All About Series | March 28, 2024
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 zero tailpipe emissions, electric school buses (ESBs) offer the clean, healthy ride that every student deserves so they can arrive at school ready to learn. But the higher upfront purchase price of ESBs can pose a challenge to districts and private fleet operators interested in bringing the benefits of electric school buses to their communities.

Fortunately, over time the savings ESBs offer on operational expenses like fueling and maintenance add up and can offset the upfront purchase price of the bus. And as batteries become less expensive and the industry achieves efficiencies of scale in manufacturing in the second half of this decade, the total cost of ownership (TCO) – the combination of the initial purchase cost and costs over time – of ESBs is expected to equal that of diesel-burning school buses.

Once that happens, electric school buses can start to produce savings for school districts compared to the use of diesel-burning buses!

Additionally, with funding and subsidy programs available, many current ESB purchases already achieve lifetime cost savings or TCO parity with diesel-burning school buses. For school districts and fleet operators looking to take advantage of these savings, it is crucial to understand TCO, business model options, and how to find the right funding and financing options to help cover the upfront purchase price of an ESB. Here is 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.

Total Cost of Ownership

When thinking about the transition to ESBs, it is important to think beyond upfront purchase costs and instead consider the lifetime costs associated with owning and operating a school bus. In many cases, the total cost of ownership (TCO) for ESBs – including both the upfront purchase cost and the cost of operating the bus – shows that ESBs are no more costly than diesel-burning school buses.

And if funding or incentives are applied, the TCO for electric school buses can actually be lower than for diesel-burning school buses, allowing school districts to save money and reinvest in the classroom.

Some helpful resources for school districts to conduct TCO analysis include:

Types of funding and financing 

There are more funding and financing opportunities available to school districts than ever before to help offset the purchase price of bringing clean rides to students. Funding and financing from the federal government, state governments, electric utilities, green banks and local agencies can all help reduce the TCO of electric school bus ownership and make ESBs a more affordable option.

Funding mechanisms include: 

  • Grants: awards made to qualifying applicants, for a specific purpose or use case, deemed the worthiest based on a set of criteria. For example, Environmental Protection Agency’s (EPA) Clean School Bus Program (CSBP) awarded grants for new ESBs to eligible applicants in 2023.
  • Rebates: reimbursements after certain eligible purchases of pre-approved equipment. For example, EPA’s CSBP also has awarded funds in the form of rebates.
  • Vouchers: credits applied “on the hood,” immediately at purchase, that lower the price paid by the recipient. For example, New York State Energy Research and Development Authority (NYSERDA) oversees the NY School Bus Incentive Program (NYSBIP) which awards vouchers on a first-come, first-served basis to eligible applicants.
  • Tax Credits: credits on taxes and applicable to electric school buses, school districts may be able to access tax credits as a direct payment as tax-exempt entities. For example, the Inflation Reduction Act Of 2022 included two tax credits school districts and contractors can utilize for purchase of a new ESB and related charging infrastructure: Qualified Commercial Clean Vehicles (45W) and Alternative Fuel Refueling Property (30C).

Where funding opportunities do not meet the full ambition of a school district's plans, districts should consider various financing opportunities. Mechanisms include:

  • Loans and tax-exempt lease-purchases: financial arrangements where a public or private entity provides funds with the expectation of repayment over a specified period of time; terms and conditions are usually set by the lender
  • Bonds: (in most cases) a municipal bond is issued by a school district to raise funds from the public to finance educational infrastructure, usually repaid through future tax revenues or other specified revenue sources and typically needs to go to the voters for approval
  • Operating leases: financing through operating lease contracts directly with OEMs or dealers, which can include an option to purchase the asset after leasing term is complete

There is a bevy of funding and financing mechanisms and the above list is not comprehensive. You can find more information on mechanisms in the Electric School Bus Initiative’s article, Powering Electric School Bus Adoption with Complementary Funding and Financing Solutions. To find specific funding and financing programs check out the Electric School Bus Initiative’s Clearinghouse of Electric School Bus Funding and Financing Opportunities.

The section below shares resources school districts can use to explore these and more funding and financing opportunities.

There are more funding and financing programs available to school districts than ever before to help offset the purchase price of bringing clean rides to students.

Learn more

Finding the right funding and financing option 

For school districts seeking to electrify a substantial number of buses, it is 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:

Picking the right electric school bus business model for your situation 

With more interest than ever in electric school buses, school districts and fleet operators are considering new, distinct business models. 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.

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. It can be complicated to navigate the roles and business models that can enable school bus electrification – some helpful resources include: 

  • The Electric School Bus Initiative’s All About Electric School Bus Business Models article provides a high-level overview of the electric school bus business model landscape
  • The Electric School Bus Initiative’s Electric School Bus Business Models Guide defines key electric school bus roles, presents benefits and considerations that districts can weigh when assigning responsibility for each role, and lays out a framework for the business models that result from assignment of these roles
  • The Electric School Bus Initiative’s School Bus Electric-as-a-Service (EaaS) Directory helps school districts identify and connect with firms that provide electrification services to support whichever business model is appropriate for their particular context
  • The Electric School Bus Initiative’s Electric School Bus Business Models 101 Slide Deck provides an introductory overview of the various business models in the electric school bus market school districts can explore when considering electrification

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.