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Operating lease finance

Instrument Overview

Operating lease finance allows cities to access assets—such as electric buses, smart meters, or solar systems—without purchasing them. Instead, a private party owns and maintains the asset, and the city pays regular lease fees for its use. This model enables rapid deployment of climate-friendly infrastructure while keeping public balance sheets free from long-term debt obligations (CCFLA).

 

Why It Matters for Cities

  • Minimizes upfront capital requirements
  • Accelerates deployment of sustainable assets
  • Keeps liabilities off municipal balance sheets
  • Enables public-private collaboration in asset provisioning

 

Key Features

  • Lease durations of 5–15 years
  • Ownership and maintenance handled by the lessor
  • Lease payments recorded as operating expenses
  • Flexibility to upgrade or return assets at lease-end

 

How It Works

  • City identifies asset need aligned with climate goals
  • Lessor acquires and owns the asset, performs maintenance
  • City signs a lease agreement and pays periodic fees
  • Asset is in service under city control during lease term
  • At lease-end, city may return, renew, or acquire the asset

 

Benefits & Challenges for Cities

Benefits:

  • Frees up capital for other priorities
  • Avoids long-term financial risk
  • Supports adoption of innovative climate assets

Challenges:

  • Total cost may exceed purchase price over time
  • Limited flexibility around asset modifications
  • Dependence on lessor performance and contracts

 

Use Cases

Electric Bus Leasing in Gothenburg, Sweden

The city of Gothenburg, Sweden, has taken significant strides toward sustainable urban mobility through the deployment of electric buses using an operating lease finance model. As part of the broader ElectriCity initiative, launched in 2015, the city introduced a fully electric bus line—Route 55—powered entirely by renewable energy. Rather than purchasing the electric buses and infrastructure outright, Gothenburg, through its regional public transport authority Västtrafik, entered into an operating lease agreement with Volvo Buses. Under this model, Volvo retained ownership of the buses and associated infrastructure, while the city paid periodic lease fees to access and operate the vehicles for public transportation services.

This leasing arrangement enabled Gothenburg to reduce the financial burden of upfront capital investment and transferred much of the technology risk—such as maintenance and upgrades—onto the private sector provider. The partnership also benefitted from EU innovation funding through the Horizon 2020 program, which supported the city’s goal to develop, test, and scale clean mobility solutions. Implementation of the operating lease required close collaboration between public officials, the private sector, and research institutions. It also involved adapting urban infrastructure for charging systems and training personnel to operate and maintain the new electric buses.

Despite some early challenges—such as aligning expectations among diverse stakeholders and integrating new infrastructure into existing transport systems—the project was a success. It led to an estimated 80% reduction in CO₂ emissions compared to conventional diesel buses and delivered noticeable improvements in air quality and noise levels along city routes. The initiative demonstrated how operating lease models can accelerate the adoption of clean technology by lowering financial barriers and minimizing operational risks for cities.

 

When to Use It

  • Best suited in the Planning and early operation phase of the project
  • It can be used for the Transport, street lighting, public buildings and energy efficiency sectors

 

Reference Links

 

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Authors

Jayashiree Elango Project Manager - FS

Last update: November 18, 2025

Tags

Project developmentFinanceFunding