SCMP: The Hong Kong government must quickly come up with a new business model for the city’s two franchised bus companies, which face nearly HK$6 billion (US$771 million) in investments to overhaul their fleets to reach zero-emissions targets, according to a think tank.

The clock is ticking because the companies have less than eight years to stop buying diesel-powered buses, and the bulk of their diesel models are slated for retirement between 2028 and 2036.

“There is an urgency to devise a new business model that can support the transition to both battery-electric and hydrogen-fuel-cell buses,” Civic Exchange said in a report on Thursday. “The traditional model relies on farebox income and may not be sufficient to address the financial, operational and regulatory demands of hydrogen and battery-electric technology.”
Diesel buses have a legally mandated maximum lifespan of 18 years in Hong Kong. So given the city’s goal of carbon neutrality by 2050, Citybus and KMB must stop buying diesel-powered buses by 2032 – or end up retiring them before the end of their full lifespans. The companies have pledged to transform their fleets to zero emissions by 2045 and 2040, respectively. Citybus operates some 1,700 buses, while KMB runs just over 4,000, according to their disclosures.

The existing franchising business model and government policies do not provide additional funding for the procurement of more costly zero-emission buses powered by batteries or hydrogen fuel cells, or for the construction of necessary recharging and refuelling infrastructure, Civic Exchange said.
The report incorporates insights from several unnamed technical and financial experts in the franchised bus industry. The research was funded by the government’s strategic public policy research funding scheme.

Citybus may need to spend an additional HK$2.9 billion to replace its diesel buses with battery models through 2050, while KMB may need to spend HK$2.8 billion to do the same for its fleet, the report said. The costs will be much higher if hydrogen buses are adopted.
A bus powered by hydrogen fuel cells currently costs around HK$8 million, nearly three times the HK$2.8 million price tag for a diesel bus, the report said, citing import values declared to the Customs and Excise Department.

Battery-powered buses, which have been widely commercialised in mainland China, cost less. Wisdom Motor’s DD12 model, which Citybus is trying out, cost HK$5.6 million, while BYD’s B12D, piloted by KMB, cost HK$3.6 million, the report noted.
Multiple international studies have found that the total cost of ownership of battery-powered buses is already similar to or lower than that of diesel buses, because lower costs for energy and environmental compliance offset the higher purchase and depreciation costs. However, an all-battery fleet is not yet feasible for Hong Kong, Civic Exchange said.

The city’s unique operating environment – hilly topography and high air-conditioning demand, combined with frequent door opening and closing – means current battery-powered buses are not a feasible replacement for 30 to 40 per cent of the total fleet, it said.

While hydrogen buses can handle the challenges, the total cost for operating such buses is around four times that of battery buses, considering purchase price, energy and spare parts over 18 years.

Possible funding mechanisms include a bus-and-property development model, public-private partnerships, asset leasing and trading of carbon-emission quotas, Civic Exchange said.

The think tank recommends a mixed approach, starting with subsidies until 2027, transitioning to a medium-term mechanism that can fund bus purchases and infrastructure investments while still allowing the companies to provide affordable services.

A spokeswoman for the Environment and Ecology Bureau said the price gap between electric and diesel buses is widely expected to narrow amid rapid technology advancement, which has already resulted in lower prices.

“Hence there is a high chance that the current bus fleet will be gradually replaced by e-buses without the need for further subsidy,” she said. “It would be premature to conclude that alternative business models would be necessary.”

Besides setting aside a HK$750 million fund to subsidise franchised bus companies’ electric-vehicle purchases and hydrogen-bus trials, the government will announce a green transformation road map for public buses and taxis by the end of this year, she added.

It will include a subsidy scheme for bus operators, with a view to realising the target of introducing about 700 electric buses by the end of 2027.

A spokesman for Citybus, which operates both hydrogen and battery-electric buses, said it disagrees with Civic Exchange’s projections on procurement and operating costs.

Data Citybus has gathered in the global market suggests a downward trend in procurement costs thanks to technological advancement and expanding production.

“Whilst the first [battery] electric double decker bus cost HK$5.6 million in 2021, future models are expected to cost significantly less,” he said. “We expect the cost of hydrogen buses will follow a similar declining trend over time.”

Citybus plans to operate hydrogen buses as the mainstay of its fleet, with electric buses playing a supplementary role, he added.

Originally published on SCMP on 5 December 2024.