Guest post by Clay Siegert, Chief Operating Officer at XL.

Incentive programs for new vehicle technologies are often put in place to support faster adoption by commercial fleets. These incentive programs can both help justify deployments of earlier stage technologies, and enhance return-on-investment calculations.

While a broad range of incentive options have been rolled out over the years, the specific type that is proving to be very versatile and effective, especially among fleets, is voucher programs.

Voucher programs, which have launched in certain cities and states over the past several years aimed at commercial fleets, essentially offer point-of-sale rebates on the purchase (or sometimes, the lease) of a range of eligible alternative technology vehicles. The fleet customer gets an immediate discount off the regular price of new vehicle technology, while the vehicle or technology provider (not the fleet) performs the back-end diligence to get reimbursed by the voucher program administrator. Vouchers are a quick and easy process, and have three ancillary benefits that benefit the overall market:

1. The voucher system democratizes incentives by giving all fleets first-come, first-served access to multiple technologies.

2. The voucher system lets the market decide which technologies are most desirable.

3. The rules and/or procedures of the voucher system can be incrementally improved over time to strengthen programs.

Best of all, voucher systems work. Take California’s Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP), formed in 2010 by the California Air Resources Board (CARB). California created HVIP to accelerate the adoption of commercial hybrid vehicle technologies in the state, and reduce fuel use and emissions by local fleets. The program has been very successful in helping California fleet managers realize a faster ROI on a range of important technologies, such as electrification and natural gas. And the program has demonstrated a track record of improvement to make it more expansive and impactful.

California HVIP funding. Click to enlarge.

California’s Early HVIP Limitations. As with almost any innovation, the program had limitations when it started, which is to be expected with a complex market like commercial and municipal fleet transportation.

• Limited qualifying vehicles: Initially, only new OEM vehicles could qualify for HVIP, so upfits and retrofits were not eligible. While the program supported three electrification technologies, including hybrid-electric (HEV), plug-in hybrid (PHEV), and fully electric (EV), and over nine vehicle classifications, the popular Class 2B HEVs (e.g. cargo vans, large pickups) did not qualify. This left many large volume fleets excluded from the program initially.

• Modest financial incentives: The HVIP program’s total budget of $10 million in the beginning was relatively small, and the low dollar amount of individual vouchers did not offset enough of the incremental technology cost to generate widespread adoption. As a result, many customers were using HVIP vouchers to deploy small pilots, but not commit to electrification of their entire fleet. These factors led many early technology suppliers to exit the business.

Over the years, California’s HVIP program has been enhanced. Today, there are three new program developments that set the program up for success in 2018 and beyond. For any states exploring similar programs, these are the key aspects of HVIP’s success to keep in mind.

HVIP Program Enhancements for 2018 (tips for voucher success)

1. Be inclusive. Include a variety of technologies in a voucher program. For example, after only initially including plug-in vehicles like EVs and PHEVs, HVIP now also includes many non-plug-in HEVs, including Class 2 vans and pickups. The addition of Class 2 vehicles and more HEVs now gives fleet customers more fuel efficient vehicle options to choose from.

2. Don’t exclude older vehicles. The ability to sell electrification upfits on previous model year vehicles—many of which will be driven for the next 8 to 12 years—expands the window in which fleet operators can access vouchers, and increases the impact of the overall voucher program. This not only greatly expands the number of vehicles that can be turned “green”—it also addresses an issue created by the time required each year to obtain Aftermarket Executive order exemptions from CARB. Today in California, any vehicle with 25,000 miles or less could qualify for a voucher, so more vehicles are qualifying for incentives and more clean vehicles are hitting the road.

3. Maximize incentive budgets. When budgets are increased, voucher amounts for each vehicle deployment are often increased as well. This means that the program will facilitate the deployment of more technology than ever before, and the net technology cost becomes even lower for fleets. California’s HVIP program budget has expanded from a range of $10 million to $25 million in previous years (yes, demand completely used up all funding in previous years), to $180 million in 2018. As a result, voucher amounts were almost doubled, which has helped participation increase.

These tips are key to making an incentive program practical for fleet operators, while also helping them reduce fuel costs and CO₂ emissions in their area.

For fleet operators in California, 2018 represents the best opportunity yet to convert­ fleets into hybrid and plug-in vehicles. With this year’s improved HVIP program, breakeven returns for HEV upfitting can be realized in less than 12 to 18 months. So converting a fleet isn’t just an environmentally responsible decision—it’s a financially responsible one, too.

As new and expanded state funding opportunities arise in the future, such as those created by the VW settlement funds, states would be wise to follow California’s HVIP voucher program model to help them get the most value from these programs.

Clay Siegert, Chief Operating Officer, XL. Clay Siegert is responsible for leading sales, supply chain and production at XL, a leader in fleet electrification technology. Prior to co-founding XL, Clay was in strategic roles at Hudson Capital Group, an energy commodity trading firm, Smart Energy, a deregulated electricity and gas supplier, and Start Space, a consumer products company.