Constituent policy

Bulk procurement can revitalize government procurement policy and its impact – by Mark Leith

Today, as part of @AuManufacturing’s series on the future of the Jobs and Skills Summit, Mark Leith proposes to radically rethink Australia’s sourcing practices.

If Australia is to meet its revised 2030 emissions reduction targets, swift action to accelerate zero
the adoption of buses and trucks with polluting emissions is essential.

While the business case for fleet electrification and Australian electric vehicle manufacturing is strong, fragmented procurement practices and a gap in government policy mean unnecessary uncertainty, cost and risk remain. .

Without strong leadership to overcome barriers to optimal sourcing, Australia also risks losing its potential place as a country
leader in advanced manufacturing and clean technology innovation.

The transition to electric transportation is approaching an economic tipping point, but complacency could lead to an early slowdown in momentum and a return to the status quo.

It is already evident that the consistent procurement practices of the past will not be enough to ensure the speed and scale of fleet renewal if needed.

A federal or state government-led framework to unlock and reduce risk from bulk purchasing would be a positive step in overcoming barriers to industry transition, emissions reductions and a revival of Australian manufacturing.

A new direction?

Since coming to power in May this year, the Federal Labor Government has made clear its intention to act forcefully on climate change and electric vehicle policy.

In addition to legislating higher emission reduction targets, it is also working to improve grid infrastructure capacity and develop
new electric vehicle policies and strategies.

Now is the perfect time for state and federal governments to come together with industry stakeholders to develop a mutually beneficial pathway for the production and adoption of heavy electric vehicles.

Limited local manufacturing capacity and model availability, higher upfront costs, and uncertainties surrounding rapid technological change are complex challenges requiring innovative and collaborative solutions.

A more coordinated approach is needed – one that provides greater certainty for the industry and makes the transition cheaper, easier and better for everyone.

Economies of scale

Bulk sourcing just makes economic sense. We have all seen many examples of the benefits that bulk manufacturing brings, such as the rapid cost reductions achieved in photovoltaic panels, as well as computers and other electronic products.

Everyone understands the dollar savings possible when buying in bulk at the grocery store.

The economies of scale that can be achieved through bulk sourcing can help accelerate transitions in energy technologies, and governments can play a key role.

Take for example the deployment of energy-efficient street lighting in Victoria under the federal Community Energy Efficiency Program a decade ago, which brought together equipment suppliers, network owners and local governments to achieve vast energy and cost savings not possible with the traditional fragmented system. approach.

For the purchase of heavy vehicles, bulk purchase agreements can provide the critical mass needed to tip the economic balance in favor of change, where it simply no longer makes sense to persist in maintaining and fueling a aging fleet of diesel dinosaurs.

Reduced initial costs

Australian citizens want governments to do the right thing on environmental issues, but still expect them to commit to getting the best value for the taxpayer.

Bulk buying can reduce the higher upfront costs of electric vehicle technologies, removing the biggest barrier to adoption and, for operators, making more marginal propositions profitable.

Cost modeling and evidence from wholesale purchase agreements internationally indicate potential savings on complete electric vehicle purchases in the range of 35-40%.

The heart of the problem

The battery is at the heart of electric vehicles and is by far the most expensive component, accounting for up to 40% of the total vehicle cost.

Focusing solely on buying batteries in bulk is enough to reduce total vehicle costs by 20%, just by reducing this critical component cost.

Further cost reductions would then flow over time as an integrated supply chain of other vehicle components was built around the battery, reducing total vehicle costs by a further 10-20%.

If these potential savings are applied to the case of the NSW Government’s commitment in 2030 to purchase 8,000 electric buses, the benefits become immediately apparent.

The result is initial savings of several billion dollars, which could be used to buy 50% more buses and/or reinvested elsewhere in the economy.

If extended to multiple states, the total benefits would be significant in terms of national GDP.

Annualizing and indexing the cost of bulk battery agreements to future declines in battery costs effectively negates any value for money concerns that prices may fall in the future. This concern is often cited as a reason to “wait and see” and is a major impediment to bulk purchasing and expedited fleet replacement.

Industry inertia and import dependence

Despite supply chain advantages and a proven ability to produce high-quality, low-volume electric vehicles, Australia currently lacks the manufacturing capacity to deliver fleet renewal on the scale needed. .

A capacity increase of at least 500% would be needed just to meet NSW’s current target of 8,000 electric buses by 2030, but it takes years to plan and build large, state-of-the-art manufacturing plants, and a some certainty of demand is needed to justify such an investment.

With no way forward, Australia remains almost entirely dependent on substandard vehicle imports, most likely from factories in China. Not only could Australia be self-sufficient in electric bus manufacturing, it could, and should, become a leading exporter.

Policy options

  • Given the scale of the task, it is time for governments to rethink their policy options in this space. Various practical measures could be explored, including:
  • Incorporate the potential of innovative bulk supply models into federal and state electric vehicle strategy development.
  • Invite carriers and manufacturers to express interest in group purchases of batteries or electric vehicles, facilitate negotiations and encourage positive resolutions
  • Call for tenders for consortia of companies across the supply chain to propose wholesale sourcing solutions for consideration
  • Advance current procurement schedules and issue a tender for at least 1,000 buses to be delivered by one or more consortia on the agreement that one or more new production facilities will be built
  • Develop a mass transit battery purchasing system that approves a limited number of battery types for use by local car manufacturers.
  • And develop a bulk purchase financing program through the Clean Energy Finance Corporation.

More reading:

Marc Leith is an Australian lawyer, research analyst and software developer involved in the design, procurement and construction of net zero infrastructure.

Photo: Mark Leith