Proposed Structure of this Public Private Partnership (PPP) Model
The project will be leveraging a New-Refurbish-Finance-Bulk-Fees model. To convert the current public utility buses to electric vehicle (EV) buses with the appropriate charging infrastructure leveraging both supported financing and subsidies from the party purchasing the emission reduction credits will require commercial coordination that may be best handled by a new private entity working closely with the municipal government or state-owned entity and relevant transport authorities. Given the potential for negative impacts to the business of bus operators, engaging an independent new entity, and a non-profit organization as is assumed in this model, to execute the project activities may enable better cooperation and buy-in from all parties involved.
Table 1: Model Attributes
Dimension | Attribute | Description |
|---|---|---|
| Business | New | This model assumes that a new entity will be created to coordinate the procurement, deployment, maintenance, financing, and monitoring of the project |
| Existing | ||
| Construction | Build | The model involves the replacement of existing public utility buses with their EV counterparts, as well as the installation of charging ports to service them |
| Refurbish | ||
| Private Funding | Finance | The project company will be supporting the bus operators involved in securing financing for the non-subsidized portion of the EV bus purchase price, while financing for the installation of the charging ports and the subsidies will be the obligation of said new entity |
| Service | Bulk | The project company will be collecting payments from the government or state-owned entity for the service of replacing the current lighting |
| User | ||
| Revenues | Fees | Revenues in this model will originate from the pre-agreed payments of the municipality to the private company for the service of replacing the current lighting |
| Tariffs |
Proposed risk allocation of the Public Private Partnership Model
Key features of PPP structure
- Private sector entity to design, build, finance, operate and maintain public transport project via a long-term agreement with the ministry/ government or state-owned entity
- The private sector entity acts as the implementation partner, and is responsible for all activities related to the implementation, management, monitoring and reporting of the project over the project crediting period
- In exchange, private sector entity can earn the fees from public transport use by end users as well as EV charging services
- Ministry offers long term concession agreement to the private sector entity operating company in exchange for receiving a portion of proceeds from emission reduction credit (ERC) sale
- Potential to include financiers in this PPP structure in exchange for portion of ERCs earned in this project
Expected ERC end use
- End use can belong to project developer as part of additional revenue stream
Key considerations/risks for proposed project
- Extensive stakeholder engagement required to ensure buy-in from operators of public transport as well as any other relevant stakeholders
- Need to consider any regulatory requirements of minimum domestic company involvement according to local company law
- Need to work with grid operators to ensure stable good energy grid capabilities to withstand increased electricity consumption from use of electric vehicles
- Demand for EV public transport will need to be high to justify project build out (e.g., increased public transport modal share from private vehicle usage)
- Stable political environment key to enable smooth execution of large-scale public transport project
- Partnering with a service provider for the project’s marketing, sales and pricing is needed to identify potential offset buyers, negotiate contracts, and secure good target price per tonne to enable the financial viability of ERC generation
- Contracting a monitoring, verification and reporting (MRV) service provider with experience in conducting MRV and preparing the necessary documents for generating ERCs in a voluntary carbon market standard will reduce risk of registration and issuance delays or bottlenecks, and strengthen credibility of project’s carbon integrity quality
Figure 1: Financing and Activity Flows for the Model
Case study: Bangkok E-Bus Program, Thailand
Project description
The program aims to introduce electric vehicles for privately-owned public transport in Thailand’s capital Bangkok to reduce GHG emissions on a broader scale. Energy Absolute will enter into agreements with privately-owned operators of scheduled bus routes in the Bangkok Metropolitan Region with the objective to replace 100% of the existing internal combustion engine bus fleets. A charging station service network for these e-buses will be implemented.
The program will replace the use of 500 conventional (diesel & natural gas) buses with e-buses on a substantial number of existing and new privately operated bus lines that provide a regular, scheduled service. The daily bus ridership in Bangkok serves up to 800,000 to 900,000 passengers.
Targeted results
Expected ERCs from the program will be a minimum of 500,000 tonnes. The climate protection measure will contribute significantly to improving the air in the capital is expected to pioneer the electrification of Thailand’s mobility sector.
Figure 2: Structure of Case Study PPP
Thailand and Switzerland signed a cooperation agreement on climate action under Article 6 of the Paris Agreement on 24 June 2022. This bilateral agreement regulates the cooperation between the two countries and establishes the legal framework for the implementation of climate protection activities by the KliK Foundation. The internationally transferred mitigation outcomes (ITMOs) achieved with KliK Foundation’s financial support are transferred in accordance with the bilateral agreement and used to meet Switzerland's emission reduction target under the Paris Agreement. The cooperation agreement ensures that the ITMOs, in addition to Thailand’s unconditional nationally-determined contributions (NDCs), meet the highest standards of quality, environmental integrity, sustainable development goals (SDGs) and human rights. To avoid double counting, Thailand commits to increase its emissions balance by the amount of ITMOs transferred to Switzerland.
Cooperation under the bilateral agreement leads to investments in climate mitigation technologies. The goal is to foster more efficient and more innovative businesses as well as more modern and cleaner technologies in Thailand. Until 2030, the KliK Foundation expects to support climate mitigation technologies in Thailand with $100 million (M)1.
The experience to be gained from this KliK-supported Mitigation Activity will provide valuable insights on digitalized MRV systems for carbon programs and support infrastructure creation. In doing so, it will support greater NDC mitigation ambition for Thailand. Carbon finance by the KliK Foundation from the purchase of around 500,000 tonnes of ITMOs until 2030 shall be used to level total cost of ownership differential between baseline buses and the program e-buses.
Summary of the model financials
Assuming a similar project context of replacing 500 diesel-powered buses with E-buses, the project’s Net Present Value (NPV) only considering non-ERC inflows through other revenue streams or cost savings enabled by the project – is negative at $ 11 M. With ERC cashflows, total project finances improves to have a positive NPV of $ 2M. Generating ERCs is crucial in this type of project as it enables it to generate a positive cash flow in the long term. These projects may also find it difficult to be executed due to typically high upfront capital requirements (e.g., replacement of total bus fleet). ERCs can be effective in establishing market attractiveness for investors looking to finance green projects as well as obtain ERCs.
Table 2: Summary of sources of inflows and outflows and key assumptions
Value component | Assumptions | Sources |
|---|---|---|
| ERC revenues or inflows |
| Based on assumption that unique project obtains price premium |
| Non-ERC revenues or inflows |
| Press search |
| Project investment and implementation cost |
| Press search |
| ERC generation |
| Verra Fee Schedule |
Table 3: Net cashflows summary (in USD)
Components | Sum of initial outlays | Sum of in- or outflows from crediting period | Total cashflow |
|---|---|---|---|
| ERC Component | |||
| Revenues/Inflows | 5,000,000 | 21,000,000 | 26,000,000 |
| Costs/Outflows | 0 | -110,000 | -110,000 |
| Net value | 5,000,000 | 20,890,000 | 25,890,000 |
| Primary/Non-ERC Component | |||
| Revenues/Inflows | 91,450,000 | 1,264,360 | 92,714,360 |
| Costs/Outflows | -107,725,000 | -1,090,000 | -108,815,000 |
| Net value | -16,275,000 | 174,360 | -16,100,640 |
| Total Net Value | |||
| NPV | $2,160,817 | ||
| NPV (ERC Component) | $13,152,067 | ||
| NPV (Non-ERC Component) | -$11,041,990 | ||
Footnote 1: All prices are expressed in United States Dollars (USD)