Activating India's Electric Vehicle Dreams

Facts

The plan, which initially envisaged selling 6 to 7 million electric vehicles (EVs) in the Indian market by 2020 expanded to include the goal of electrifying almost all vehicles in the country by 2030.

The Central Electricity Regulatory Commission (CERC) of India has recently identified three business models for electric vehicle charging within the framework of the Electricity Act of 2003 and will soon release draft guidelines on this issue.

The three proposed business models are as follows:

First, state electricity distribution companies (discoms) can build charging stations with separate tariffs under a special category for electric vehicles.

Second, a company can partner with discoms through a public-private-partnership franchisee model, acting as an agent of the discom without needing a new license.

Third, a company can operate via a battery swapping model: the company collects and charges batteries and leases them out to vehicle owners.

Under the Electricity Act, an individual or a private institution cannot sell electricity unless one obtains a distribution license from the respective state electricity regulatory commission to do so.

Opinion

Domestic manufacturing of electric vehicles and building a charging infrastructure are critical to achieving India’s vision for electric vehicle deployment. Privately owned TATA Power Delhi Distribution Ltd. and public NTPC Ltd. recently started operating charging stations in Delhi. TATA even provides free charging to owners of Mahindra Reva Electric Cars. In the central Indian city of Nagpur, ACME in May launched India’s first battery swapping and charging station with lithium batteries. But according to the Indian Energy Storage Alliance, there are more than 50 companies waiting on the sidelines to get involved in the Indian EV charging market.

By releasing guidelines for how to conduct business in the EV charging sector, the Indian government is unlocking a key barrier to the diffusion of EVs. Facilitating electric vehicle charging will incentivize the development of India’s charging network and remove the existing infrastructure bottleneck that has limited the total number of publicly accessible fast and slow charging stations at 25 and 328 respectively by the end of 2016.

Conversations this year with energy officials from 14 of India’s states revealed that thanks to expanded generation capacity and insufficient demand, states had surplus power to sell. The problem of surplus power is further compounded by discoms’ obligation to purchase power generated through renewable energy sources while at the same time they are unable to raise tariffs to recover costs. Thus the new CERC guidelines could provide an opportunity for cash-strapped discoms to create new business verticals and revenue streams to utilize this surplus power. An improved charging station network being utilized by a growing fleet of EVs also offers an opportunity to reduce fluctuations on the grid induced by renewable energy integration.

In addition to unlocking the bottleneck for EV charging infrastructure, the government must also find a way to create demand for this technology. A combination of incentives for manufacturers and consumers will be necessary if India is going to deploy four-wheel electric vehicles. In the drive to execute the EV mission, the government is cognizant of the fact that it must create a robust EV components manufacturing industry within India and avoid replicating the import dependency associated with its solar mission. Some states like Gujarat and Karnataka are already taking the lead in wooing electric vehicle manufacturers. Central-government-supported bulk procurement programs and production incentives should further bolster manufacturing of vehicles and components. A key ingredient in advanced battery manufacturing is lithium, and India will have to ensure it has sufficient sources from which to procure this precious mineral.

To create demand among consumers, the goods and services tax (GST) has placed electric vehicles in the 12 percent band. This is less than the 28 percent tax on sales of petrol and diesel vehicles, but the government should consider a short-term tax holiday to further stimulate consumer interest. Consumer socialization is critical for this vision to succeed as “range anxiety” continues to be a factor in peoples’ purchasing decisions. While all new vehicle sales in 2030 may be electric, the government will also need to establish a new vehicle scrapping policy that incentivizes existing petrol and diesel vehicle owners to switch to electric.

Finally, India has a penchant for over-institutionalizing good ideas. Currently there are no less than four government bodies (Ministry of Heavy Industries & Public Enterprises, Ministry of Science & Technology, Ministry of New & Renewable Energy, and Energy Efficiency Services Limited) that are involved in achieving India’s EV vision, and the CERC guidelines are certain to encourage others to join in. While several agencies will have an important role to play, without careful coordination, India could risk squandering limited resources and ultimately slow the pace of achieving its electric vehicle deployment program.