FirstGroup is entering a partnership with Hitachi as part of the Group’s bus fleet and infrastructure decarbonisation programme. The partnership will results in the establishment of a 50:50 joint venture named NextGen AssetCo Limited, that will be responsible for purchasing up to 1,000 electric bus batteries valued at c.£100m, as part of First Bus’s expanding electric bus fleet.
The JV will also provide “an anticipated contribution to the Group’s adjusted earnings of c.£3m per annum by FY 2026 before any potential operational benefits, a c.£20m saving in the Group’s FY 2024 capital expenditure, combined with future savings of c.£40m to FY 2027”, as FirstGroup states.
Both the Group and Hitachi have each committed a cash investment of £10m into NextGen, with the remaining investment to be funded by debt.
FirstGroup – Hitachi agreement for electric bus batteries
The partners anticipate that the first c.400 of the 1,000 batteries to be purchased by NextGen will be deployed to First Bus in FY 2024, with the remaining c.600 batteries to be deployed over the following 24 months.
The key terms of the strategic partnership with Hitachi ZeroCarbon Limited (‘Hitachi ZeroCarbon’) 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 to commercial fleet operators worldwide”. Within this agreement, the batteries will be leased from NextGen to First Bus over an initial eight-year period, at an underlying debt finance rate in line with the Group’s borrowing rate, with the potential to extend the lease by a further two years at zero cost depending on battery capacity.
FirstGroup will retain 75% of the residual value of the batteries at the end of its bus useful life. Opportunities include the redeployment of batteries for energy storage or alternative commercial use, and ultimately recycling to extract valuable metals for sale on secondary markets.
Also in the agreement is included the provision of Battery and Charging Management Services (‘BCMS’) by Hitachi ZeroCarbon for 1,000 buses powered by the new batteries as well as a further commitment of 500 vehicles beyond FY 2026 as part of First Bus fleet decarbonisation;
FirstGroup – Hitachi: NextGen joint-venture launched
Graham Sutherland, FirstGroup Chief Executive Officer said: “The pioneering alliance with Hitachi is a major strategic partnership for the Group as we progress towards our ambitious 2035 decarbonisation target for our bus fleet. It will allow us to continue the electrification of our fleet and depots with increased efficiency and greater visibility of our financial commitment, and unlike other possible arrangements, we will retain much of the residual value in the batteries as they are taken off our buses. Looking ahead, we are also excited about the possibilities for future value creation as Hitachi ZeroCarbon delivers market leading decarbonisation solutions to transport operators worldwide, leveraging our joint experience.”
Alistair Dormer, Executive Vice President and Executive Officer, General Manager of Green Energy & Mobility Strategy Planning Division, Hitachi Ltd. said: “Hitachi is committed to becoming a climate change innovator. We continuously strive for growth through collaboration and co-creation with our partners and customers, and this specific partnership enables us to use our innovative technologies and global expertise to help decarbonise fleets efficiently, discover untapped revenue streams and maximise the residual value of assets. I’m delighted we’ve successfully grown our existing relationship with FirstGroup, which will further add to our decarbonisation experience and combined learnings, in developing solutions for transport operators globally.”