to each approach. We know that it can be complicated to navigate the electric school bus funding and financing ecosystem. That’s why we’re here to connect you with the resources you need to bring an emissions-free school bus to your community. 

You can learn more about electric school bus business models here. To stay in the loop on the latest electric school bus resources, including new funding and financing information, be sure to sign up for email updates from the Electric School Bus Initiative.