First Bus has signposted plans for major further deployment of battery-electric vehicles after parent FirstGroup formed a joint venture (JV) with Hitachi ZeroCarbon to purchase up to 1,000 electric bus batteries – valued at £100 million – over three financial years.
The 50/50 JV, NextGen AssetCo, will provide those to First Bus via operating lease over an initial eight-year period, with scope to extend that by two years at zero cost. A FirstGroup spokesperson has confirmed that one battery unit represents one bus. Each party has made a £10 million cash investment in NextGen AssetCo, with the remainder funded by debt.
Some of the vehicles to receive the batteries are already purchased. It is anticipated that the first c.400 of the batteries procured via the JV will be deployed to First Bus in FY2024, the two partners say. The remaining c.600 will follow over the subsequent two financial years.
Under the arrangement, FirstGroup will retain 75% of the residual value of the batteries at the end of their useful lives in buses. It notes that beyond then, “the majority of the battery’s capacity remains” and thus scope for further use in less intensive applications will exist.
Hitachi ZeroCarbon will also provide battery and charging management services for the 1,000 buses to be equipped via the JV. That will ensure efficient energy use and maximise durability, an approach that is key to the potential extension of first life beyond eight years. Terms of the JV include a further commitment of 500 buses beyond FY2026.
FirstGroup notes that it and Hitachi already have a strong relationship in rail, where Hitachi supplies and maintains electric and bi-mode rolling stock from its AT300 family to multiple of the group’s train operating companies. They also have a strategic partnership at First Glasgow’s Caledonia depot.
The JV approach will deliver an expected £20 million saving in FirstGroup capital expenditure in FY2024 and is expected to contribute approximately £3 million to earnings per year by FY2026, before potential operational benefits are considered.
Speaking about the joint venture with Hitachi, FirstGroup CEO Graham Sutherland describes it as “a major strategic partnership for the group as we progress towards our ambitious 2035 decarbonisation target for our bus fleet.”
Mr Sutherland adds that the arrangement will allow electrification of fleets and depots to be made “with increased efficiency and greater visibility of our financial commitment, and unlike other possible arrangements, we will retain much of the residual value of the batteries as they are taken off our buses.”
Terms of the agreement also include an option for FirstGroup to participate via a small minority interest in “future value creation through the deployment of Hitachi ZeroCarbon’s decarbonisation solutions… worldwide,” the group adds.