Courtesy of The Financial Times, an article on a fund that will help finance the electrification of London’s iconic red buses:

A group of investors has launched a £100mn fund to help finance the electrification of London’s iconic red buses.

Insurer Aviva and Rock Rail, a UK-based owner and asset manager of rolling stock, have teamed up with the UK’s state-owned infrastructure investment bank to come up with a new way of funding the costly decarbonisation of Britain’s fleet of more than 35,000 mostly diesel buses.

The partnership said it has committed an initial £100mn to fund up to 250 zero emission buses across the UK. The first 60 battery-powered buses will be leased to the Go-Ahead Group, one of Britain’s biggest transport operators, and run on routes throughout London.

The UK bus industry is at an inflection point as it faces the expensive task of switching its diesel buses to electric or hybrid vehicles. A double decker electric bus costs around £450,000, compared with £250,000 for a typical diesel vehicle.

Mark Swindell, the chief executive of Rock Rail, estimated that it would cost between £10bn to £15bn to transition to a zero emission fleet, as only 2,000 of the UK’s 36,500 buses are currently electric.

“If you are a bus operator, you do not have that kind of investment available?.?.?.?this is about finding a way to bring institutional money in,” he said.

The UK Infrastructure Bank is providing £50mn 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 set up in 2021 to invest private sector finance into projects that help meet the government’s net zero climate targets, as well as tackling regional inequality.

“Replacing [diesel buses] with a cleaner, greener alternative will be key in decarbonising the transport sector and achieving UK net zero targets,” said UKIB chief executive John Flint. “This will require a massive scale up of investment”.

Rock Rail’s Swindell said the deal marked the first time that the leasing model used to fund new trains in the UK had been used at scale in the bus sector.

Rolling-stock leasing companies, or Roscos — which are owned by financial investors — were set up to supply new trains to the UK railway following privatisation in the 1990s, and have proved highly profitable.

Roscos paid £409.7mn in dividends to shareholders in the financial year ending in March 2023, according to the rail industry regulator, at a time when the rest of the rail industry has struggled financially and been the recipient of significant government aid.

Buses in the UK have typically been bought outright by operators, leased from traditional banks or funded by local authorities in the past.

The UK government has also subsidised some electric vehicles for local transport authorities in England outside of London.