How finance and tender design drive Europe's city bus transition

The EU’s target for city buses – 90% zero-emission sales by 2030 – is on track. Registrations of battery-electric city buses (BECBs)[1] are increasing steadily, widening the gap with diesel city buses. By the end of this year, we expect BECBs to account for up to 75% of all new registrations. If sales of city buses fueled by compressed natural gas (CNG) decline by 10% over the next five years, the 90% zero-emission target will be reached by 2030.

[1] Does not include plug-in hybrid electric city buses.

While BECBs have surged, other alternative fuel technologies, such as hydrogen and gas, have seen little market penetration. Hydrogen adoption is hindered by technology challenges, infrastructure gaps, uncertain green hydrogen pricing, and long delivery times. Gas-powered options have stagnated due to recent high volatility in gas prices, the need for investment in refueling infrastructure, and policy shifts favoring zero-emission vehicles. PHEVs have also failed to gain traction as cities favor zero-emission alternatives.

Country-level uptake of BECBs in Europe

The European bus market has largely transitioned toward full electrification, but the uptake of new BECBs remains uneven across regions. The UK and Germany currently lead in total BECB numbers, however these buses account for less than 30% of their city bus fleets, indicating significant potential for further growth in these markets. We expect these markets to capture the largest share of new registrations in the coming years. The UK is already the biggest BECB market, registering nearly 2,000 new vehicles in 2024, accounting for one-third of all European registrations.

In contrast, the Nordic countries, the Netherlands, and Luxemburg continue to advance their transition, with smaller fleets reaching electrification levels close to 50% of the total fleet. Denmark stands out as a leader: of its approximately 1,379 public transport buses, 665 are battery-electric, meaning that more than half of its fleet is now electric.

The shift to BECBs is driven by emissions targets for city buses, rapid technological improvements, and the NextGenerationEU funds. These European funds have helped European cities upgrade their fleets since 2021.[2] However, the window for member states to implement investment projects closes in 2026, after which grants and loans will no longer be available. Cities deploying electric buses will need to focus on the challenges and opportunities of the technology and ensure the transition remains sustainable.

While BECBs offer compelling operational advantages, adoption is often constrained by higher upfront capital expenditure (capex) compared to diesel alternatives. This cost gap stems from battery costs and manufacturing processes for city buses that have yet to achieve full economies of scale, along with the installation of charging infrastructure.

On the other hand, BECBs present lower operating expenses (opex) than diesel buses. Their predictable energy consumption enables operators to secure electricity contracts in advance, and owning charging infrastructure typically reduces costs further relative to public charging tariffs. As a result, the total cost of ownership (TCO) for BECBs becomes increasingly attractive with higher vehicle utilization. Longer operating periods also allow operators to fully amortize capex over time and reduce uncertainty around end-of-life value for fully depreciated vehicles.[3] One way to make TCO of BECBs more attractive, and thus encourage adoption, is to spread the high upfront capex of BECBs over a longer tender contract.

In Nordic countries and the Netherlands, public concession contracts typically run for 10 years, with the possibility of extension. This allows bus operators more time to fully amortize vehicles over their useful life and maximize mileage.

[2] See: Florence 2025, Málaga 2025, Barcelona 2023, Munich 2023, Bari 2023, Sardinia region 2022, Turin 2023, Vienna 2022, Freising 2025, Berlin 2024.

[3] Assuming a 10% yearly depreciation rate.

Key regulations influencing tender design in the EU

The EU procurement framework is built on one core regulation that public tenders[4] must comply with, and three directives that outline goals for EU member states:

Regulation (EC) 1370/2007 sets the conditions under which transport operators can be compensated or granted exclusive rights by authorities to provide transport services. A key provision is the duration of public service contracts, which is generally limited to 10 years. However, authorities may extend the contract by up to 50% if justified by the amortization of capital investments, such as rolling stock like BECBs. The directives, on the other hand, define the procedures (including the open, restricted, competitive dialogue, and negotiated procedures), as well as the thresholds and award criteria for public tenders. They also allow the integration of strategic objectives (e.g., sustainability, innovation) aligned with the individual city strategies.

Bringing down the cost of capital

The higher price of BECBs compared to diesel alternatives increases the funding requirements, which can limit the number of operators that can successfully bid on a tender. From a public transport authority’s perspective, this is not ideal, as it could reduce the competitiveness of the bidding process.

To ensure a competitive bidding process, public transport authorities in the Netherlands[5] have developed multi-party agreements (MPAs). These agreements are contracts signed between the public transport authority (PTA), the public transport operator (PTO), and the lender. Under an MPA, the province guarantees debt servicing related to the tender and commits to taking over the assets (BECBs) in exceptional circumstances, such as the bankruptcy of a transport operator. This guarantee ensures that financiers will not sell the assets in such events, while the takeover provision allows the province to continue public transport services if necessary. This is of great importance, because provinces are legally responsible for ensuring continuity of public transport.

By credit‑enhancing the PTO, MPAs reduce the cost of capital and broaden lender participation – benefits that typically translate into lower bid prices or improved service levels. This approach reflects established practices where public guarantees or risk‑sharing instruments help reduce spreads and lengthen loan tenors for clean transport assets.

[4] If the economic value of the tender is above EUR 1m or it operates more than 300,000 kilometers of public passenger transport services.

[5] For example the province of Utrecht.

The rapid growth of BECBs and the decline of diesel models signal a fundamental shift toward what is considered zero-emission urban transport. While advances in technology and regulatory pressure have accelerated this transition, the structure of public tenders remains a critical factor in market penetration.

Longer contract durations and risk-sharing mechanisms, such as the MPAs used in the Netherlands, help operators amortize higher upfront costs and reduce uncertainty around residual values. This can make the TCO for electric buses more competitive than diesel.

Markets that combine supportive policies with well-designed tenders, such as the Nordic countries and the Netherlands, show that procurement is not merely an administrative process but a strategic lever for accelerating electrification. For cities aiming to meet climate targets, aligning tender structures with asset lifecycles and financial risk mitigation is key to unlocking the full economic and social benefits of battery-electric fleets. This will become even more relevant as NextGenerationEU funds phase out after 2026.