C40's view on the pace of transit electrification in Latin America
Mr. Manuel Olivera, current C40’s Regional Director for Latin America sat down with Andrés Melendro Blanco, Latin America Coordinator for the Oxford Urbanists, to discuss C40’s approach and his views on the process towards electrification of transport systems in Latin America. Among others, he emphasizes that if there is not enough demand from cities, the supply of electric articulated buses will remain scarce, therefore the need for cities to take the leadership and move forward.
Mr. Manuel Olivera served as Bogotá’s Secretary of the Environment and as a consultant for several international organizations. He is currently C40’s Regional Director for Latin America.
AMB: You recently mentioned that “TransMilenio [Bogotá’s BRT system] got the appropriate financial model to make the process feasible” talking about the recent tender to acquire and operate 590 e-buses. Why was this financial model not applied to the BRT tender last year?
MO: The reason given by Bogotá’s City Hall for not requiring electric vehicles in last year’s tender to renew its BRT fleet is that only one company in the world produces e-buses of the size required by TransMilenio, that is, 18-meter-long articulated buses and 27 meter-long biarticulated ones. However, it is not true that there is only one supplier in the market. In fact, two companies were ready to participate in the tender, but one couldn’t meet the financial requirements, which were quite high.
It is, therefore, a political decision to avoid legal risks, since in Colombia the law requires that there must be at least two participants for a tender to be lawful. There are no technical nor financial barriers that prevent the electrification of the system. In fact, in the case of natural gas, the one provider issue did hold true, yet that argument was not used.
There are few BRT systems utilizing biarticulated e-buses the size of TransMilenio’s. If there is no demand from existing BRT systems, the supply of electric articulated buses will remain scarce. Some city must take the leadership and move forward.
AMB: ¿What are the most adequate financial mechanisms to make e-buses affordable for Latin American cities?
MO: A thorough financial analysis shows that electrifying public transit is cost-efficient in comparison with other technologies. It is a mistake to make a decision based on the CAPEX (capital expenditure), without taking the OPEX (operating expenses) into account. It is necessary to conduct an analysis of the full cost of ownership, quantifying also human health and environmental externalities.
For the last 8 years, we have consistently reached the conclusion with the entities we work with that an e-bus is less expensive than a diesel-powered one in present value. The difference ranges from 7 to 30%, without taking environmental costs into account. There is no need for a specific mechanism to make e-buses affordable. They already are, there is just a need to do proper calculations.
“It is a mistake to make a decision based on the CAPEX (capital expenditure), without taking the OPEX (operating expenses) into account. It is necessary to conduct an analysis of the full cost of ownership, quantifying also human health and environmental externalities”
The next question is how to finance electrification, acknowledging the different cash flow of each city. Depending on these flows, it might take 5, 10 or 15 years to pay for it. Of course, there will be some financial costs linked, but these are negotiable. From this starting point, local governments must study who offers the best conditions and how to minimize their own risk profile. A well-structured project can be suitable for the issuance of a green bond. Depending on the project, these bonds can be a more affordable financing source than commercial or development loans.
AMB: Most e-bus manufacturers are Chinese firms. As Latin American cities start operating the largest e-bus fleets in the world outside of China, is there room for the region to become a manufacturing powerhouse?
MO: The current production of buses in the region is concentrated in Brazil, where Volvo, Scania, Mercedes, among others - which do not yet produce e-buses -, and BYD - whose production is 100% electric - are based. This is because Brazil has the largest domestic market and acts as a supplier for the rest of Latin America. Moreover, in order to achieve tax deductions, 35% of the parts of the bus must be produced in Brazil. Likewise, access to local sources of financing requires that 60% of the vehicle must be of national production. Mexico is also moving towards e-bus manufacturing. Overall, the future of this industry depends on the evolution of demand in the region.
AMB: What barriers to transport electrification has C40 helped Latin American Cities overcome?
MO: C40’s role is building trust among cities. We highlight that technology exists, is viable and we invite cities to buy solutions, not problems. For instance, why would they purchase batteries? For that, we focus on educating the different stakeholders: transit operators, power-generating companies and local governments. Once trust and willingness exist, C40 facilitates the contact with potential funders. C40’s main success in the region is the transition towards zero emission fleets, as seen in Santiago, Medellín and hopefully Bogotá soon with the current tender. We hope to see projects soon in Quito, Sao Paulo and Rio as well.
This support is given through workshops with decision-makers from different layers of governments. My role in particular is coordinating knowledge exchange, apply it to local politics and contribute to translate it into policies and, in turn, into projects with funding, sometimes through technical cooperation.
AMB: What is C40’s strategy to strengthen it presence in the region? Are there expansion plans, focus or methodology shifts in sight?
MO: We are currently studying several strategies to formalize C40’s presence in the region. These plans depend on two factors: resource availability and cities’ interest. We are a non-profit and we rely on donations. There is great interest in our portfolio. Our goal is to help cities within our network draft and implement their climate action plans, in order to become carbon neutral by 2050.
We run a project called Cities Finance Facility, financed mainly by the British and German governments, through which we open a call for proposals for local projects and bring them to financial closure. The CFF has been a means for us to work with cities of different sizes, beyond the region’s main metropolis.
Andrés Melendro Blanco previously worked as an editor for The Business Year, an international media group, as a consultant for UN-Habitat and as an urban development analyst at ProBogotá, a think-tank dedicated to fostering Bogotá’s sustainability. He holds a bachelor’s degree cum laude in Political Science and a master’s degree in Urban Policy, both from Sciences Po Paris.