India’s electric vehicle drive: Challenges and opportunities
The shift to electric vehicles has caught the imagination of policymakers and industry, but speed bumps in policy and corporate landscape remain
New Delhi: The year 2017 will be remembered as a significant one for defining India’s mobility architecture. From big ticket announcements on the marque Ahmedabad-Mumbai high-speed rail project to Hyperloop, India has seized its moment in the sun to announce big plans for finding next generation transportation solutions.
But nothing has caught the imagination of the industry and policy makers quite like the government’s ambitious plans for a mass scale shift to electric vehicles (EVs) by 2030 so that all vehicles on Indian roads by then—personal and commercial—will be powered by electricity. While the transformative push for electric vehicles has become a cause célèbre for India and the world, it presents challenges along with opportunities.
With Volvo’s July announcement that it would phase out the internal combustion engine and manufacture only electric or hybrid vehicles by 2019, many believe India’s EV moment has arrived. It won’t be long before major automakers in India follow Sweden-based Volvo’s lead in phasing out internal combustion engines and electrifying their line-ups to meet the 2030 deadline.
There are multiple narratives in this fast evolving scenario. From solar power developers and lithium ion battery makers to automobile manufacturers of marque badges, everybody seems to have thrown their hats in the ring. India’s Maharatna and Navratna companies such as NTPC Ltd, Bharat Heavy Electricals Ltd (Bhel) and Power Grid Corp. of India Ltd, all want a piece of the EV pie in order to remain relevant in the uncertain and evolving energy landscape of the country.
For energy firms, setting up a charging infrastructure is an attractive prospect, given the lucrative market potential projected to be around 90 billion units (BU) of electricity. For comparison, India generated 1,107 BU in 2015-16.
Electric vehicles are also expected to help generate fresh demand for electricity —the lack of which is weighing down the entire power sector—and also help in resolving the stressed assets conundrum.
Any uptake in demand for power will help improve the financial viability of these stressed power sector projects. This in turn would improve the per capita power consumption of around 1,200 kWh—one of the lowest among the large economies.
“In a world in which renewable energy has a very high penetration, India has the opportunity to be independent and provide cheap power to its people in ways that are quite different than say in an economy that is built upon oil and gas,” David Sandalow, fellow at Center on Global Energy Policy at Columbia University, said at a conference in New Delhi in September.
India, the world’s third-largest energy consumer after the US and China, is working towards building a green economy and plans to achieve 175 gigawatt (GW) of renewable energy capacity by 2022 as part of its commitments under the global climate change accord. Of this, 100GW is to come from solar.
“This industry (EV) is starting to take off. And it’s still a tiny percentage of the overall vehicle market but it’s starting to reach an inflection point where it can have I think a very significant impact globally,” said Sandalow, who was acting under secretary of energy during former US President Barack Obama’s term.
Such a shift to renewable energy makes imminent sense for India which paid Rs4.16 trillion to buy 202.85 million tonnes of crude oil in 2015-16. “Particularly in a high solar resource country like India, it is a very good strategy for providing transportation,” Sandalow said.
EVs as a storage
The fates of solar power and electrical vehicles in India are likely to be closely interlinked, given that EVs have batteries that can offer a storage solution to India’s clean energy push.
Solar power generated during the day needs to be stored in batteries. The storage capability of EV batteries could help with grid balancing, complementing the National Democratic Alliance government’s push for solar power.
With lithium battery prices having nose dived from $600 per kilowatt-hour (kWh) in 2012 to $250 per kWh in 2017, the solution is becoming economically viable. The EV industry is betting on a further drop to $100 per kWh by 2024.
“Another related emerging technology is of electric vehicles that can also double up as a storage device. Suitable application of time-of-the-day tariff mechanisms will be applied to encourage EVs to store-up renewable energy when it is available in excess of demand,” according to India’s draft national energy policy.
With plans of reducing the cost of charging stations by half to around Rs1 lakh each, comparisons are been made to the yellow coloured public call office booths which took telephony to India’s remote corners in the eighties and nineties.
“By and large, we see electricity emerging as the primary source of energy,” said power and new and renewable energy minister Raj Kumar Singh last month at a conference. “When we were discussing mobility, somebody was telling me that electric mobility is more efficient than mobility by petrol or diesel. The only thing which is required is for the prices of the battery storage system to come down. So, that is a future which I see that gradually we will move towards electric mobility. Now, that will require investments in storage systems (and) in electric vehicle manufacturing,” Singh added.
End of oil
Policy think-tank Niti Aayog has recommended offering fiscal incentives to EV manufacturers and discouraging privately-owned petrol- and diesel-fuelled vehicles. These are potentially far-reaching moves for India’s mobility, energy and environment needs and could spell the end of the internal combustion engine as we know it.
India’s policy mandarins have also thrown their weight behind EVs, impressed by their 20 moving parts as against 2,000 in traditional petrol or diesel vehicles.
The draft national energy policy states: “EVs are an area of huge interest to India as it holds the potential of reducing the demand for liquid fuel.”
“The advent of EVs will have helped curb a rise in share of oil and environment friendly gas would substitute oil in many uses,” it adds.
This could be bad news for West Asian oil economies and Russia, which have been buffeted by low crude oil prices. Any demand dip from China and India, which together accounted for half of the 1% growth in global energy demand in 2016 according to the BP Statistical Review of World Energy, will also have wide geopolitical ramifications.
“Geopolitics of energy for the past century has largely been the geopolitics of oil. And that’s for good reason because the geopolitics of oil has really shaped international politics and international dynamics,” added Sandalow, who is co-author of the paper The Geopolitics of Renewable Energy.
That’s set to change with the advent and growing dominance of clean energy sources such as solar and wind.
“There is a number of mechanisms that we identified in which we think geopolitics may well change as a result of renewable power. An obvious one is that as oil and gas revenues decline, oil and gas producers will have less power,” said Sandalow.
“Variability surrounding future battery technology, government policies, consumer preferences, and other developments related to personal transportation markets casts a great deal of uncertainty on the long-term effects that battery electric and plug-in hybrid vehicles may have on worldwide energy consumption,” the US Energy Information Administration said in a report last month.
Quite understandably, the promotion of electric vehicles is a strategic goal for India’s National Democratic Alliance government, which is keen to cut the country’s oil imports.
However, there are some who believe that global oil consumption may increase further.
“We have to make very big decisions but the conversion to practice will anyhow take a very long time. Actually at the moment, I am more afraid that the consumption of oil will still increase,” said Kimmo Tiilikainen, Finland’s minister for environment, energy and housing, in an interview.
On India’s plans for a mass scale shift to EVs by 2030, he said, “It’s a very ambitious target but if you don’t have ambitious target you won’t see the change.”
Finland is no stranger to ambitious targets. The Nordic country decided to cut the use of fossil oil by half by 2030 and also set a target of 38% share of renewables in the country’s energy mix by 2020. It has already reached the 40% mark.
India’s game plan
State-run firm Energy Efficiency Services Ltd (EESL) has been tasked with the job of triggering early adoption of electric vehicles. The newly-created firm, which made a name for itself by reducing the price of LED lights for home lighting by 86%, floated a tender for procuring 10,000 electric cars, the largest such procurement in the world.
Tata Motors Ltd won the EESL contract, with Mahindra and Mahindra Ltd matching its bid and winning 30% of the order.
“There is a need to kick-start the market and that is what we have done with this 10,000 vehicles tender. It’s a trigger in many ways,” EESL managing director Saurabh Kumar said in an interview before the EV bid results were declared.
The vehicles will be procured at a per-unit price of Rs11.2 lakh with the aim of laying the foundation for a mass shift to EVs by 2030.
EESL’s business model is to make these vehicles available on lease to the government and its agencies for around Rs45,000 per month, which is Rs5,000 less than what is currently paid for petrol and diesel cars.
“This model in the government can actually do wonders,” said Kumar.
Sending a clear signal that India is firmly moving towards electric vehicles, the goods and services tax (GST) Council has set a tax rate of 12% for electric vehicles, compared with 28% plus cess for petrol and diesel cars and hybrid vehicles.
The Indian auto industry was also warned by the government in September to switch to production of vehicles running on non-polluting alternative fuels or risk being overtaken by inevitable policy change. Ashok Jhunjhunwala, a professor at the Indian Institute of Technology, Madras, who is spearheading the government’s EV programme, declined to comment for this article.
From Finnish state-controlled energy utility Fortum which plans to develop EV charging infrastructure in India, to billionaire Sajjan Jindal’s JSW Group which is exploring a partnership with China’s Zhejiang Geely Holding Group Co. to make EVs, the list of investors drawn to India’s EV sector is quite long.
Swiss stock exchange-listed Leclanché SA also plans to partner with SUN Mobility for developing battery storage solutions.
From China’s Zhuhai Yinlong New Energy Ltd, which plans to set up an EV manufacturing plant in Punjab, to BP Plc, which is planning to leverage its partnership with Reliance Industries Ltd to explore unconventional mobility solutions, nobody wants to be left behind.
“It (EVs) is gaining a lot of momentum. There is a lot of talk,” said Malcolm Wrigley, country manager, India, for French energy firm Engie SA, in an interview.
To a question on whether Engie would be interested in setting up EV car charging infrastructure in India, Wrigley said, “That certainly is on the agenda.”
Currently, Mahindra & Mahindra Ltd is the only automaker selling a fully electric car in the country, while others including Maruti Suzuki India Ltd and Toyota Motor Corp. offer hybrid versions.
Lithium and the China overhang
Despite the euphoria surrounding India’s EV programme, speed bumps in the policy and corporate landscape remain. One such hindrance is that India does not have enough lithium reserves for manufacturing lithium-ion batteries. This could lead to a substantial change in the country’s energy security priorities, with securing lithium supplies, a key raw material for EV batteries, becoming as important as buying oil and gas fields overseas.
This is easier said than done, given that Chinese firms are already acquiring assets in countries such as Bolivia, Australia and Chile, which have substantive lithium reserves, trying to establish a monopoly on lithium reserves. With China overtaking the US last year as the world’s biggest electric car market, there have been concerns about supply shocks.
“In the world of high renewable energy there are materials other than oil where there may be opportunities for cartels. For example, lithium or rare earth metals or others where states might have power and might be able to exert them in different ways,” cautioned Columbia University’s Sandalow.
In 2010, China exploited its monopoly on the global production of rare-earth minerals and banned exports of rare earths to Japan. In response to a query about the absence of lithium in the country, EESL’s Kumar said, “Almost everything in our life now has a semi-conductor. Does (the) semi-conductor get manufactured in India?”, adding, “Yes, I completely agree with you that there have to be urgent steps taken.”
Indian firms have also warned about the EV story going the solar module way with most solar power developers sourcing modules and equipment from countries such as China, where they are cheaper.
“This (lack of battery manufacturing in India) is a real problem. India is not able to get its act together quickly enough to get into the manufacturing of all these new sunrise industries,” said Sumant Sinha, chairman and chief executive officer (CEO) of ReNew Power Ventures Pvt. Ltd. “Even on batteries, the same thing is going to happen. Already, China is making massive investments at massive scales, and we are still thinking about it,” Sinha added.
But some believe that the limited availability of lithium in India will not be a deal breaker. “Lithium (cost) is only 7% of the battery cost, first of all. In another 10 years’ time, there will be some recycling of lithium surely,” said Sohinder Gill, corporate director of Society of Manufacturers of Electric Vehicles (SMEV), a lobby group.
“Those are not going to be in the world of future blackmailing factors. They may be price adjustment factors,” added Gill, who is also chief executive, global business, at Hero Eco Ltd, manufacturer of electric vehicles.
Supply concerns have, however, been reinforced given India’s recent military standoff with China in the Doklam region of Bhutan.
There have been instances in the past when India stopped giving clearances to telecom equipment imported from China over security concerns.
“It’s not going to be a make or break situation. The whole world will need lithium. From that point of view, there will only be differential of Chinese, making it much cheaper for themselves than for others. That could happen,” maintained Gill.
India also needs to have a solution ready for these vehicles after their battery life is depleted. With e-mobility coming up as government mission, Kumar said, “I am pretty sure that these are the elements that the mission will be looking at some point of time.”
An effective charging infrastructure is required which takes care of ‘range anxiety,’ and the necessary regulations around creating the ecosystem for electrical vehicles to operate smoothly.
Another issue is whether to go for AC (alternating current) or DC (direct current) chargers. While an AC charger takes around six hours to charge an EV, DC chargers are faster and take around 40 minutes to one hour to fully charge a vehicle.
Also as per the regulations for electricity sales in the country, under The Electricity Act, 2003, a distribution licence is required to distribute power from respective state electricity regulatory commissions (SERCs). Given the number of regulators involved, it makes sense for a pan-India license but that would require a lot of heavy lifting including a comprehensive review of existing laws and regulations.
“There are certain regulatory pieces which needs to be fine tuned and the biggest one according to me is the fact that today as per the CERC (Central Electricity Regulatory Commission) regulations it is only a distribution licensee that can sell power,” said EESL’s Kumar.
“So, right now you have distribution networks which are owned by the discoms (distribution companies) primarily. In some cities, it is privately owned and you would need some sort of a protocol to establish how a private player can come in and be involved in that,” Engie’s Wrigley said.
The government is conscious of the uphill task and is setting in place liberal rules for charging stations to power electric vehicles, Mint reported on 21 October. According to the norms under preparation, government and private institutions that set up charging stations for captive use need not possess an electricity retailing licence.
Another related risk is that of EV charging leading to a surge in electricity demand which in turn may put at risk India’s already stretched electricity distribution networks. “So what you will have to do which is known as ‘managed charging’. So, in certain hours even if you want to charge you can’t charge or you will be able to do the charging in limited areas,” said Praveer Sinha, CEO and managing director at Tata Power Delhi Distribution Ltd. The utility, which distributes electricity in North Delhi, plans to invest Rs100 crore to set up 1,000 charging stations by in the next five years (bit.ly/2qr3C4i).
“The EV loads will be very intermittent and very high,” added Sinha.
This calls for careful planning in the backdrop of India’s worst blackout that left nearly 620 million people across 19 states and three Union territories without electricity for hours together in July and August of 2012.
The Indian EV industry maintains that a lot needs to be done to achieve the 2030 target. “Integration is not happening. Cohesion is not there. We quickly need to get our act together from the macro point of view,” said Gill.
While the NDA government plans to put an EV policy in place by the year end, its overtures to electric car maker Tesla Inc. to set up a factory in the country have failed to deliver results. The Palo Alto, US-based company, which has been cool to India’s offer of land near a major port to facilitate exports, has decided to set up its own manufacturing facility in China.
However, India is unperturbed.
“It’s rare for an opportunity of this scale to present itself. I would rather prefer domestic manufacturers to make use of this splendid opportunity that India offers,” said a senior minister involved in evolving India’s EV paradigm, speaking on condition of anonymity.
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