The 2019 Budget has an unprecedented announcement that few experts know how to interpret. The government has announced a Rs. 150K or US$ 2200 tax subsidy on electric vehicles (EVs). This a fantastic step towards creating a sustainable transport system. India is not the first country to implement such subsidies to ensure a greener, cleaner future of transportation. Norway, Sweden, Netherlands, US and China have all implemented similar schemes with Netherlands, at one point, prescribing a US $21,000 subsidy. These incentives, combined with a range of other factors, has led to an increase in EV sales and market share in these countries.
However, India is not in the same league as many of these countries. India has a significant power deficit and this deficit is grossly underestimated. I live in Noida and we face up to 8 hours of power-cuts during summer months, forcing us to survive on large diesel generators. According to the latest CEA data, during peak hours, as much as 175.52 gigawatt (GW) was supplied against demand of 177.02 GW leaving a deficit of 1.49 GW or 0.8 per cent in 2018–19. However, this does not consider the burgeoning demand for electricity not just in urban centers but also in rural areas. The Global Innovation Index ranks India 93rd in terms of KWH per capita. With Government’s promise of ‘total’ electrification of India by 2022, the demand in currently unserved markets will rise exponentially. In addition, majority of power produced in India is produced from non-renewable sources — 92% from coal.
High inefficiencies in electricity distribution, unstable and insufficient supply, dependence on inverters and diesel generators and lack of a network of ‘fast’ charging stations is a huge deterrent to EV demand in India. On the other hand, vested interests of oil companies, multi-billion-dollar existing investments in internal combustion engine (ICE) manufacturing plants and high cost of long-range Li-Ion batteries severely constraints supply of high-quality electric cars.
So, are electric vehicles viable in India and is the subsidy a sufficient incentive or just a small part of the solution?
Tax subsidies are a good measure as they will encourage both individuals as well as fleet owners (such as Ola and Uber) to consider EVs. However, it is an insufficient measure. There are three critical factors that will propel the advent of electric vehicles in India:
1. Availability of cost-effective, on-demand electricity (power surplus to power EVs)
2. Lower cost of batteries to ensure long distance travel / long interval charging (500–600 kms)
3. Incentive for ‘real’ electric car companies such as Tesla to manufacture and sell in India
And these are solvable problems, not in the long-term but within a fairly short span of time, if the government initiates a non-negotiable, holistic energy and transportation plan.
Solving for availability of cost-effective electricity (power surplus to power EVs): The solution lies in harnessing solar-power, combined with large-scale investment in battery production for power storage and on-demand distribution. While the cost of solar panels is considered a fundamental reason for lack of adoption of solar power in India, this a fallacy. The cost of solar power generation has been dropping dramatically over the last decade and the trend is likely to continue. In the United States, the cost of solar power generation has come down to US$ 50 per MW compared to $102 for coal and $125 for gas-based generation.
Unfortunately, despite the dreams of greener India, the government recently announced an increase in the tariff for import of solar panels. While the intent of this tariff increased was aimed at supporting domestic manufacturers, these lopsided policies indicate a lack of holistic, sustainable plan for meeting the power needs of India. Subsidizing electric vehicles cannot produce results without subsidizing solar panels. In addition, the government needs to make it compulsory for business and residential builders to cover at least 50–70% of the power needs through solar. Residential solar power generation can become cheaper than grid electricity within 3–4 years of use after amortizing the cost of hardware installation. In fact, most buildings have large back-up generators which could be replaced by battery back-up systems that support solar energy capture.
In addition, building large scale Li-Ion battery storage plants can help in improved on-demand distribution of electricity which current grids do not offer. Building and operating new utility-scale power storage is likely to become cheaper than operating under-utilized plants that cannot calibrate production with demand (and In India it can help avoid huge wastage of electricity and production capacity).
Lower cost of batteries to ensure long distance travel (500–600 kms): The big issue with ownership of electric vehicles is the range of the car (how far it can go on a single charge). Without the benefit of charging station (like the gas station infrastructure) and the long time required to change a car, battery range remains the number one demand constraint. And range is a function of cost.
As prices of battery decline, the cost per KW-hour reduces and makes EVs attractive. This is one of the reasons why Tesla, world’s largest EV makers, is building gigantic Giga factories to increase the volume production of Litium-Ion batteries and thereby drive down the cost. According to ARK Invest, a US based, investment firm, Li-Ion battery costs are dropping relentlessly and by 2023, it will be cheaper to produce an EV car than an internal combustion engine car. However, this needs investment and the government will need to encourage companies to set up battery production plants in India and drive down battery and EV costs alike.
And that brings us to the last piece of the puzzle. Incentive for ‘real’ electric car companies such as Tesla to manufacture and sell in India. For EV market to grow, India needs to engage with companies like Tesla and BYD who have the vision of an EV future. The traditional car manufacturers have vested interest in protecting their internal combustion engine plants. Globally, Tesla outsells traditional car companies 4 to 1 in electric cars. China has allowed Tesla to build a fully owned Giga Factory in Shanghai and provide a range of tax incentives and subsidies. India needs to unbind itself from the shackles of past investment models and tax regimes to create new ground by allowing new-age companies to operate. This will fuel competition, encourage local companies to enter the EV market and help in creation of infrastructure (such as charging station network) that helps customer confidence.
The government is making the right moves towards a sustainable future but more holistic energy planning and policy will help build the future that India deserves.