The transport sector accounts for 18 per cent of total energy consumption in India. This translates to an estimated 94 million tonnes of oil equivalent (MTOE) energy.
At the moment, this demand is being met mostly through imported crude oil, which therefore makes this sector vulnerable to the volatile International crude oil prices.
If India were to follow the current trends of energy consumption, it would require an estimated 200 MTOE of energy supply annually, by the year 2030 to meet the demand of this sector.
Moreover, the sector also contributes an estimated 142 million tonnes of CO2 emissions annually, out of which 123 million tonnes is contributed by the road transport segment alone.
While many countries have included EVs as an element of transportation policy, their responses have varied according to their stage of economic development, energy resource endowments, technological capabilities and political prioritisation of responses to climate change.
The prospect of rapid global temperature increase has created the need for a reduction in the use of fossil fuels and the associated emissions. India has committed to cutting its greenhouse gas emissions intensity by 33-35 per cent below 2005 levels by 2030.
It is important to introduce alternative means in the transport sector which can be coupled with India’s rapid economic growth, rising urbanisation, travel demand and country’s energy security.
The electric vehicle industry in India is far behind, with less than 1 per cent of the total vehicle sales.
The government of India has undertaken multiple initiatives to promote manufacturing and adoption of electric vehicles in India. With support of the government, electric vehicles have started penetrating in the Indian market.
The economics of vehicle electrification are improving, with battery pack prices decreasing from about Rs 75,000/kWh in 2010 to Rs 13,000/kWh in 2019.
Despite a dip in EV sales in 2020, due to the economic effects of COVID-19, confidence in India’s EV future will continue to grow as technology costs decline further, operators gain experience with EVs, and new business models prove their viability.
Many well-documented barriers to EV adoption remain, ranging from technology cost to infrastructure buildout to consumer behaviour.
The public and private sectors are diligently working together on solutions to each of these barriers. These solutions include:
• Production-Linked Incentive (PLI) Scheme, with an outlay of Rs 18,100 crore for the Advanced Chemistry Cell battery sector.
• Faster Adoption and Manufacturing of Electric Vehicles (FAME) India Scheme - Phase II with an outlay of Rs 10,000 crore for the deployment of charging infrastructure.
According to a report by NITI Aayog and Rocky Mountain Institute, the quantum of capital and finance required for India’s EV future is considerable. Between 2020 and 2030, the estimated cumulative capital cost of the country’s EV transition will be Rs 19.7 lakh crore — across vehicles, electric vehicle supply equipment (EVSE), and batteries (including replacements).
Multi-stakeholder collaboration and innovative solutions are needed to access low-cost financing at this scale. Innovations in finance and technology can accelerate the country’s shift to shared, electric, and connected mobility.
Advantages of electric mobility
Electric mobility presents a viable alternative in addressing various challenges, when packaged with innovative pricing solutions, appropriate technology and support infrastructure.
Electric mobility will also contribute to balancing energy demand, energy storage and environmental sustainability. Electric vehicles could help diversify the energy needed to move people and goods, thanks to their reliance on the wide mix of primary energy sources used in power generation, greatly improving energy security.
With its storage capacity, they could help support the uptake of clean energy. If coupled with the decarburization of the power sector, electric vehicles would also provide major contributions to keep the world on track to meet its shared climate goals.
Electric mobility comes with zero or ultra-low tailpipe emissions of local air pollutants and much lower noise, and, by being one of the most innovative clusters for the automotive sector, can provide a major boost to the economic and industrial competitiveness, attracting investments, especially in countries.
India’s electric mobility opportunity
India has signalled that the future of mobility is electric. The country’s EV transition is gaining traction due to certain factors.
1) Demand Creation
In 2015, the department of heavy industry launched its flagship incentive programme, the FAME India Scheme, to accelerate EV adoption.
FAME I supported 2.8 lakh electric and hybrid vehicles, with demand incentives totalling about Rs 970 crore — saving nearly 7 crore litres of fuel and abating over 17.2 crore kg of CO2.
FAME II began in April 2019, with an outlay of Rs 10,000 crore. It aims to drive large-scale adoption of EVs and charging infrastructure and develop a robust domestic EV ecosystem. EVs eligible under FAME II can cumulatively save 74 lakh tonnes of carbon dioxide emissions over their lifetime.
At the central level, multiple interventions are being implemented to support demand creation. Some examples are:
• The Goods and Services Tax (GST) on EVs sold with batteries was reduced from 12 to 5 per cent.
• The ministry of road transport and highways exempted EVs from permit requirements and recommended that states reduce or waive road taxes for EVs.
• Additionally, the ministry of housing and urban affairs amended the Model Building ByeLaws, 2016, to establish charging stations in private and commercial buildings.
2) State EV policies
At the subnational level, 10 states have notified EV policies that are being implemented, while six others are drafting their EV policies.
3) Domestic manufacturing
Under the FAME II guidelines, incentives are available only for EVs with a predefined level of localisation. The goal is to promote domestic component manufacturing. The industry shows promise, with OEMs introducing a range of new EV products over the past year.
Several states, such as Karnataka and Maharashtra, have also made manufacturing a focal point of their state EV policies, by offering fiscal benefits to create EV clusters.
In addition, the National Mission on Transformative Mobility and Battery Storage was approved in March 2019. Its goal is to increase domestic battery manufacturing and accelerate the adoption of e-mobility.
Its focus areas include creating roadmaps for Advanced Chemistry Cell (ACC) battery manufacturing, formulating phased manufacturing programmes (PMP) for batteries, developing Corporate Average Fuel Economy (CAFE) norms, and leveraging Make in India.
The Union Cabinet recently approved the PLI scheme to encourage ACC manufacturing with an outlay of Rs 18,100 crore.
Simultaneously, the market for electric mobility in India is growing, enabled by policy, compelling and improving economics, and the emergence of new business models and investment opportunities.
According to NITI Aayog’s analysis of future passenger and freight vehicle sales, India’s weighted-average EV sales penetration has the potential to be about 70 per cent in 2030. This value is based on forecasted cost competitiveness and expert interviews.
Barriers to EV adoption
Despite improving economics and growth across the ecosystem, many well-documented barriers to EV adoption in India remain.
1) Technology cost: In a few segments, the high upfront cost of EVs is slowing adoption despite the potential for lower total cost of ownership (TCO). There is an ongoing need to further reduce the upfront cost and TCO in many use cases through various instruments.
2) Policy implementation: National-level policy can be complemented with added fiscal incentives at the state level. Non-fiscal incentives will also be important in developing a favourable operating environment and customer confidence for EVs.
3) Manufacturing and supply: Despite growing product diversity, there is still a need for greater customised product and model availability, and more fit-for-purpose models. Further, more domestic manufacturing of advanced batteries and cells, battery management systems, electric motors, motor controllers, and other components is needed. Original equipment manufacturer (OEM) capital has recently focused on the migration of internal combustion engine vehicles to Bharat Stage VI (BSVI) standards, while the industry is experiencing lower sales due to COVID-19. This is hampering supply-side investment in EVs.
4) Infrastructure buildout: The introduction of advanced batteries and longer-range vehicle modes can address customer concerns about range. Alongside these developments, electricity distribution companies (discoms), charging service providers, and other actors can focus on building robust charging infrastructure networks. Using smart technology that communicates with the electric grid will unlock additional value from demand-side management.
5) Consumer behaviour: Demand for more affordable EV products is expected, as consumers reduce spending in the short term due to COVID-19. This potential shift in consumer preferences may affect manufacturers’ investment and production decisions.
In addition to these commonly discussed barriers, access to low-cost finance is still a formidable barrier that warrants multi-stakeholder attention and innovative solutions.
Improving access to attractive financing products can be key to drive EV demand.
High financing cost and uncertainty around long term economics — including resale value — remain both real and perceived issues for financial institutions.
There are risks associated with the nascency of the electric mobility ecosystem. They have given rise to problems such as high interest and insurance rates, low loan-to-value ratio, and limited financing options for retail customers. This may lead to unsecured borrowing from the unorganised sector at even higher rates.
Charging infrastructure for electric vehicles
Availability of adequate charging infrastructure is one of the key requirements for accelerated adoption of electric vehicles in India.
In this regard, the ministry of power has issued ‘Charging Infrastructure for Electric Vehicles – Guidelines and Standards’ mentioning the roles and responsibilities of various stakeholders at central and state level, for expediting the development of public EV charging infrastructure across the country.
The ministry has designated the Bureau of Energy Efficiency (BEE) as the central nodal agency for the national-level rollout of charging infrastructure in the country.
Energy Efficiency Services Limited (EESL) is developing Electric Vehicle Charging Infrastructure and has signed MoUs with multiple stakeholders across municipalities, discoms for locational assessment study and setting up of charging infrastructures in their jurisdiction location.