Instrument Overview
Hybrid models—such as lease-to-own or performance-based contracts—combine leasing and ownership. Cities initially lease assets (e.g., EV fleets or solar systems), evaluate their performance, and then decide whether to purchase them. This phased model reduces risk, enables pilot testing, and spreads financial impact over time. (CCFLA).
Why It Matters for Cities
- Lowers financial barrier to adopting new climate technologies
- Permits performance testing before capital commitment
- Helps avoid stranded assets if technology underperforms
- Supports flexible procurement aligned with budget cycles
Key Features
- Lease with embedded purchase options
- Ownership may transfer after defined milestone or lease period
- Payment schedule tied to performance or delivery metrics
- Customizable contractual terms
How It Works
- City arranges hybrid contract with vendor or financier
- Asset is leased and its performance monitored
- At maturity or after successful performance, city may exercise purchase option
- Alternatively, asset may be returned or contract extended
Benefits & Challenges for Cities
Benefits:
- Flexible and performance-driven procurement
- Allows cities to adapt to evolving technology
- Mitigates risk of overinvestment
Challenges:
- Legal and financial structuring can be complex
- Performance metrics must be clear and enforceable
- May involve higher overall costs if purchase option is expensive
Use Cases
Dancer e-Bus Lease with Service Package in Klaipėda, Lithuania
In Klaipėda, Lithuania, the public transport operator UAB Klaipėdos autobusų parkas (KAP) adopted a novel lease-based model for electric buses. In a 2022 procurement, KAP contracted UAB Vėjo projektai to provide 10 Dancer electric buses under a comprehensive leasing agreement that included charging infrastructure, full service, maintenance, and green electricity supply. This hybrid lease-to-own-like model allowed Klaipėda to deploy electric public transport immediately without upfront capital investment—leasing the buses and related infrastructure from the private provider.
In terms of implementation, the city conducted public procurement, selecting a provider capable of bundling vehicle provision, charging infrastructure, electricity supply, and service into a single lease package. The integrated design simplified operations and ensured service continuity. However, challenges included integrating these high-tech buses into existing fleet schedules, ensuring reliability and maintenance quality under lease terms, and managing driver and technician training effectively.
The achievements are substantial: Klaipėda achieved carbon reductions through electric mobility, offered a more sustainable and modern public service, and preserved municipal capital. The service model provided clarity on operational performance obligations and delivery standards under the lease. Key lessons learned include the value of bundling services with leasing, the need for strong contract performance monitoring, and how hybrid lease structures can enable technology uptake in cities with budget constraints.
When to Use It
- Best suited for Planning, construction, and operation phases of the project
- It can be implemented in the Transport, renewable energy systems and smart city assets
Reference Links
- Cities Climate Finance Leadership Alliance (CCFLA) https://citiesclimatefinance.org/financial-instruments/instruments/hybrid_models_for_purchase_and_lease_of_assets
- Sustainable bus: https://www.sustainable-bus.com/electric-bus/dancer-bus-klaipeda-lease-solution-kap/