Electric Vehicles (EV) are the latest automotive trend and all developed and developing nations are encouraging the switch to Ensiform conventional internal combustion engine (ICE) vehicles. The EV technology is attracting eyeballs worldwide for the simple reason of reducing dependency on fossil fuels and achieving the global goal of zero-carbon emission and sustainable development. India is the fourth highest emitter of carbon dioxide globally and at the recently concluded COP26, it has pledged to reduce its carbon emissions to net-zero by the year 2070. India aims to achieve EV sales accounting for 30% of private cars, 70% of commercial vehicles, and 80% of two and three-wheelers by the year 2030. For this reason, India is aggressively promoting the adoption of EVs in the country by offering various incentives at both the Central and State levels, to buyers and manufacturers. For a country that still heavily depends on coal for its power generation, it is extremely important to take stringent steps to achieve its ambitious targets.
As per the Accelerated e-Mobility Revolution for India’s Transportation (e-amrit) portal in India, only 7,96,000 EVs have been registered till December 2021, and just 1,800 public EV charging stations have been installed. Alternative Fuel Infrastructure Directive (AFID), the key policy regulating the deployment of public electric vehicle supply equipment in the European Union, mandates that member states should aim for 1 public charger per 10 EVs. Looking at the figures on e-amrit portal, we do have a long way to go to achieve the recommended ratio.
While there has been a growth of 133% in the sales of EV from FY 2015 to FY2020, when compared to sales of conventional ICE vehicles, the numbers seem insignificant. In FY 2021-22, only 1.32% of the total vehicles sold in the country were electric.
So, let us understand why buyers are abstaining from purchasing EVs.
Adoption of EVs and hindrances in e-mobility
The Department of Heavy Industry (DHI), on March 8, 2019, notified the Faster Adoption and Manufacturing of Electric Vehicles in India Phase II scheme (FAME II) to encourage faster adoption of EVs and hybrid vehicles by offering: (a) upfront incentives at the time of purchase of such vehicles; and (b) incentives for the installation of the necessary Electric Vehicle Charging Infrastructure (EVCI). The total fund allocated under FAME II amounts to Rs 9,634. Of the total fund allocated, Rs 8,596 crore has been set aside as demand incentives and Rs 1,000 crore for setting up EVCI. FAME II also encourages state governments to provide supplemental support by offering fiscal and non-fiscal incentives. Nevertheless, even after issuing such aggressive policies, the drive to adopt EVs in India has not been a great success and the reasons for this have been discussed below.
Pricing of EVs in India
The rate of adoption of EVs in India is moving sluggishly primarily because the EVs are not priced at par with ICE vehicles and come at a premium. This significantly impacts the purchase decision of buyers, more so in the lower-end car segment. Further, the high cost of batteries adds up considerably to the high price of EVs. To make things worse, these batteries are being imported from lithium-rich nations such as China, Japan, and Australia, to name a few, and come with the added import-cost tag to them, thereby making EVs unaffordable as compared to their ICE counterparts.
Potential steps to reduce the price of EVs
India needs to focus on building a supply chain, primarily, by manufacturing batteries domestically and bringing down the cost of EVs in India. Recently, Tesla Inc. has incorporated an Indian subsidiary Tesla India Motors and Energy Private Limited with an aim to eventually set up a manufacturing unit in India wherein Tesla cars will be locally produced. Similarly, India needs to attract foreign battery manufacturers as well as domestic players to set up local production facilities. Such measures would lower the cost of batteries and EVs, improving the cost competitiveness.
An instance of domestic investment aimed at reducing battery costs is a power company intending to set up India’s first lithium refinery to process lithium ore imported from Australia to produce battery-grade material. Further, 3 Indian state-run companies endeavour to purchase and hold mining assets overseas. These mines consist of minerals like lithium and cobalt, which are used for manufacturing batteries for EVs. A large lead-acid battery manufacturer in India has set up a technology hub in Andhra Pradesh to develop lithium-ion cells and plans to start manufacturing lithium-ion batteries locally.
In May 2021, the Government of India introduced a Production Linked Incentive Scheme (PLIS) for the manufacturing of ‘Advance Chemistry Cell’ in the country to incentivize local production of batteries and reduce dependence on imports. This would provide the necessary push to invest in the research and development of alternatives to lithium, which itself is a limited resource.
Lack of EVCI in India
The EV 100 members forming a part of the Climate Group’s EV 100 Initiative (a global initiative) to bring together companies that are committed to switch their fleets to EVs and to install EVCI for employees and customers by 2030) reported in the EV 100 Progress and Insights Report 2021, a lack of EVCI as the top barrier to EV adoption. In India as well, the reason for the protracted growth of the adoption of EVs is the lack of EVCI. In the world of e-mobility, EVCI is said to be the backbone. Considering this, inadequate EVCI leads to lower sales of EVs and vice-versa, making it a classic chicken-and-egg situation.
Potential steps to enhance EVCIs
With the roll-out of FAME II, the DHI allocated Rs 1,000 crore for setting up EVCI in India. The Ministry of Power vide its notification of April 13, 2018, has clarified that setting up public EV charging stations would not require a license under the Electricity Act, 2003 to transmit, distribute or trade in electricity. This was a welcome step reducing multifolds of regulator engagement.
Further, EVCIs are to be set up as per the Ministry of Power Notification of October 1, 2019, on the subject – Charging Infrastructure for Electric Vehicles –Revised Guidelines and Standards and as amended on June 08, 2020. The Guidelines and Standards prioritise the rollout of EVCI under two broad categories: (a) Phase I (with a target time period of 1-3 years) which focuses on developing EVCI in all Mega Cities with a population of 40 lacs or more and expressways connected to such Mega Cities and highways of significant importance; and (b) Phase II (with a target time period of 3-5 years) which focuses on capitals of state and union territory and any other highway which connects such mega cities.
To facilitate the establishment of EVCIs and to boost EV sales, the Guidelines and Standards provide: (a) to make private charging at residence or offices permissible; (b) a public EV charging station will be given electricity connection on a priority basis by the concerned power distribution company (DISCOM) (c) the public EV charging station can now obtain electricity from any generation company through open access channels and (d) to address the concern of EV users who face difficulty in finding EVCIs during long distance travel, the Guidelines and Standards recommend installing not less than 1 public EV charging station in a grid of 3 km x 3 km, and at a distance of 25 km on both sides of the highways or roads.
Recently, public sector undertakings operating in the Oil & Gas sector have agreed to set up 22,000 public EV charging stations in the next 3-5 years in the country. Additionally, for easy switching to EVs, the Ministry of Housing and Urban Affairs (MOHUA) has made amendments to the Model Building Byelaws, 2016. It provides for the setting up of EVCI based on occupancy pattern and total parking provision in the premises of various buildings. The aforesaid amendments will be applicable on a particular State subject to amendments made to its respective State building bye-laws.
Takeaway from State Policies
While the central government has incentivised setting up of EVCIs under FAME II, only some states have come up with an EV policy and many of these are still in the draft form.
Even if all states were to adopt policies for setting up of EVCI, the augmentation of the sector is contingent on the purchasing capacity of potential buyers, pricing of electricity, and availability of EVCI. Keeping such considerations in mind, certain policy measures adopted by some states that can be uniformally implemented, subject to their respective requirements, are as follows:
i) Capital investment subsidies: Several States provide concessions and exemptions on the supply end, like capital investment subsidies. For instance, one of the capital subsidies provided for by Andhra Pradesh is a subsidy of 25%(twenty five percent) of the charging infrastructure or equipment cost for the first100 (one hundred) private charging stations, up to a maximum subsidy of Rs.10,00,000 (Rupees ten lacs). These could be further enhanced in terms of value and time period.
ii) Electricity duty exemptions: Gujarat, amongst others, provides for a 100% (one hundred percent) electricity duty exemption to all EV charging stations to stimulate the installation and operation of such EV charging stations.
iii) Statutory fee and duty reimbursements: Karnataka, provides for reimbursement of land conversion fees for converting agricultural land for the setting up of EVCI to the tune of 100% (one hundred percent). It also provides fora 100% (one hundred percent) stamp duty exemption on lease deeds, lease-cum-sale, sub-leases, and sale deeds.
To support the growth of EVs in India, in addition to the demand incentives offered to buyers and the steps taken to reduce the cost of EVs and batteries, States should focus on increasing awareness amongst people in relation to the benefits of EVs over ICE vehicles. Such awareness programme should focus on the low cost of running and maintenance of EVs, zero-emission and assurance of availability of charging infrastructure, etc.
This paper has been written by Rachika A. Sahay (Partner) and Abhimanyu Pareek (Associate). First published by The Economic Times.
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