Description
Pay-as-you-save (PAYS) is an innovative concept that has been successfully applied to several climate solutions, including cost-effective procurement of electric buses, energy efficiency solutions, solar water heating, and water efficiency. It can overcome barriers to investment at scale without imposing additional liabilities on project developers associated with loans or leases. In a basic transaction that applies PAYS to clean transport, there are several key stakeholders: 1. Utility – supplies electricity and invests in and leases batteries to the bus service provider via on-bill financing; 2. Bus service provider – purchases or operates buses, often a municipal transit agency; 3. Electric bus manufacturer – sells buses to the bus operator and batteries and charging equipment to the utility; and 4. Capital provider(s) – provides debt finance to the utility, if required.
Instrument category
Leasing and asset finance models
Implementation status
Low - limited evidence available
Enabling conditions and success factors
- Proactive engagement and cooperation between the various parties involved.
Instrument benefits
- PAYS for Clean Transport overcomes major barriers to electric bus procurement in developing countries, including the high upfront cost of electric buses relative to diesel; high financing costs for clean transit investments.
- Overcomes a lack of engagement with utilities in electrifying transport.
- Partial allocation of technology risks for electric drivetrain and charging technology to capital providers (instead of manufacturers).
Challenges and risks to implementation
- The need to deliver operational savings over diesel determines the maximum monthly charge, and the battery and charger warranty lengths determine the period within which the utility can recover its costs. The cumulative payments over that duration may not be large enough to pay for the full cost of the battery and charger.
- The warranty length may be insufficient for the battery and charger, making it less attractive for investors and utilities.
- Risks can be perceived from the perspective of: 1. The lender (regarding the utility’s ability to meet debt obligations if the bus service provider defaults on its electricity bill); and 2. The utility (regarding the bus service provider’s ability to pay and the effectiveness of denial-of-service to ensure the security of payment).
