Electric Vehicles in India: Challenges & Opportunities

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Electric vehicles (EVs) are no longer science fiction. Scientific achievements in this space have led to the mainstreaming of EVs in the United States, Israel and some European countries. India isn’t …

Electric vehicles (EVs) are no longer science fiction. Scientific achievements in this space have led to the mainstreaming of EVs in the United States, Israel and some European countries. India isn’t far behind either with Mahindra-Reva, Hero Electric and other domestic OEMs leading the front. Durable lithium ion batteries, fast charging networks, efficient chassis design and electric drive trains are key links in the EV value chain and extensive technological progress has been made in all these areas. However, for EVs to truly lead GhG reduction in Indian Industry and have a positive impact on the country’s energy security, the integration of smart grids and renewable energy feeds into these grids are a must. In fact, without these two critical components, the introduction of EVs into the current ecosystem would be an ecological burden and lead to greater GhG emissions since energy will be derived from a predominantly coal powered and inefficient energy grid.

Therefore, this study undertaken by YES BANK and TERI-BCSD critically analyses the EV value chain, identifying hidden triple bottom line risks and highlighting innovative clean technologies and business models that mitigate those risks, thereby making the value chain more attractive from lending and investment perspectives. The paper also concludes with a sobering and pragmatic analysis of the current and projected EV scenario in India versus the internal combustion engine.

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  • 1. TITLE Electric Vehicles: Challenges & Opportunities in IndiaYEAR January 2013 Lead authors : Samir Karnik, Nitin Sukh (Responsible Banking Team, YES BANK) Contributors : Agneev Mukherjee, Sarobjit Pal, Akshima Tejas Ghate,AUTHORS Sangeetha Ann Wilson (TERI BCSD) No part of this publication may be reproduced in any form by photo, photoprint,COPYRIGHT microfilm or any other means without the written permission of YES BANK Ltd. and TERI BCSD. This report is the publication of YES BANK Limited (“YES BANK”) & TERI BCSD and so YES BANK & TERI BCSD have editorial control over the content, including opinions, advice, statements, services, offers etc. that is represented in this report. However, YES BANK & TERI BCSD will not be liable for any loss or damage caused by the readers reliance on information obtained through this report. This report may contain third party contents and third-party resources. YES BANK & TERI BCSD takes no responsibility for third party content, advertisements or third party applications that are printed on or through this report, nor does it take any responsibility for the goods or services provided by its advertisers or for any error, omission, deletion, defect, theft or destruction or unauthorized access to, or alteration of, any user communication. Further, YES BANK & TERI BCSD does not assume any responsibility or liability for any loss or damage, including personal injury or death, resulting from use of this report or from any content for communications or materials available on this report. The contents are provided for your reference only. The reader/ buyer understands that except for the information, products and services clearly identified as being supplied by YES BANK & TERI BCSD, it does not operate, control or endorse any information, products, or services appearing in the report in any way. All other information, products and services offered through the report are offered by third parties,DISCLAIMER which are not affiliated in any manner to YES BANK & TERI BCSD. The reader/ buyer hereby disclaims and waives any right and/ or claim, they may have against YES BANK & TERI BCSD with respect to third party products and services. All materials provided in the report is provided on “As is” basis and YES BANK & TERI BCSD makes no representation or warranty, express or implied, including, but not limited to, warranties of merchantability, fitness for a particular purpose, title or non – infringement. As to documents, content, graphics published in the report, YES BANK & TERI BCSD makes no representation or warranty that the contents of such documents, articles are free from error or suitable for any purpose; nor that the implementation of such contents will not infringe any third party patents, copyrights, trademarks or other rights. In no event shall YES BANK & TERI BCSD or its content providers be liable for any damages whatsoever, whether direct, indirect, special, consequential and/or incidental, including without limitation, damages arising from loss of data or information, loss of profits, business interruption, or arising from the access and/or use or inability to access and/or use content and/or any service available in this report, even if YES BANK & TERI BCSD is advised of the possibility of such loss. YES BANK Ltd. TERI-Business Council for Sustainable Development (BCSD) Registered and Head Office The Energy and Resources Institute (TERI) 9th Floor, Nehru Centre, Core 6C, Darbari Seth Block, Habitat Place Dr. Annie Besant Road, India Habitat Center, Lodhi Road Worli, Mumbai - 400 018 New Delhi - 110 003 Tel : +91 22 6669 9000 Tel : (+91 11) 2468 2100, 41504900 Fax : +91 22 2497 4088 Fax : (+91 11) 2468 2144, 2468 2145CONTACTS Email : bcsd@teri.res.in Northern Regional Office Website : www.teriin.org/bcsd 48, Nyaya Marg, Chanakyapuri New Delhi – 110 021 Tel : +91 11 6656 9000 Email : responsible.banking@yesbank.in Website : www.yesbank.in
  • 2. MESSAGEThe traditional approach of the banking sector to sustainability is often regarded as lacking in proactiveinitiatives. However, several banks have recently adopted innovative and forward looking strategies to dealwith opportunities associated with sustainability. They have developed new products such as ethical fundsor loans specifically designed for environmental businesses to capture new market opportunities associatedwith sustainability. This very joint endeavor between TERI BCSD and YES BANK to explore Electric Vehiclesas an option of sustainable mobility that has the capability to significantly lower emission levels includingcarbon dioxide emissions which is an encouraging beginning.Rapid urbanization, rising per capita incomes, growing aspirations of an expanding population and sprawlingcities have resulted in transport demand increasing at a rate much faster than the rate of growth of transportinfrastructure. Indian cities are witnessing an exponential increase in the use of personal transport and asteady decline in the modal share of both public transport and non-motorized transport. There is a growingrealization, both internationally and nationally, that the current trends in urban transport are unsustainableand should be arrested. Urban transport should move along a low carbon and sustainable pathway. Severalinternational initiatives like the SLOCAT (The Partnership on Sustainable, Low Carbon Transport), and majorevents like the United Nations Conference on Sustainable Development, 2012 (Rio+20), etc. havehighlighted the challenges associated with meeting urban mobility demand in a sustainable manner. In India,the National Urban Transport Policy, 2006 aims to move future transport development in Indian citiestowards a sustainable and low carbon trajectory. Current policy promotes investments in public transportand non-motorized transport infrastructure so as to advance the agenda of sustainable mobility. While itbecomes important to plan for systems of public transport, and non-motorized transport for promotingsustainable mobility, it is also critical to ensure that personal modes of transport i.e. cars and two wheelersembody energy efficiency and low-carbon intensity. This is important because we are going to witness anexplosive increase in the number of personal vehicles in our country. It is therefore crucial that the newvehicular fleet in the country produces low environmental impacts.Electric vehicles, though not yet popular in India, are an important solution to addressing the issue ofvehicular pollution. The country has recently witnessed the unveiling of the National Electric MobilityMission Plan 2020 by the Honble Prime Minister, Dr Manmohan Singh. This move is significant at thisjuncture considering the country cannot continue its heavy dependence on personal modes, which run onpetroleum products (petrol and diesel) with implications for Indias energy security and CO2 emissions. It isimportant that we diversify our fuel mix in favour of clean fuels. Electrification of vehicles certainly offerssuch potential provided the electricity is generated from clean sources of energy. Going forward, it is veryimportant that any plan for electric vehicles is implemented in an integrated manner in consonance with ourplans for electricity generation and distribution and urban infrastructure planning. Major R&D initiatives areneeded to ensure that the penetration of electric vehicles is accelerated. All key stakeholders includingindustry, government, and financial institutions will have to work together in this endeavour.I compliment YES BANK for undertaking this study and for publication of this Knowledge Paper.Dr R K PachauriDirector-General, TERI
  • 3. FOREWORDThis well-researched knowledge paper advocates the incremental transition of privatetransportation in India - from being driven by the internal combustion engine to electric drivetrains.YES BANK and TERI BCSD are of the strong view that this revolution in Indian personaltransportation will open up significant business avenues, and corresponding financingopportunities. It will also address the critical issues of Indias long term energy security andreduce the environmental impact of fossil fuel driven vehicles, though only at the tailpipe.However, there are some ground realities in India and globally that will remain long termchallenges for the widespread uptake in electric vehicles (EV). The technology which makescomplete electric mobility possible and financially viable, from an Original EquipmentManufacturers (OEMs) perspective, already exists in the Indian scenario. Technologyimprovements in battery capacity, fast charging facilities and vehicle range are rapid and dynamic,with many OEMS and other companies in the EV value chain already investing significant amountsin research and development (R&D), and scaling manufacturing capacities. EVs have arrivedglobally and most certainly in India with companies like Mahindra REVA championing the EV fourwheeler (4W) space and Hero Group dominating the EV two wheeler (2W) segment.The rising price of crude in the international market has become an energy security concern forthe country. Are EVs the silver bullet to securing Indias energy future and reducing carbonemissions of its transportation sector? This is a difficult question to explicitly answer. While on onehand, the mainstreaming of EVs will dramatically reduce Indias reliance on imported crude oil, onthe other hand, EVs, if disruptively introduced, will be charged by Indias crumbling and inefficientelectricity grid which is predominantly powered by imported coal. Therefore, whether EVs willstrengthen Indias energy and climate security is a catch 22 question, in case the status quoremains. The question then is - How do we change the status quo? For this, there is a need for acomprehensive policy roadmap towards private vehicle electrification wherein the financial sectorand Government of India (GoI) play interdependent roles to develop critical and enabling EVinfrastructure and incentivize OEMs and organisations along the value chain, to innovate andcollectively work towards introducing EV 4W & 2W EV variants, thereby giving the consumer achoice.I firmly believe that the contents of this knowledge paper will provide important insights to policymakers in achieving a smooth and incremental transition to EVs, thus ensuring Indias long termenergy security.Thank You.Sincerely,Rana KapoorFounder, Managing Director & CEO
  • 4. PrefaceThe findings of this paper will be of particular interest to 3 key stakeholders: The financial sector, policymakers and the automobile industry.For the Financial Sector:The premise of this paper is that the financial sector will not fund companies that fall in a value chainwhose risks and business models are not fully understood. Therefore the key objective of the paper isto clearly outline the EV value chain, the perceived risks along the value chain and highlight somefinancial tools and business solutions that could be modified specifically for de-risking and thereforefacilitate the financing of EV growth in India.For the Indian Government and Policy Makers:Our key insight emanating from this report is that the Indian customer does not need to be directlyincentivized by the Government of India (GoI) and State Governments to buy EVs, as is currently thecase. The Indian consumer is price, fuel economy and style conscious and will therefore appreciate thelong term savings of EV versus Internal Combustion Engine (ICE). In which case, growth of the EVvalue chain must be fuelled by organic consumer demand, and not pushed by unsustainableGovernment subsidies for consumers, to drive EV purchases. This would defeat the purpose ofreducing strains on Indias Balance of Payments. Organic consumer demand can only be fostered bythe Government, working in collaboration with the private sector to invest in an economically enablingenvironment for rapid EV adoption, which entails the following:• Develop Clean & Energy Efficient fast charging infrastructure – Consumers will not buy EVs if they are unable to charge them whilst in urban transit. Range anxiety inhibits the consumers decision making process and this is well documented by numerous reports. Therefore, the Government must invest in clean & energy efficient fast charging infrastructure that will perceptually give urban consumers the comfort in buying EVs. Clean & Energy efficient fast charging infrastructure will comprise of, in a phased manner, smart grids and metering, renewable energy (RE) feeds and fast charging ports. Smart grids will not only accommodate EV charging point applications, but will also reduce energy wastage by the grid in general. EVs will not mainstream in India until and unless primary yet significant GoI led investments are made firstly in smart grid adoption, followed by plug in applications like RE feeds & fast charging ports. Direct GoI investments and public private partnership (PPP) models can be explored accordingly to hive off the financial investment component to the private sector.• Financially incentivise Indian Banks to fund India EV OEM manufacturers, Battery R&D, Fast charging R&D & Smart grid projects – Launch a Government sponsored fund, inviting applications from commercial banks, specifically for low interest forward lending, partial project risk guarantees and co-equity investments.For Indian Automobile companies:PRUDENCE - Innovate and take incremental steps towards full automobile electrification. Competitionin the Indian EV and hybrid market will transform the Indian consumers perception in the years tocome where foreign competitors and early bird Indian companies will grab dominant 4W EV & 2W EVmarket shares.
  • 5. CONTENTS1 Introduction: The Case for Sustainable Personal Transport in India 1 1.1 Energy Security 3 1.2 Climate Change 5 1.3 Road Transport Emissions in India 6 1.4 Trends in Personal Road Transport in India 7 1.5 Modal Shifts 92 Sustainable Personal Transportation 13 2.1 Technological Innovations in Low-Carbon Transport 14 2.2 Pathway to Zero-Emission Vehicles 203 The Electric Vehicle Value Chain 23 3.1 Raw Material Suppliers 24 3.2 Traditional Component Suppliers 25 3.3 Battery Manufactures & Suppliers 25 3.4 Original Equipment Manufacturers (OEMs) 26 3.5 Utilities 26 3.6 The Electric Vehicle Ecosystem 274 Policies Promoting Electric Vehicles in India 31 4.1 Initiatives by the Ministry of New and Renewable Energy 32 4.2 Initiatives in the 2011-2012 Budget 33 4.3 Initiatives by the Ministry of Heavy Industries 33 and Public Enterprises 4.4 Government Agencies to take up EV Mobility in India 34
  • 6. CONTENTS5 Development of EV Charging Infrastructure in India 37 5.1 EV Charging Infrastructure: Past Efforts 38 5.2 Comparison with Compressed Natural Gas (CNG) 39 Infrastructure 5.3 Indias Power Sector 39 5.4 Smart Grids 41 5.5 Requirements for Smart Grid Deployment 436 Emerging Business Models 45 6.1 Direct Vehicle Sales 46 6.2 EV Leasing 47 6.3 Battery Leasing and Swap Schemes 47 6.4 Infrastructure Service Models 487 Analysis and Thought 51 7.1 Short Term Horizon 52 7.2 Long Term Horizon 52 7.3 Concluding Thoughts 54
  • 7. Introduction: The Case forSustainable Personal Transport in India
  • 8. Introduction: The Case for Sustainable Personal Transport in India “The mobility model we have today will not work tomorrow” - Bill Ford, great-grandson of Henry Ford and Executive Chairman of the Ford Motor Company Indias population is expected to surpass that of Chinas in 2030, making it the most populous county in the world. High economic growth rates and the impacts of globalization have concentrated prosperity in urban centers resulting in sprawl and auto-mobilization. Within 15 years the population residing in urban areas is expected to double to over 700 million [1] due to distressed rural to urban migration and other factors. This will place additional pressures on urban infrastructure, which is already overburdened. Projections indicate that by 2021 India will have the largest concentration of megacities in the world with a population exceeding 10 million. Out of a total of 88 cities, with a population of more than half a million in 2011, only 28 have any formal public transportation system. In most cases, the existing public transport systems are ageing and stretched beyond capacity, as the demand for public transport services outstrips supply, both qualitatively and quantitatively. As disposable income increases, a result of economic growth, those entering the middle-class are able to afford and prefer personal vehicles, as it is a symbol of upward social mobility, and also provides greater comfort, flexibility and convenience. In the absence of proper planning measures, the dynamics between increasing numbers of vehicles as well as a growing population wanting to use private vehicles for transport are likely to pressurize transport infrastructure, leading to inefficiencies as a result of infrastructural bottlenecks such as traffic congestion, gridlocks and slower train speeds. This would result in higher traffic management costs and greater energy consumption, therefore significantly increasing carbon emissions from transportation. The growth in motor vehicles is much faster than the population and faster than the GDP with 5% annual growth in motorcycles/scooter and 14% annual growth in cars [2].2 Electric Vehicles in India: Challenges and Opportunities
  • 9. If current ICE uptake trends continue, developing countries like India are faced with unsustainablefutures that are likely to have negative triple bottom line impacts. Considering the stage ofeconomic development in India, the country has a unique opportunity to develop sustainably bymanaging emissions growth, enhancing energy security and by supporting the creation of a worldclass clean-technology industry. The time is ripe to explore a range of potentially promisingsolutions to redirect the economy towards a path which is sustainable and secure.1.1 Energy SecurityBeginning with economic liberalization in 1991, the consistent growth and globalization of theIndian economy thereafter, energy consumption in India has grown exponentially. Increasingurbanization, infrastructural development and concentration of economic activities in certain loadcenters have resulted in higher mobility fuelled by a rapid increase in number of vehicles anddistances travelled. The growing demand for energy is being addressed largely though oil imports,where India is currently the 5th largest oil importer in the world. India simply does not possessadequate oil reserves to meet current and future demand. 72% of the oil consumed in India in2007 was imported and this is projected to rise sharply to over 90% by 2030 [3]. High oil pricesresult in negative feedback loops that weaken stock prices and tighten fiscal conditions, therebydepressing economic growth in the long term.The growth of the Indian economy is impacted by the price of oil imports, which tends to beextremely volatile and sensitive to economic and political shifts. As a result of the globalrecession, oil prices rose to a record peak of INR 7 ,830 per barrel (USD 145) in July 2008 (Exhibit1) and the Brent Crude oil price hit INR 5,400 per barrel (USD 100) on 31st January, 2011 due tothe political upheaval in Egypt [4]. The growth in demand for oil from BRICS (Brazil, Russia, India,China & South Africa) nations and other emerging economies coupled with a decrease in thediscovery of new exploitable oil fields will push up oil prices up over the next few decades. Thiswould further exacerbate the budget deficit, dampening economic growth.Exhibit 1: Oil price fluctuations (USD), 1987 – 2011 [19] 140 Nominal Real (April 2011 US dollars) 120 May 1987-April 2011 monthly average Brent spot prices Conversion to April 2011 dollars uses US CPI for AII Urban Consumers (CPI-U) 100 80 60 40 20 0 Jan 2011 Jan 2001 Jan 2002 Jan 2003 May 1987 Jan 2010 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2000 Jan 1988 Jan 1989 Jan 1990 Jan 1991 Jan 1992 Jan 1993 Jan 1994 Jan 1995 Jan 1996 Jan 1997 Jan 1998 Jan 1999 Jan 2004Source: IEA (International Energy Agency), (2009), Key World Statistics Electric Vehicles in India: Challenges and Opportunities 3
  • 10. The transport sector is a key consumer of oil and oil products. More than 50% of the oil consumption in India occurs on account of transport-related activities [85]. The World Energy Outlook has estimated that most of the increase in oil consumption by 2030 in India will be driven by light-duty vehicles, mainly passenger cars – growing at an annual rate of approximately 10% (Exhibit 2) [5]. Exhibit 2: Energy usage worldwide, industry break up and light duty vehicle depictions [19] PROJECTED INCREMENTAL OIL TOTAL STOCK OF LIGHT-DUTY DEMAND BY SECTOR, 2006-30 (MTI) VEHICLES BY REGION (bn) 2.5 x3 600 2.0 Africa Latin America 400 Middle East 1.5 India x2 Other Asia 200 China 1.0 Eastern Europe EECCA 0 OECD Pacific 0.5 OECD Europe -200 Transport Industry Non-energy Other OECD N. America USE 0 Rest of world Other Asia India 2000 2010 2020 2030 2040 2050 China OECD Source: IEA (International Energy Agency), (2009), Key World Statistics A significant question to ask at this juncture is whether the world can continue generating a sufficient supply of oil in the coming decades to accommodate the rise in demand from emerging economies like India and China, without hampering environmental quality? Until recently Governments and businesses have ignored the phenomenon of peak oil. Peak oil refers to the point at which the maximum rate of global oil extraction is reached. However, there has been growing acceptance of peak oil in the public domain, where both Governments and businesses have been exploring alternative sources of energy supply, primarily renewable sources like solar, wind, hydro, geo-thermal and nuclear energy. The oil industry is beginning to realize that we have crossed “the era of easy oil, (and) in the future oil will be dirtier, deeper and far more challenging (to extract)”[5]. Technologies that have the potential to phase-out oil dependent forms of transportation should be actively pursued to gauge their feasibility.4 Electric Vehicles in India: Challenges and Opportunities
  • 11. 1.2 Climate ChangeClimate Change has emerged as one of the most pressing issues for Governments andpolicymakers. This issue has drawn unprecedented global collaboration between scientists andpolicy makers through the United Nations Framework Convention on Climate Change (UNFCCC)treaty that has been signed by 194 nations (as of May, 2011). According to the Fourth AssessmentReport of the United Nations Intergovernmental Panel on Climate Change, warming of the planetis unequivocal and it is very likely that the rise in global average temperatures is due to theobserved increase in anthropogenic greenhouse gas (GhG) concentrations [6].The World Meteorological Organization (WMO) reported that 2010 was the hottest year onrecords since 1880, tied with 2005, and the difference was less than a margin of uncertainty [7].This is evidence of a warming trend that continues to be strengthened (Exhibit 3). Consensusamong the scientific community tells us that we must reduce greenhouse gases by 50% by 2050to prevent the worst impacts of climate change [8].Exhibit 3: Global temperature anomalies (°C) [6] Global Temperature Anomalies 0.6 0.4 0.2 0 -0.2 -0.4 -0.6 1880 1900 1920 1940 1960 1980 2000 YearSource: IPCC (Intergovernmental Panel on Climate Change), (2007), Summary for Policy MakersSince the transportation sector is one of the largest and fastest growing sources of GhGemissions, decoupling growth in transport from increasing GhG emissions presents a clearchallenge for policy makers in India. EVs, in particular, can have a significant impact towardscutting down demand for oil imports and reducing carbon emissions arising from roadtransportation, only if electricity is derived from hydro and renewable [9]. Electric Vehicles in India: Challenges and Opportunities 5
  • 12. 1.3 Road Transport Emissions in India India is the fourth largest GhG emitter in the world. The transport sector is the fourth largest contributor of greenhouse gases in India with a share of 7 .5% of the emissions in the country preceded by electricity generation (37.8%), agriculture (17.6%) and industry (8.7%) [11]. India has witnessed a 200-fold increase in vehicle numbers between 1951 and 2011. Road transport is the largest contributor of GhG emissions and was responsible for 87% (123.5 Mt CO2e) of the total emissions arising from the transport sector in 2007 Currently passenger . vehicles that include two wheelers and four wheelers are responsible for about 30% to 35% of the total road transport emissions (Exhibit 4). Exhibit 4: Road Transport: CO2e emissions by Fuel type – 2007 [12] 2% 15% Buses/Cars/Taxi/3W (CNG+LPG) 2W/3W (Petrol) 55% Cars/Taxi/Jeep (Petrol+Diesel) 28% Commercial Vehicles: Trucks/Buses/LCV (Diesel) Source: Transport Sector: Greenhouse Gas Emissions 2007 Central Road Research Institute, New Delhi, INCCA , Over the next decade, the number of passenger vehicles on the road is expected to rise sharply, approximately 14% y-o-y. According to the IEA/SMP transportation model reference case (using 2003-04 as the base year), emissions from passenger cars are likely to grow at 5% per annum in India [13]. Even if engine efficiencies improve, the sheer growth in the number of vehicles on the road would lead to an absolute increase in GhG emissions from road transport.6 Electric Vehicles in India: Challenges and Opportunities
  • 13. Exhibit 5: Expected growth in CO2 emissions in India from different transportmodes [13] 800 700 Water 600 Frieght rail Freight trucks Megatonnes C O2 500 Air Pass rail 400 Buses 3-wheelers 300 2-wheelers Pass cars 200 100 0 0 10 20 30 40 50 5 15 25 5 5 0 0 3 4 20 20 20 20 20 20 20 20 20 20 20Source: Mobility at What Cost?,InfoChange Agenda1.4 Trends in Personal Road Transport in IndiaThe Indian road network is the second largest in the world, covering 3.34 million kilometers whereas much as 80% of passenger traffic is carried by the roads [14].The high growth rates of the Indian economy have resulted in an unprecedented rise in disposableincomes and this has contributed towards a burgeoning automotive industry. With the Indianeconomy projected to grow at an average of 8-9% per annum over the middle term, thepercentage of Indian consumers that are able to afford vehicles is likely to increase. Yet, Indias carper capita ratio (i.e. number of cars per 1000 persons) is the lowest among the worlds five largestautomobile markets (Exhibit 6), pegged at 18 cars per 1000 people. The share of public transporthas been declining slowly as a result of the growth in private vehicle ownership, fuelled byexpanding urbanization and affluence. Electric Vehicles in India: Challenges and Opportunities 7
  • 14. Exhibit 6: Cars per 1,000 population (country breakup) & socio economic strata growth in India [15] Cars per, 000 population (2007) Number of households (000) 800 41 -6% Germany 600 Italy 65.2 Spain France 140.7 USA 3% 400 UK Japan 109.2 200 Russia Brazil 16% 46.7 India 13.8 China 2001-02 2009-10 0 20 40 60 140 High Income Middle Income Mn. Cars (2007) (>Rs, 180K per month) (INR 45K per month) Low Income (<INR 45K per month) Source: The Indian Automotive Industry: Evolving Dynamics, KPMG India Existing transport infrastructure has however, proven to be grossly inadequate to meet these demands. The reason for the same is reflected in a study conducted by the Ministry of Urban Development, Government of India and Wilbur Smith Associates [16]. The study estimated that total intra-city passenger transport activities (passenger kilometers) across 87 cities, including state capitals and cities with populations greater than 0.5 million (2008), was growing at a rate of about 5.5% per annum between 2007-11 as compared to a population growth rate of about 2.6% per annum in the same period of time. It is estimated that the increase in passenger activities would continue to grow at an even higher rate of about 7 .6% per annum between 2011 and 2031. The dynamic interactions between personal vehicle penetration, rising incomes, increasing affordability of cars and expanding export opportunities is expected to position the Indian automobile industry for growth. The Indian automobile industry has recovered from the recession registering record sales in 2009-10 and it contributed almost 4% of Indias Gross Domestic Product [15] and recent estimates suggest that the output of the industry is expected to reach 4 million units by 2013 [17] supported by infra structural developments and favorable Government policies. The automotive market remains cost-conscious in India. The primary decision point for car buyers in India continues to be the upfront purchase price of vehicles, whereas fuel efficiency has historically been a secondary concern, though the implied effect is evident due to a preference for small and cheap cars. Having stated that, the luxury car market in India has shown compounded annual growth rate of 30-40% over the last 4 years [18]. This statistic challenges the notion that the Indian consumer will remain predominantly price conscious in the long term. However, as fuel costs rise, we can expect increasing consumer importance and emphasis on fuel efficiency in purchase decisions.8 Electric Vehicles in India: Challenges and Opportunities
  • 15. 1.5 Modal ShiftsThe rapid growth of demand for passenger mobility in Indian cities has not been matched by anequal increase in supply of transport infrastructure and services. This has resulted in the increaseduse of private vehicles across most urban centres accompanied by declining share of publictransport systems. In addition, with expanding cities, the share of pedestrians, cyclists and non-motorized transport users has also fallen, as seen in Exhibit 7 8 and 9. ,Exhibit 7: Growth in passenger vehicles Exhibit 8: Change in public transportin India (mn) from 1981 to 2009 shares between 1994 to 2007 [16] Growth of registered motor vehicles in India Share of public transport in India 90 80 Two-wheelers 70 1994 2007 80 Cars, jeeps, taxis 60 PT share (%) 70 Buses 60 50 50 40 40 30 30 20 20 10 10 0 0 <0.5 0.5 to 1 1 to 2 2 to 4 4 to 8 >8 1981 1991 2001 2009 City population size (in million)Source: MoRTH Yearbooks Source: WSA (Wilbur Smith Associates) & MoUD (Ministry of Urban Development), (2008), Study on Traffic & Transportation Policies and Strategies in Urban Areas in India, as cited in TERI, (2012)Exhibit 9: Changing shares of walk trips between 1994 and 2007 [16] 60 1994 2007 % Share of 40 walktrips 20 0 <.5 .5-1 1-2 2-4 4-8 Above 8 City population size (in mn)Source: WSA (Wilbur Smith Associates) & MoUD (Ministry of Urban Development), (2008), Study on Traffic & Transportation Policiesand Strategies in Urban Areas in India, as cited in TERI, (2012)In India, the transportation sector is responsible for nearly 20% of the total energy consumptionand is the second largest consumer of energy in the country after industry [19]. A significantamount of road based passenger transport activities in the country are concentrated in cities. Theon-road passenger transport activities in urban India are responsible for nearly 40% of the totalenergy consumption in road passenger transport sector [20]. Electric Vehicles in India: Challenges and Opportunities 9
  • 16. The current trends in urban transport, which are primarily a result of the inability of Indian cities to meet the increasing transport demand in a planned manner, have resulted in local problems related to congestion, deterioration of air quality, increase in number of road fatalities and accidents and loss in economic productivity. The congestion levels in many Indian cities have reached unmanageable proportions, the average vehicle speeds dropping down to as low as 10 km/hour in many cities. This leads to higher fuel consumption due to low speeds and vehicle idling [21]. Considering an oil constrained future and the high emission levels associated with the transport sector, it is therefore important to reduce the use of petroleum dependent private vehicles in the country. In the 1950s and early 1960s, private vehicles were less in number and road transport served as a mode complimentary to public transportation. By the late 1990s the share of road transport in cities was as much as 80% in passenger traffic [21]. The modal split has shifted in favor of road transport, away from energy efficient modes like railways and buses that have a lower carbon footprint. For example, in Delhi the modal share of public transport has dropped from 60% in 2000 to 43% in 2008 [22]. This is a likely trend not only in most megacities but also Tier II and Tier III cities that are characterized by poor transport services and infrastructure. Only 20 cities in the country have an organized public bus service [23], which in most cases are inadequate leading to an increased dependence on personal modes of transport. Exhibit 10: Comparison of Vehicular Growth with Population Growth 140000 120000 100000 80000 60000 40000 20000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Population** 102874 102761 104353 106002 108900 110600 112200 113800 115400 Public Buses* 114.9 114.6 115.2 115.7 113.2 112.1 107.8 113.6 117.6 Cars/Taxis/Jeeps* 7058 7613 8599 9451 10320 11526 12649 13950 15313 2W* 38556 41581 47525 51922 58799 64743 69129 75336 82402 PCI 40678 42375 45337 49004 54505 60951 70238 78790 88420 Source: Indiastats.com10 Electric Vehicles in India: Challenges and Opportunities
  • 17. The growth in personal vehicle ownership will continue to accelerate with increasing incomes,greater availability, as well as access to credit and decreasing vehicle cost, case in point being theTata Nano which has enjoyed an increase in sales, 5.8%, over 2011-2012 [24].Exhibit 10 indicates a growing reliance on personal modes of transport (cars and two-wheelers)and intermediate modes of transport (taxis and auto-rickshaws) driven by the doubling of per-capita incomes from 2001 to 2009. Over the same period the number of public buses hasremained relatively constant considering a rise in population of approximately 125 million. Thisdata suggests a growing trend towards a reliance on personal modes of transport due to theburgeoning middle class, a lack of urban planning and minimal investments by the Governmenttowards improving public transportation.Bus services in particular have deteriorated because public transport service providers are unableto expand services, both in terms of number of buses and number of routes plying. The share ofbuses is negligible when compared to private/personalized vehicles in most Indian cities.Overcrowding of the public transportation system is particularly evident in large cities, wherebuses and trains carry more than twice their optimal capacity. As a result we have seen a massiveshift towards personalized transport, particularly two-wheelers, and the growing use ofintermediate modes such as taxis and three-wheeler auto-rickshaws [25].At this juncture, it should be noted that the Government has drawn plans to improve local railnetworks in urban cities by improving access and expanding existing capacity. Other urbantransport planning initiatives include bus-rapid-transport-systems (BRTS), pedestrian zones,skywalks and cycling paths. Delhi, Mumbai, Kolkata, Chennai and Hyderabad are in differentphases of planning or implementing light-duty metro rail services to complement existing modesof public transport. It is envisaged that these plans will have some impact on increasing the shareof public transport. However given Indias low motorization index and the lack of adequateinvestments in public transport, the country is further expected to exhibit growth in light dutypersonal vehicles.India will be faced with the complex problem of convincing people not to use their vehiclesbecause this would increase the demand for oil imports - adding to the budget deficit whilecontributing to the countrys growing carbon footprint. Therefore, the only way to really shiftpopulation mindsets is by making public transportation networks extensive, accessible and safer.In the interim, alternative modes of sustainable personal transportation must be explored totackle the immediate socio-environmental impacts of the Internal Combustion Engine. Electric Vehicles in India: Challenges and Opportunities 11
  • 18. Sustainable Personal Transportation
  • 19. Sustainable Personal Transportation Sustainable transport systems aim to reduce emissions, fossil fuel consumption and minimize the land area requirements, while providing easy access to people to enable efficient mobility [25]. Vehicles that run on alternative sources of energy such as solar, bio-fuels, fuel cells and batteries have been developed, demonstrated and in some cases they have entered markets and are already on the roads. 2.1 Technological Innovations in Low-Carbon Transport A brief overview of key innovations in low-carbon vehicles that are being actively pursued in India: 1. Electric Vehicles (EV) EVs utilize electric motors to induce propulsion. The key differentiator between EVs and conventional ICE vehicles is that the electricity that they consume can be derived from different sources or a combination of energy sources, particularly renewables such as solar and wind energy. Electric vehicles are only as green as the energy sources used to charge them. Charging EVs in India remains a challenge, where 60% of electricity is generated from fossil fuels fired coal power plants [26]. Electricity can be transmitted to EVs wirelessly through induction or directly using an electrical cable. EVs utilize on-board batteries to store electricity. Unlike ICEs, EVs are capable of regenerative braking whereby they are able to recover the energy that is lost during braking as electricity that is then stored back into the on-board battery. They do not have any tail-pipe or evaporative emissions and are virtually maintenance free. There has been a renewed14 Electric Vehicles in India: Challenges and Opportunities
  • 20. interest in EVs as a solution to address the emerging concerns around energy security andclimate change. There are almost 40 new production ready electric vehicles and hybrid vehicleslaunching by 2013.2. Bio-fuelsBio-fuels are broadly defined as “fuels that are produced directly or indirectly from organicmaterial – biomass – including plant materials and animal waste” [27]. Efficiency improvements inconversion technology now permit the extraction of bio-fuels from a wide variety of sources,particularly, wood, crops and waste materials. Bioethanol and biodiesel are the two mostcommonly available types of biofuels. Biofuels have been around since the invention of theautomobile but were largely displaced by the discovery of huge deposits of oil that kept petroland diesel prices cheap for decades.Bio-fuels are a renewable resource as more plants can be grown for conversion into fuel, with theadded advantage that the plants sequester carbon as they grow. Over the last decade there hasbeen much debate about the relative pros and cons of focusing on biofuels as a viable solutionbased on a range of economic, social, environmental and technical issues. The large scaleproduction of bio-fuel for transportation would require large land areas; as a result its potential toreplace fossil fuels is limited. However, innovative approaches like using seaweed to producebiofuels might address the food vs. fuel debate and lead to breakthroughs.The current world production of biofuels is less than 1% of world transport fuel demand and Indiacontributed about 0.6% of global biofuels production in 2009 [28]. In India, bio-fuels have anassured market as the Government, through the National Biofuel Policy, aims to meet 20% ofdiesel with fuel derived from plants. In 2009, the Government of India mandated 5% blending ofethanol with petrol across India, which is projected to annually save 80 million liters of petrol [29].3. Compressed Natural Gas (CNG)Vehicles are increasingly using compressed natural gas (CNG), or less commonly liquefied naturalgas (LNG), as an alternative to conventional fuels as it is cheaper and cleaner. In 2010, there were~12.6 million CNG/LNG vehicles plying the roads worldwide with India ranked 5th, with a totalfleet of approximately 1.08 million vehicles [30]. Existing petrol or diesel vehicles can be easilymodified to run on CNG at an average cost of INR 20,000 [31] for petrol vehicles and about INR50,000 for diesel vehicles. CNG is one of the more promising alternative fuels due to itsabundance and zero emissions. The strongest driver of CNG development has been its favorableeconomics i.e. the price advantage of CNG over conventional fuels.CNG as a transport fuel has been actively promoted by the Government of India throughmandates and targets. The CNG programs in Delhi and Mumbai are the oldest and well matured,driven by public policy mandates and a strong commercial interest of large taxi fleets in fuel/costsavings. The Ministry of Environment and Forests recently stated that approximately 70% of intra- Electric Vehicles in India: Challenges and Opportunities 15
  • 21. city public buses use CNG as fuel [32]. Rising petrol and diesel prices have stimulated demand for CNG vehicles and many auto majors like Maruti-Suzuki, Tata Motors, Chevrolet, Toyota, Hyundai, among others, have introduced factory fitted CNG vehicles of their popular models in the Indian market. 4. Hydrogen Fuel Vehicles (HFV) Hydrogen vehicles internally convert the chemical energy from hydrogen to mechanical energy for propulsion either through burning hydrogen in an internal combustion engine or through reactions between hydrogen and oxygen in fuel cells that run electric motors. Hydrogen vehicles are divided by two different technological approaches, namely - i. Hydrogen-ICE: Existing cars that run on petrol and diesel can be modified to use hydrogen as a fuel in their internal engines. ii. Hydrogen Fuel Cell: Hydrogen fuel cell cars are essentially electric vehicles that use hydrogen fuel cells instead of battery packs for power. Hydrogen has proved to be an attractive fuel as it has excellent electro-chemical reactivity, adequate power density to enable automobile propulsion and zero tail-pipe emissions [33]. Hydrogen can be produced using a wide variety of sources such as natural gas, coal, biomass, geothermal, solar and wind, which makes it an important energy carrier from an energy-security stand point. Most automobile majors have invested in developing prototypes and are at various stages of testing commercial feasibility of HFV. Though HFVs are considered to be zero emission vehicles, they do have well to wheel (total lifecycle) emissions, as most of the hydrogen used is produced from natural gas. Though HFCVs tend to outperform battery electric vehicles in terms of range and refueling time, they yet face significant technical and economic hurdles that critics, like Nobel laureates Steven Chu and Burt Richter, say would not be overcome in the near future [34]. Most research tends to support a hydrogen economy as a long term option as the hydrogen option suffers from several uncertainties around system and infrastructure costs and is not likely to be available en-mass in the foreseeable future, i.e. before 2020. In India, the Planning Commission has constituted working groups to look at hydrogen as a viable fuel. The Ministry of Petroleum and Natural Gas created a INR 100 cr. (USD 18.5mn) fund for research and development of hydrogen technologies. Other efforts include - The Green Initiative for Future Transport (GIFT), which aims to research, develop and demonstrate hydrogen fuel cell vehicles, with goals and targets up to 2020. India is also one for the 16 founding members of the International Partnership on Hydrogen Economy set up in Washington D.C., on November 2003 and has also prepared a National Hydrogen Energy Road Map and Programme (2006) focusing on two and three-wheelers [35]. Few Indian vehicles manufactures like Mahindra and Tata Motors, in16 Electric Vehicles in India: Challenges and Opportunities
  • 22. partnership with research institutes have developed prototypes of hydrogen vehicles to test theirfeasibility in the Indian market.5. Hybrid/Dual Fuel Vehicles (HFV)Hybrid/Dual Fuel Vehicles are defined as vehicles that use two or more distinct fuel sources, or amixture of fuels, for power and propulsion. HFVs are viewed as a transition technology to bridgethe gap towards zero-emission vehicles because they provide consumers with flexibility in termsof fuel costs, refueling time, driving distances and emission reductions [37]. They tend to becleaner and are more fuel-efficient than conventional vehicles that use an ICE, the extent of whichdepends on the combination of fuel sources used. Many different combinations of fuel sourceshave been developed and tested for vehicles.Hybrid vehicles typically ensure savings in terms of fuel economy and emissions due to thefollowing:i. Relying on both engines and electric motors for their power needs, as this reduces the size and weight of engines resulting in less internal losses.ii. The tank-to-wheel efficiency of electric motors is also significantly higher than ICEs.iii. Batteries have the capacity to efficiently store, reuse and recapture energy, through technologies like regenerative breaking that save energy normally wasted as heat during braking.iv. Vehicles use blended fuels, like ethanol added to petrol or hydrogen mixed with CNG, as the addition of low emission fuels to conventional fuels reduces the total fuel emission factor.Exhibit 11: Various fuel combinations being pursued through Government initiativesand by automobile manufactures Hybrid and Dual Fuel Vehicles Blended Fuels Dual Fuels Liquid Gaseous CNG Electric + + Hydrogen +CNG Gasoline Gasoline Biofuel +Gasoline (Hy-thane)Source: YES BANK Analysis Electric Vehicles in India: Challenges and Opportunities 17
  • 23. The Government of India, in partnership with automobile manufacturers and research institutes, has been exploring the feasibility of blended fuels and dual fuel vehicles. The future will most likely see a combination of solutions being used for different purposes based on their relative suitability. For example, while dual fuel vehicles might be promoted in densely populated urban environment that have the required recharging/refueling infrastructure, vehicles running on a mix of gasoline and ethanol might be suited to inter-city mobility or long distance journeys where recharging infrastructure for electric vehicles or CNG refueling facilities are absent. The Ministry of New and Renewable Energy, along with SIAM, IOCL, Tata Motors, Ashok Leyland, Eicher Motors, Mahindra and Mahindra and Bajaj Auto, have supported a unique project for demonstrating a hybrid Hythane (H-CNG) model, using up to 30% of hydrogen and CNG, in cars, buses and three-wheelers[35]. 6. Advanced Internal Combustion Engine (AICE) Vehicles that utilize new technologies to improve the overall engine efficiency and reduce emissions of internal combustion engine vehicles are collectively called Advanced Internal Combustion Engine (AICE) vehicles. Automobile manufacturers constantly strive to improve the efficiency of ICE vehicles to reduce energy loss, improve mileage, reduce tail-pipe emissions and ultimately lower the cost of operation. The Government of India has also driven engine efficiency improvements by imposing the Bharat Stage (BS) emissions standards, which are progressively updated. They stipulate emissions limits for different vehicles categories. Automobile manufacturers must meet the stipulated criteria as they are mandatory. In cost-conscious markets like India, a key decision point for consumers is the total cost of ownership of vehicles – which includes the price of the vehicles, the cost of fuel, and maintenance costs. Cars that have a higher efficiency require comparatively less fuel to travel a particular distance. As a result their fuel consumption and running costs are less. However, it is important to consider the rebound effect, formally referred to as the Khazzoom-Brookes postulate [37], that has been confirmed by a wide range of studies and indicates that when energy prices are constant, cost effective efficiency improvements will increase economy-wide energy consumption above what it would have been without those improvements or in simpler terms - “greater the efficiency of a process, the greater the energy use” [5]. The Kazzoom-Brookes postulate clearly suggests that energy efficiency improvements in the automobile sector would not suffice to meet future transportation goals (i.e. de-carbonization of the transport sector), as they would invariably lead to an absolute increase in energy/fuel consumption and thus carbon emissions [37]. Advanced ICEs are not an end solution but they will play an important role as an intermediate wedge until other low-carbon alternatives like EVs and HFVs achieve scale and market penetration.18 Electric Vehicles in India: Challenges and Opportunities
  • 24. Exhibit 12: Fuel type impact analysisComparison of Alternative Transport Technologies in India Petrol Diesel Bio-Diesel Ethanol CNG Electric Hydrogen/ Hythane Main fuel Crude oil Crude oil Soy bean oil, Corn, grains or Underground Coal; however Natural gas, source rapeseed oil, agricultural reserves there are a methanol, waste cooking waste range of other energy oil, animal fats (sugarcane sources that sources molasses) include including nuclear, natural renewables gas, hydroelectric and renewables.Physical state Liquid Liquid Liquid Liquid Compressed Electricity Compressed gas gas Types of All types of Most types of Any vehicle Light duty Many types of Neighborhood No vehicles Vehicles vehicles vehicle that runs on vehicles, vehicle electric available for Available categories categories. diesel -no medium and categories - vehicles, commercial modifications heavy duty but most bicycles, sale; several for up to 5% trucks and require motorbikes, pilot projects blends and buses. Other modifications light-duty are currently many engines vehicles that to engines and vehicles, being are compatible can use mixed space for medium and demonstrated. with 20% fuels. storage tanks. heavy duty blends. trucks and buses. Fuel Available at all Available at all Not available at Currently Available in Charging Not available at Availability fueling fueling fuelling blended with most large facilities not fueling stations stations stations. Plans diesel or cities and available at any stations. A to introduce petrol. 5% widely across fueling demo station biodiesel ethanol Maharashtra, stations. Most has been set through the blended petrol Gujarat and homes, up at Dwarka National has been Delhi. Government in Delhi to test Biofuels introduced in facilities, the technology Policy. It is 20 states and garages and now being 8 union businesses produced territories, and have adequate locally for use will be electricity in three- extended to capacity for wheeler 10%blend pan- charging (may rickshaws. India in require slight phase2. upgrades) Refueling Refueling Refueling Existing Ethanol fuel Expansion of Need for public Delivery of Infrastructure stations are stations are fuelling dispensers can gas pipelines charging hydrogen will widely spread widely spread stations can be be easily will lead to stations at require across the across the fitted with bio- installed at greater parking lots, significant country. country. diesel pumps conventional availability of malls, fuelling investment Mature Mature fueling CNG stations and towards infrastructure infrastructure stations also in production and for the deliver for delivery of buildings infrastructure. of petrol. diesel. Hythane can make use of existing CNG infrastructure. Electric Vehicles in India: Challenges and Opportunities 19
  • 25. Petrol Diesel Bio-Diesel Ethanol CNG Electric Hydrogen/ Hythane Maintenance Require regular Require regular Hoses and Special High pressure Minimal In fuel cell pollution pollution seal may be lubricants may tanks require servicing applications checks, checks, affected with be required. periodic needed. No maintenance servicing, servicing, higher-percent Practices are inspection and tune-ups, oil in minimal. tune-ups, oil tune-ups, oil blends. similar to certification changes, Hydrogen- changes, changes, Lubricity is conventional timing belts, ICEs would lubrication lubrication improved over vehicles water pumps, require regular that of radiators or servicing. conventional fuel injectors. diesel Batteries need to be replaced after 3-6 years Fuel Costs INR 71/liter INR 42/liter NA INR 27/liter INR 32/kg INR 4/kWh NA (as on Sept 2012) Environment Produces Produces Reduces Can Significant Zero tail-pipe Zero regulated Impacts harmful harmful emissions and demonstrate reduction in emissions. emission for emissions. emissions and particulate up to 25% tail pipe and Some fuel cell Gasoline particulate matter when reduction in ozone forming emissions can vehicles and vehicles are matter. compared to ozone-forming emissions be attributed only NOx improving and Emissions are conventional emissions though HC to power emissions as a result being reduced diesel. when emissions may source/ possible with emissions are with after- However NOx compared to increase. generation. Hydrogen ICE being treatment emissions may petrol. vehicles. progressively devices. increase. reduced. Energy Manufactured Manufactured Bio-diesel is Ethanol is CNG is Electricity is Hydrogen can Security using mostly using mostly domestically domestically domestically generated help reduce Impacts imported oil imported oil produced and produced and produced but through coal Indias which is not a which is not a has a fossil is renewable. is limited. India fired power dependence secure option secure option energy ratio of is currently plants as it is on foreign oil 3.3 to 1 which exploring available in by being means that its options of plenty. It is the produced from impacts are importing most renewable slightly less natural gas economical resources but similar to from Iran and and price petrol Myanmar. stable fuel. (Source: YES BANK research, SIAM, Ministry of Petrolium, US Department of Energy –Alternate Fuels and Advanced Vehicle Data Center) 2.2 Pathway to Zero-Emission Vehicles The path towards Zero-Emission Vehicles (ZEVs) begins with technological modifications and enhancements to existing engines and drive-trains that improve the tank-to-wheel efficiency of vehicles. Vehicles that run on low-carbon alternative fuels such as biodiesel, ethanol, synthfuels and natural gas are categorized collectively with high efficiency ICEs as A-ICE vehicles, and they can reduce emissions by up to 10-15% [39].20 Electric Vehicles in India: Challenges and Opportunities
  • 26. Exhibit 13: The path to electrification Electrification Hydrogen Technological Advancement Fully Electric Hybrid Fuel + Electric Natural Gas and Biofuels Advanced Internal Combustion Up to 15% 10- 30% 30-40% 50 -100 % 50 -100 % Carbon Reduction PotentialSource: YES BANK AnalysisThe next step towards ZEVs involves the electrification of vehicles. There are a wide range of EVtechnologies being explored at the moment, that include:Mild-Hybrid – It is the first real step towards electrification and ZEVs, and contains a smallüelectric motor that enables a start-stop system, facilitates regenerative braking energy tocharge the battery and offers acceleration assistance. Mild-hybrid vehicles achieve smallreductions in emissions, between 10 to 15% at relatively high costs [39]. It is viewed as anintermediate development step towards a fully-hybrid system.Fully-Hybrid – Features a larger motor and battery pack that provides the vehicle with electricülaunching, acceleration assistance and electric driving at low speeds. It can achieve amaximum of 25-30% in GhG emission reductions. Though fully-hybrids currently costbetween INR 2.5 to 3.5 lacs (USD 4629 – USD 6481) more than conventional ICE cars, thecost of hybrid components is expected to fall by 5% per year [39].Plug-in Hybrid (PHEV) – It is a hybrid vehicle with a larger battery that can be recharged byüconnecting a plug to an electric power source or grid. The ability to connect to the grid givesthe PHEV an range of 30-60 kilometers of all electric driving. PHEVs feature smaller ICE thattakes over from the all electric drive to provide a longer range. The carbon reduction potentialof a PHEV is between 30-40%. Electric Vehicles in India: Challenges and Opportunities 21
  • 27. Range Extenders – They are all EVs that feature a small ICE that is used to recharge the ü battery to extend the driving range. This feature is useful in the absence of charging infrastructure as they combine the advantages of electric driving with the ability to undertake longer journeys. They have a carbon reduction potential of between 60-80% depending on the electricity source used to charge the battery [39]. Fully Electric – All of the needed propulsion energy is stored in a large battery that can be ü recharged by connecting it to the electricity grid. Electric vehicles are two to three times more efficient than conventional ICEs [40]. Though there are a range of different battery technologies being used, it is predicted that litium-ion batteries will dominate the landscape [40]. A fully electric vehicle is only as clean as the source of electricity that is used to recharge the battery, and when charged using renewable sources it can reduce emissions by up to 80-100%. Exhibit 14: GhG emissions from various fuel sources [42] Greenhouse Gas Pollution (Light duty vehicles only) (Billion/tonnes CO2-equivalent/year) 100% Gasoline ICVs 2.5 Base Case: Gasoline Hybrid Scenario 2.0 Gasoline Plug-In 1.5 Hybrid Scenario 1990 LDV GHC Ethanol Plug-In 1.0 Hybrid Scenario GhG Goal: 60% below BEV 1990 Pollution Scenario 0.5 H2 ICE HEV GhG Goal: 80% below 1990 Scenario Pollution - Fuel Cell 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Vehicle Scenario Source: Zhang & Cooke, 201022 Electric Vehicles in India: Challenges and Opportunities
  • 28. The Electric Vehicle Value Chain
  • 29. The Electric Vehicle Value Chain The stimulus for a technological shift towards electric vehicles in India, as is the case among most comparable markets, depends on improved battery technologies, longer ranges, better charging infrastructure, lower prices, Government incentives and progressive regulation. While electric vehicles offer a great opportunity to diversify across the value chain, they also pose significant risks as the technology could change the dynamics of the industry and cede large parts of the value chain that has evolved over several decades obsolete [43]. In order to grasp the changing landscape of the EV sector it is important to understand the different actors across its value chain and the relationships they share – Exhibit 15: The EV value chain Traditional Utilities / Raw Material Battery Component OEMS Infrastructure Suppliers Suppliers Suppliers Source:YES BANK Analysis 3.1 Raw Material Suppliers Raw materials have a high impact on cost structures of the automobile sector. Raw material suppliers face a host of challenges that include rising prices, fluctuating prices, discriminatory pricing by foreign vendors of Indian component manufacturers/exporters and custom free import of finished goods from ASEAN countries under various free trade agreements [44]. Steel is one24 Electric Vehicles in India: Challenges and Opportunities
  • 30. of the primary raw materials used in the manufacture of automobiles and its price has risenbetween 25% to 40% for specific products like flat, long and pig iron which are commonly usedby vehicle manufacturers. Ironically, even though India is one of the cheapest sources of iron ore,steel prices are high when compared to international standards. The Government of India mustconsider enforcing competitive policies that contain the price of steel against global steel pricesby regulating the export of steel, monitoring steel price and lowering import duty to widen accessto cheap steel sources outside India (IDC, 2008) [45]. Other raw materials like plastics and lithium(for batteries), a rare earth metal, are also plagued by global price fluctuations. Given the growthin demand for lithium batteries, that are used in common electronics and appliances like mobilephones and laptops, the price of lithium is expected to rise as lithium reserves are scare andgeographically sparse. This is of particular concern to Indian battery manufacturers, consideringChina is the closest source of lithium, having the largest proven lithium reserves in the world.Also, the battery component has the highest weightage in the overall cost structure of an EV.3.2 Traditional Component SuppliersThe auto component industry in India is expected to grow at a rate of 13-15%, having thepotential to become one of the top five auto component economies by 2025 [45]. Over the lastdecade there has been a marked improvement in the quality of auto components manufactured inIndia. Most of the standard components required by the Indian automotive sector aredomestically manufactured with an import dependance estimate of about 13.5% of domesticdemand. Due to growing economies of scale of the Indian auto component industry,manufacturers of EV are likely to depend on traditional component manufacturers for allstandardized parts that go into an EV and that are common to ICE vehicles such as tyres, seats,doors, windows etc. India exports a wide range of auto components and chassis. The autocomponent industrys exports are expected to grow by about 24% during 2010-2015 [46], and canbe further bolstered by investing in technology collaborations and joint R&D. Traditionalcomponent manufacturers can diversify their product offerings by tying up with makers of EVs,leveraging their technological expertise, to develop specialized parts for hybrid and EV, both fordomestic and export markets. India has a relatively strong auto component base for electrical andelectronic components that can be leveraged to tap into the emerging EV sector.3.3 Battery Manufacturers & SuppliersA key concern in the EV sector has been the advancement of battery technology, which hasbenefitted from recent breakthroughs in lithium-Ion batteries due to their application in computersand mobile devices. There has been substantial growth in the number of lithium-ion patents inChina, USA, Japan and Western Europe [40] and batteries available today can store energy toenable driving ranges that exceed 100 kms. Battery manufacturers have been working withOEMs to develop batteries for EVs and many of them have been increasing production capacityto achieve the required volume to drive down prices. The growth in the battery market for EVs willspur investments in R&D making batteries more reliable and affordable while providing longerdriving ranges. It is likely that existing battery suppliers for mobile devices will dominate the Electric Vehicles in India: Challenges and Opportunities 25
  • 31. market, though new players are quickly emerging. Battery manufacturers and suppliers will also have to consider pro-environmental means to dispose depleted batteries as they comprise hazardous chemicals. While some battery suppliers are forging new partnerships with automobile manufacturers to reduce risks (e.g. Toyota and Panasonic), others continue to traditionally buy batteries from Tier 1 suppliers (e.g. Johnson Control and Saft) 3.4 Original Equipment Manufacturers (OEMs) Looking ahead, OEMs face daunting challenges towards the allocation of investments in new technologies as a result of the current financial slowdown, and yet they must adapt their businesses to capitalize on emerging opportunities in new markets, specifically the EV sector. The automobile industry seems to be preparing for a major shift towards powertrain technology. There are a range of different types of EVs (see Pathway to ZEVs) and OEMs will have to assess options based on their ability to leverage different actors across the value chain. Since established OEMs have plants that are built around mass production, they offer very few cost advantages for new powertrain configurations. OEMs could develop a competitive advantage through partnerships with technology companies (that have know-how on electric drive-trains), battery manufactures and traditional component suppliers to reduce risks and leapfrog the development of EVs. In turn, they could also partner with other OEMs to share and spread associated risk, by standardizing EV components. Manufacturers in emerging economies, India and China in particular, are exposed to much wider business opportunities from the shift towards EVs. 3.5 Utilities “Indian cities and towns are plagued by frequent outages and the basic requirement for electric cars is electricity…” [47]. A growth in demand for EVs will have a sizable impact on electricity generators and suppliers. This additional demand for electricity will have to be addressed through increased generating capacity and essentially through better grid management. Driven by reforms beginning with The Electricity Act, 2003, followed by de-licensing, the power generation sector has transformed from being a slow moving industry to a space where there lie vast growth opportunities. By repairing or upgrading distribution equipment, efforts are being made to reduce transmission and distribution losses, which currently stands at 28%. Covered in a later section, we will explore the possibility of introducing smart grids in major metropolitan cities, from a technical perspective. Indias power sector has increased generation capacity by record numbers this year, and it is expected to double from the current 177 gigawatts (2011) to 300 gigawatts by 2015 [48]. India also has plans to generate 15% of the electricity mix through renewable sources such as solar, wind, biomass, geothermal and hydro energy [49]. Solar energy is expected to grow to the tune of 2 GW by 2013, gradually scaling up to 20 GW by 2020 [50], and wind energy generation capacity which has experienced phenomenal growth, stands at 13 GW (Dec, 2010) and is expected to grow to about 50 GW by 2020 [49]. According to a number of studies, electricity demand from EVs can increase the penetration of wind as a baseload resource [51], since the generating profile of wind energy matches the load profile of a night-time charging regime. Increasing the renewable energy mix would reduce the emission factor of the total electricity26 Electric Vehicles in India: Challenges and Opportunities
  • 32. generation mix, rendering EVs cleaner and greener. Since EVs are only as clean as the electricityused to charge them, adding renewable energy to the mix would only boost their greencredentials. EV manufacturers must liaise with utility providers in order to develop innovativesolutions for charging of public and private, including option of using renewable energy sources.3.6 The Electric Vehicle EcosystemExhibit 16: The EV Ecosystem Insurance Finance Tech R&D Smart Grid Firming Renewables Grid Storage Climate Change Data Flow Policy Renewable Power Building/Vehicle Interaction (V2B) Information Li-ion Battery V2G Money Consumers Vehicle Electrification Electricity Smart Charging Key system players Major trendsSource: Mahindra - Reva Electric Vehicles in India: Challenges and Opportunities 27
  • 33. Exhibit 17: EV risks, challenges & solutions28 Electric Vehicles in India: Challenges and Opportunities
  • 34. Electric Vehicles in India: Challenges and Opportunities 29
  • 35. EV Safety safety chassis Source: YES BANK Analysis30 Electric Vehicles in India: Challenges and Opportunities
  • 36. Policies Promoting Electric Vehicles in India
  • 37. Policies Promoting Electric Vehicles in India Exhibit 18: Green Transport in India India’s first CNG First section of the bus launched Delhi Metro Rail–the Supreme Court red line-opened India’s first dual Reva exported 1,10,000 electric orders to convert fuel (petrol + LNG) to European vehicles sold - GOI sets up the all city bus passenger car – Hero Electric First electric car markets and 97-98% of National Mission fleets, taxis and ’Wagon R Duo’ launches commercialized branded as which were for Hybrid and auto-rickshaws in launched by electric two in India (Reva) G-wiz two wheelers Electric Vehicles Delhi to CNG Maruti-Suzuki wheeler 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 CNG conversion of All buses First hybrid car Full exemption from buses, taxis and in Delhi India’s first India’s first electric launched in central excise duty auto-rickshaws converted MUV-‘Omni two wheeler India-Honda provided to EVs introduced in to CNG Cargo’ launched launched –‘Yo Byke’ Civic Hybrid Delhi is the first city Mumbai by Maruti-Suzuki by Indus Elec-trans in India to introduce Karnataka is the first a hybrid electric- state to utilize bio-fuels CNG public bus and ethanol-blended manufactured by fuels in public buses Tata Motors in Bangalore Source: KPMG, YES BANK Analysis The Government of India, along with several State Governments, have supported many initiatives promoting environmentally friendly technologies. Over the last few years several steps have been taken in this direction by using regulation as the primary driver. The following section highlights some of the major initiatives that have been taken by the Government to support the cause of electric mobility in India. 4.1 Initiatives by the Ministry of New and Renewable Energy (MNRE) The Ministry of New and Renewable Energy (MNRE) in November 2010 decided to offer incentives to EV manufacturers during the remaining period of32 Electric Vehicles in India: Challenges and Opportunities
  • 38. 2010-2011 and for the entire period of 2011-2012 to boost the sales of environment-friendlyvehicles. The scheme, which came under the 11th five year plan, set aside a fund of INR 95 cr.(USD 17 mn) to provide incentives of up to 20% on ex-factory prices of vehicles, subject to a .6maximum limit. The manufacturer gave this subsidy to the customers and later claim it as arefund from the Government. Targets were set up for sales in 2010-2011 with MNRE givingsubsidies to 140 EVs, 10,000 electric high-speed 2Ws, 20,000 electric low-speed 2Ws and 100electric three-wheelers [53].In order to avail this scheme, the Government set out qualification criterions for manufactures.Firstly, they had to have significant presence in the retail side of the industry. Secondly, thevehicle manufacturer was required to have a minimum of 30% indigenous content. And finally,the manufacturers would have to be able to provide after sales service through its own outlets[53].The MNRE scheme however ended in March 2012 (when programmes under the 11th Plan perioddrew to a close) and the discontinuation of the scheme witnessed a 65% decline in the sales ofEVs. This led the Government to extend the MNRE subsidy scheme in August 2012 till proposalsunder the National Mission for Electric Mobility (NMEM) were formulated.4.2 Initiatives in the 2011-2012 BudgetThe 2011-12 Budget, encouraged CNG, LPG and other hybrid and alternative fuel cars uptake inthe country. A variety of incentives for EVs and hybrids were also declared.The then Finance Minister, Mr Pranab Mukherjee, also announced the formation of a new inter-ministerial mission – “National Mission for Hybrid and Electric Vehicles” (NMHEV) to promote EVmobility. This initiative was designed to act as a focal point for all the industrys needs oninfrastructure, R&D and new incentives. The mission is headed by the Ministry of Heavy Industry& Public Enterprises and stakeholders including Ministries like Urban Development, New andRenewable Energy, and Power along with private stakeholders (industry).The Budget proposed extending the basic customs duty exemption and concessional rate ofCentral Excise duty (4%) on specific parts such as imported batteries for EVs and concessionalrate of 5% on excise duty on hybrid vehicles to incentivize their domestic production. The exciseduty on hybrid kits that convert traditional vehicles into more fuel-efficient machines, has beenreduced to 5% from 10%. A concessional excise duty of 10% has also been proposed forvehicles with fuel cell or hydrogen cell technology and a concessional excise duty of 10%extended on hybrid vehicles [54].4.3 Initiatives by Ministry of Heavy Industries and Public EnterprisesThe Ministry of Heavy Industries is planning to approve a INR 20,000 - 23,000 cr. (USD 3.7bn –USD 4.25bn) plan under the National Electric Vehicle Mission policy to promote EV mobility overthe next 8 years. The Government plans to invest around INR 12,250 - 13,850 cr. (USD 2.26bn – Electric Vehicles in India: Challenges and Opportunities 33
  • 39. USD 2.56bn) [55] and the rest will be invested out by the industry. The funds for this initiative are to be made by pooling allocations given to all the other Ministries, like the JNNURM related funds of Ministry of Urban Development and the Climate Change Fund of the Ministry of Environment [54]. The funds are to be allocated for incentivising private players, giving tax benefits and setting up R&D centres apart from various other activities. The NMHEV will provide incentives and subsidies to customers through manufacturers, based on many parameters such as fuel efficiency and carbon emission standards. The various initiatives proposed by the Ministry of Heavy Industries in the draft National Mission for Hybrid and Electric Vehicles (NMHEV) are [56 & 57] : 1. Proposing/ suggesting that Public Sector Undertaking banks to offer loans to customers for purchasing EVs so that financing facilities are available for purchasing EVs. 2. Making mandatory the provision of charging points for electric vehicles in all upcoming housing complexes across the country. 3. Advising the Automotive Component Manufacturers Association of India to reduce shortages of spare parts by developing and producing components for EV. 4. Creating EV zones in certain "highly polluted" cities as pilot projects 5. Funding research & development 6. Providing charging infrastructure for EVs. 7. Promoting indigenization 8. Supporting the development of a cost-effective EV technology for a mass platform and starting operations 9. Setting a target of 6-7 million units of new vehicle sales of full range of EVs A National Electric Mobility Mission Plan 2020 (NEMMP 2020) was formally launched by the National Council for Electric Mobility (NCEM) and the Prime Minister of India on January 14th, 2013 [55]. 4.4 Government Agencies to take up EV Mobility in India The Department of Heavy Industry, Government of India has constituted a National Council on Electric Mobility (NCEM) and a National Board on Electric Mobility (NBEM) to take forward electric mobility and manufacturing of EVs, including hybrids, in India. They would also look at ensuring that their components are also manufactured in India. NCEM and NBEM are headed by Minister of Heavy Industry and Public Enterprises and Secretary, Department of Heavy Industry, respectively [59]. The National Automotive Board would serve as the technical advisor to both the NCEM and NBEM. Their roles and composition are described in further details below.34 Electric Vehicles in India: Challenges and Opportunities
  • 40. i. National Council for Electric Mobility (NCEM) NCEM is a Government body made up of 18 members including 8 Cabinet Ministers. This has been approved to be the apex body in deciding matters relating to EV mobility. The Council comprises of Ministers from key Central Ministries and Departments along with eminent representatives from the industry and academia. It would be chaired by the Minister of Heavy Industries & Public Enterprises [60]. The NCEM has adopted the National Electric Mobility Mission Plan 2020 (NEMMP 2020) which lays the vision and sets the targets for National Mission for Electric Mobility (NMEM) [61].ii. National Board for Electric Mobility The National Board for Electric Mobility (NBEM) has been approved to be set up under the Department of Heavy Industry to aid the NCEM. It will consist of 25 members, comprising of secretaries of stakeholder Central Ministries/Departments with representation from industry and academia. The board will be headed by joint secretary, Department of Heavy Industries. Both the Government agencies will be supported by NATRiP Implementation Society (NATIS) currently, until National Automotive Board (NAB) is created [62].iii. National Automotive Board (NAB) The National Automotive Board (NAB), after its formation is envisioned to be the technical advisor and secretariat for both the NCEM and NBEM. This board will be responsible for acting as facilitator between the Government and the industry and will promote R&D activities in the sector. NAB will be responsible for sustainable development of the Indian auto sector. The members would be from the Department of Heavy Industry, Planning Commission and from various ministries, including Road Transport and Highways, Science and Technology, and Environment and Forests besides representatives from the academia and the industry. The NAB would be made self sufficient with funds made available from the Automotive Cess administered by the Development Council for Auto and Allied Industries, under the Department of Heavy Industry [63]. Electric Vehicles in India: Challenges and Opportunities 35
  • 41. Development of EV ChargingInfrastructure in India
  • 42. Development of EV Charging Infrastructure in India While there are a number of bottlenecks in EV adoption, and R&D is being conducted by automobile manufacturers and research organisations to address them, one major issue that must be addressed urgently is the integration of appropriate charging infrastructure for EVs, before a rapid expansion in EV numbers can happen. YES BANK & TERI are of the view that a wide network of public charging stations must be made available. 5.1 EV Charging Infrastructure: Past Efforts There have been plans in the past to develop a network of charging stations in various areas of the country. In 2010, the Delhi Government announced that it would provide a network of charging stations in the city, but only after several EVs were ready for launch in the country [63]. This reflects one of the problems with EVs in general: infrastructure developers are reluctant to invest in this area until there is a sizable population of EVs on the roads, while vehicle manufacturers are unwilling to launch their models in India due to the lack of charging stations [64]. A catch 22 situations. Some manufacturers have tried to address this issue by taking up the challenge of developing charging infrastructure themselves. Electrotherm India Ltd., for instance, stated in 2010 that they would collaborate with local garage owners within a radius of 3 kilometres of major cities like Delhi, Mumbai, Chennai, Bangalore and Ahmedabad for installing charging stations [65]. A similar plan was also articulated by Hero Electric, with the aim of setting up 10,000 charging stations by the end of 2009-10 [66]. However, involvement of the Government appears to be necessary, at least in the early stages, given the investment of approximately INR 2 lack (USD 3700) required for setting up a single charging station [67]. A welcome initiative in this regard is the plan of New Delhi Municipal Corporation (NDMC) to set up 100 charging stations in Delhi in the near future [68].38 Electric Vehicles in India: Challenges and Opportunities
  • 43. 5.2 Comparison with Compressed Natural Gas (CNG) InfrastructureThe experience of CNG distribution in India may be a pointer to the future of EV infrastructure. In1998, the Indian Supreme Court directed that the Gas Authority of India Limited (GAIL) shouldexpand their CNG distribution network in Delhi from 9 to 80 outlets by 2000, so that a re-fuellinginfrastructure for autos, taxis and public buses becomes available [69]. Despite initial teethingproblems, today this infrastructure is fairly well developed in Delhi. However, expansion to othercities is still an expensive affair. GAIL has estimated that expanding the network to 298 cities by2014 will require an investment of INR 37 ,170 cr. (USD 6.8bn) [69]. This compares with anestimate of INR 8000-9000 cr. (USD 1.48bn – USD 1.67bn) being required to be spent on R&Dand country-wide infrastructure for EVs [70]. The essence here is that given the large initialinvestment that is required for setting up any infrastructure, be it for CNG vehicles or EVs,Government support becomes essential.5.3 Indias Power SectorAny discussion on the establishment of an EV charging infrastructure in India is incompletewithout a discussion about Indias power sector. In recent years, this sector has assumedincreased importance owing to Indias rapid economic growth, which has led to an increase inelectricity demand both from domestic consumers enjoying a higher standard of living and fromthe industrial sector whose growth in output is heavily linked to electricity consumption. Thissector, therefore, has seen massive investments over the past decade, which has been reflectedin a steady increase in the installed electricity capacity. Indias installed power generation capacityreached 209.3 GW as of October 2012. The increase in the installed electricity capacity over thepast seven years is shown in Exhibit 19.Exhibit 19: Trend of Indias installed electricity capacity and percentage deficit inenergy and peak electricity consumption 250 18 16 200 Installed capacity (GM) 14 150 12 100 10 50 8 Total installed capacity Energy deficit 0 6 Peak deficit 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Source: Mahindra - Reva Electric Vehicles in India: Challenges and Opportunities 39
  • 44. Despite this remarkable increase in the installed capacity, the power sector continues to exhibit a deficit of supply from demand, both in terms of the total energy and peak demand. This deficit has remained largely constant over the years, as can be seen in Exhibit 19. This can be attributed to the fact that the increase in installed capacity, despite being sizable, has still been inadequate to meet the increase in demand. The result is frequent power cuts in most areas of the country, and power grid failures are also not uncommon. This leads to one of the principal concerns regarding widespread deployment of EVs, India struggles to meet its existing electricity demands, and therefore, it would be unwise to impose an additional burden on the power sector. It has been estimated that Indias annual power consumption in 2020 is expected to be double the 2009 value of 600 TWh [71], and supplies are expected to struggle to keep up with this surge in demand. It is clear that the gap between electricity supply and demand is unlikely to be bridged in the near future, with problems with coal supply threatening the capacity addition targets [72]. The reliance on coal is another aspect of Indias power sector that is unfavourable for widespread EV adoption. A principal advantage of EVs over conventional vehicles is the lack of tail pipe emissions. However, if the electricity is generated by coal or other fossil fuels, this advantage is reduced drastically. As seen in Exhibit 20, in India, presently 57 % of Indias electricity generation capacity is based on coal, with nearly 10 % coming from other fossil fuels. This reliance on coal is unlikely to reduce in the near future, since of the capacity addition of 76,000 MW being planned in the 12th Five Year Plan period (2012-17), as much as 63,000 MW is based on coal power plants [73]. Projections suggest that even in 2031, between 67 and 78% of the total electricity generated would be fossil fuel based [74]. Exhibit 20: Break-up of Indias power generation capacity in November 2012 [75] Non-hydro renewable 12.3% Coal 57.3% Thermal Hydro 66% 18.6% Gas 9.0% Diesel Nuclear 0.6% 2.3% Source: Power Sector Planning in India (Kanitkar T. and Banerjee R.,)40 Electric Vehicles in India: Challenges and Opportunities
  • 45. 5.4 Smart GridsThe scenario outlined above highlights that EVs may not necessarily be less polluting thanconventional vehicles, especially given the high Transmission and Distribution (T&D) losses of theelectricity sector in India, although the centralised nature of the emissions may ease theapplication of pollution control measures. For EVs to be truly environment friendly, the use ofrenewable energy becomes a necessity, but as stated above, the penetration of renewables inIndias power sector is likely to remain small in the short and medium terms.For EVs to not threaten Indias power situation, it is imperative that any charging infrastructure isnot overly dependent on grid supply. Decentralised electricity generation at the charging outlets istherefore the need of the hour. Using diesel electricity generation for this purpose, however, willagain negate the point of using EVs. Any decentralised generation will, therefore, have to bebased on renewable energy. Renewable energy sources, of course, have their own set ofproblems. Primary among these is the intermittent and unreliable nature of the generation. Toensure that a steady supply of electricity is available, a storage system will be necessary, perhapsalong with a diversification in the sources, with more than one renewable energy source beingutilised. Synchronisation of all the different sources with each other, and also with the varying loadimposed by the charging outlets, in real time, is a challenge that requires the use of smart grids.A smart grid is generally defined as an intelligent electricity distribution network that is suppliedby a diverse range of energy resources. A smart grid may either be connected to a conventionalgrid or be isolated and supply to a localised load only. A smart grid is an application of digitalinformation and communication technology (ICT) and uses advanced sensing, communication andcontrol technologies to optimise electrical power generation and delivery within the domain of thegrid. A smart grid allows dynamic communication and balancing of the electrical network, thusminimising losses and increasing the stability of the grid. Unlike conventional power grids, whichhandle only a one-way flow of electricity from the generator to the outlet, smart grids require atwo-way flow of information, and as will be explained later, may even handle a two-way flow ofelectricity.An example of a smart grid is the system set up by TERI in Gual Pahari, Haryana, India. This smartmini grid is driven by state-of-art power electronics devices and controlled through ultra-fast digitaltechnology based on National Instruments CompactRIO and LabVIEW which offers a higherdegree of flexibility, reliability, efficiency and safety of complete power system. This smart minigrid system involves the integration of the following distributed energy resources:• A 10.5kWP Solar Photovoltaic (Crystalline silicon based solar module) system• A 2kWP Solar Photovoltaic (Crystalline silicon based solar module) system• A 1kWP Thin-film based Solar Photovoltaic system• A 3.3kW Wind Turbine Generator (WTG)• A 100kW Biomass Gasifier (woody) system Electric Vehicles in India: Challenges and Opportunities 41
  • 46. • A Battery Bank of 48V, 600Ah for energy storage • Diesel Generator sets/Utility Grid. Exhibit 21: Complete Single Line Diagram (SLD) of Smart Mini Grid System developed by TERI Source: TERI (The Energy and Resources Institute) The load of the TERI Retreat complex, which varies quite widely depending upon the season, occupancy level of the residential premises, the number of conferences being held and several other factors, is managed by this smart mini grid. Smart-grid technology can enable the EV-charging load to be shifted to off-peak periods, thereby flattening the daily load curve and significantly reducing both generation and network investment needs [75]. However, the complexity of the grid operation means that the development of standards that ensure interoperability of the diverse components both on the supply and demand sides becomes essential [76]. This is more so because EVs can represent not just a load for smart grids, but also a source. In the long run, it has been postulated that EVs can function as distributed energy storage devices, feeding back electricity stored in their batteries to the grid. This mode of operation, known as vehicle-to-grid (V2G) supply, will see EVs absorb extra energy when power demand is low, and release it back to the grid when the demand is high.42 Electric Vehicles in India: Challenges and Opportunities
  • 47. V2G operation is not yet commonplace, but its groundwork has already been laid. In 2009, the USstate of Delaware passed a bill, which would compensate owners of EVs for electricity sent backto the grid at the same rate at which they were charged for drawing power. Consumers will benet metered, meaning that they will only be charged for the net amount of electricity that theydraw from the grid [77].5.5 Requirements for Smart Grid DeploymentThe above points should make it clear that a smart grid dedicated to EV charging, and one thatrelies primarily on renewable energy for supply, and is capable of absorbing electricity back fromthe vehicles, is the way forward. The development and large scale implementation of such smartgrids requires extensive planning, and resources beyond what a single private player may be ableto provide. This is because in addition to the charging outlets, arrangements have to be made forinstallation of the electricity generating equipment based on different resources, such as solar,wind and biomass energy. Automation of the system is also a specialised task that will depend onone hand, the energy resources available and their characteristics, and on the other, the chargingload profile. Land requirement for installation of these grids is also likely to be more extensivethan for simple charging outlets, with the charging stations possibly being placed at locations faraway from the points of generation. The desirability of off peak EV charging, coupled with therelatively long charging times, means that it will be most convenient for consumers to charge theirvehicles at home, therefore, the smart grids must be integrated into residential areas, whichmeans that property developers are stakeholders for smart grid deployment. However, theproblem of range anxiety among EV owners means that an extensive network of chargingoutlets near highways is also necessary, bringing highway development authorities into thepicture. Connectivity to the main grid, and metering, especially for V2G, requires careful planningon the part of the national electricity authorities, with test projects perhaps being required beforewider implementation. In any case, development of common standards for the charginginfrastructure will mean Government intervention, in the way that the National Institute ofStandards and Technology (NIST) is working on developing common standards in the USA [76].It is clear therefore, that a large-scale effort is necessary for solving the principal barrier thatremains for EV deployment, viz., implementation of an independent, renewable energy- supplied,smart grid-based charging infrastructure. The need of the hour is for Government initiative in thisregard, so as to mobilise, the diverse set of stakeholders ranging from research institutions,renewable energy suppliers, financial institutions, EV manufacturers, power companies, policymakers and consumers. Only after all these parties are on board can EVs hope to move beyond aniche technology. Here, the Government may explore several partnership structures with theprivate sector, and public sector companies for that matter, which have the technical and businessexpertise to develop and maintain urban smart grid projects through Build Operate Own (BOO)and Build Operate Transfer (BOT) mechanisms. However, it is imperative that traditional OEMswork towards developing EV variants, ranging from hybrids to full electric variants. Electric Vehicles in India: Challenges and Opportunities 43
  • 48. EmergingBusiness Models
  • 49. Emerging Business Models There are a range of different business models and financing structures that have emerged globally around the intersection of three critical segments of the EV value chain – automotive, battery and charging infrastructure – that are resulting in innovative strategic partnerships that aim to spread risk and make EVs an economical offering for the end consumer [78]. Some of the prime emerging business models include: 6.1 Direct Vehicle Sales Akin to the sale of conventional vehicles, the relationship between consumer and automotive manufacturer remains relatively unchanged, where the EV manufacturer relies on retail outlets to sell their vehicles to the consumer. The upfront cost of an EV in such an arrangement is likely to be high and therefore it would only appeal to a niche group of committed green consumers who are able to afford it. The price of the EV includes the battery, which makes up a significant proportion of the total cost structure. EV manufacturers in partnership with battery suppliers would have to provide a warranty on the battery since the expected lifetime of the battery is about six to eight years, much less than a conventional ICE [78]. Given the short life span and high cost of the battery, the second hand value on an EV would be below par. However this concern can be addressed by OEMs or battery suppliers by creating buy-back mechanisms that guarantee an acceptable price for used/depleated batteries or through battery swap schemes that offer customers a discounted price for a new battery. This would help improve the overall value proposition of an EV. This model requires a high level of consumer education and awareness to effectively communicate the low operating cost of an EV when compared to conventional vehicles. Given a46 Electric Vehicles in India: Challenges and Opportunities
  • 50. fair level of awareness coupled with the rising cost of fossil fuels, consumers, would potentiallyfind appeal in the significant cost savings accrued from using electricity, as it would partially payfor the higher upfront price of the EV. Direct vehicle purchases give consumers the autonomy andflexibility to sell or trade the car whenever they desire.6.2 EV LeasingThis model proposes a significant change in the way a consumer purchases a vehicle, as theownership of the vehicle primarily remains with OEM or authorized service providers that leaseout the vehicle for a predetermined period of time. The key advantage of this model is that itreduces the upfront purchase price (which is prohibitive for a large proportion of consumers inIndia) by spreading it over the lease period.Manufacturers could also offer consumers an option to transfer ownership of the vehicle at theend of the lease period at a discounted price, along with an extended warranty/insurance schemeon the battery pack, which would help improve the residual value of the EV. This model is feasiblefor consumers that may not have a permanent residence or do not have access to a dedicatedcharging point. Most new residential constructions in urban India have dedicated parking, either inthe form of multi-level or underground parking, that could potentially accommodate installation ofcharging for points for EVs. EV leasing might also be a favourable option for those early adoptersor techno-conscious consumers that would prefer to upgrade their vehicle every few years asbattery technology and other vehicle innovations are gradually developed and introduced in newEV models.6.3 Battery Leasing and Swap SchemesTo reduce the initial upfront purchase price of an EV, the cost of the battery is dissaggregatedfrom the selling price thus rendering the vehicle affordable to a wider segment of consumers.Consumer does not purchase the battery along with the vehicle eliminating battery risks andrendering issue of warranty a negligible concern.For most consumers, it would take several years to realize fuel savings that are able to offset thehigh upfornt cost. Battery leasing/swap schemes would help negate consumer concerns aboutbattery durability and performance, while simultaneously reducing the initial/upfront EV purchaseprice. Service providers (battery leasing agents/ franchised dealers) retain the ownership ofbatteries. This model puts the operational costs of an EV on par with conventional ICEs, wherethe cost of fuel (i.e. subscription fee for battery leasing), includes the combined cost ofelectricity and the amortized cost of the battery pack. An advantage of this model is that it allowsmanufacturers to retain ownership of the battery for various second-life applications (potentiallyin renewable energy storage and power grid management), that would provide additional value[79]. Electric Vehicles in India: Challenges and Opportunities 47
  • 51. As an added measure to encourage early adopters, manufacturers could also consider leasing the vehicle and the battery together as this would help further spread the entire price over the leasing period, similar to a subscription/car rental service. At the end of the contracted subscription/rental period, the EVs would then return back to the franchised dealer network, giving them greater control over its assets. Manufacturers, battery suppliers and service operators can partner to collectively develop battery swap/switiching stations, similar to existing petrol/diesel stations, around a subscription service model, where EV owners can drive in and swap depleted batteries for fully charged ones. 6.4 Infrastructure Service Models Charging infrastructure is one of the key components of developing an effective EV ecosystem, as potential consumers face range anxiety and are concerned about where they might charge their EVs. However, initial studies conducted by Mahindra-Reva in urban areas indicate that individuals travel less than 80 kms in a day [43], while most available EVs have a range of over 80 kms on a single charge, and are not likely to require wide spread public charging points. If consumers have access to a fixed charging point at their residence, they would be able to meet their daily charging needs by connecting to their own dedicated charging point in the night, when the car is idle and remains unused. Yet, in many rented properties and apartment blocks in urban India, installing charging sockets could be complicated due to the lack of dedicated parking spots. The availability of public charging is largely a perception problem, as the existance of public charging points, are likely to make potential consumers feel comfortable driving EVs, as they are psychologically assured that they would have access to charging facilities in the event that their battery gets depleted en-route to their destination. Nonetheless, establishing a visible EV charging infrastructure is likely to help overcome range anxiety among consumers, as it is one of the key drivers of EV adoption [43]. In order to develop a commercial public charging infrastructure, cost and scale are two critical factors, as setting up charging infrastructure is expensive and consumer demand is unknown [78]. In the initial stages it would be important to identify the right zones to set up charging points and also the relative proximity of charging points. It is therefore important to conduct feasibility studies to identify how, when and where consumers are likely to charge their vehicles. This is a chicken and egg situation as there is no financial imperative to install charging points until there is a large enough fleet of EVs on the road and consumers will not buy EVs until there are adequately available charging points. Three prevalent business models that have emerged around managing charging infrastructure include – a. Public Infrastructure Model – providing charging points in public parking spaces. This involves reserving spots at which a charging point is provided for electric vehicles at public parking spaces. Since only EVs are allowed to park at these spots, they are likely to act as an incentive to consumers in urban cities where public parking is scarce, only if adequate48 Electric Vehicles in India: Challenges and Opportunities
  • 52. spaces are reserved for EVs. This model would have to be supported by local municipalities in partnership with infrastructure providers. It seeks to provide access to charging for those consumers that lack home charging.b. Private Infrastructure Model – This is a preferable model in the early stages of EV adoption as it responds to direct consumer demand. It involves installing charging points for EV adopters at their residence or at private sites such as malls, office parking lots, privately managed parking lots, petrol pumps etc. This ensures higher usage of charging points based on actual demand, as reflected by EV purchases, thus providing a greater return on investment [78]. Government mandated building codes can also recommend installing a minimum of two to three electric vehicle charging points at parking lots in new buildings.c. End-to-End Solution – This model involves close partnerships between OEMs, infrastructure facility providers, maintenance services providers and local Governments – to provide consumers with an integrated package of end-to-end value added services, thereby minimizing the number of interfaces that the consumer has to manage [78]. This could evolve as a subscription service where EV adopters pay a monthly/annual fee for an integrated services package that involves access to charging facilities, vehicle maintenance services and free parking at public pay-and-park lots, that are managed by local municipalities.Apart from mere technical aspects around the blueprint of EVs, players in the EV space shouldshift towards developing comprehensive models that integrate vehicles, infrastructure and alliedservices. The most significant step towards reducing the barriers to EV adoption revolves aroundcoming up with an integrated effective business model, one that links together the interests ofcarmakers, owners, infrastructure developers and policy makers [80]. Electric Vehicles in India: Challenges and Opportunities 49
  • 53. Final Chapter:Analysis and Thought
  • 54. Final Chapter: Analysis and Thought 7.1 Short Term Horizons The 2W ICE market is growing at a phenomenal pace, approximately 14%/annum [81] in terms of volume sales in urban and rural India. We expect 2W ICE sales to continue expanding along the same trajectory on the premise that as income levels rise and the Bottom of Pyramid (B-o-P) segment becomes more upwardly mobile, there will be a shift from using bicycles to 2W. This trend, backed by the encouraging growth in the 2W EV sales in urban India as compared to EV 4W sales indicates that the uptake of 2W EV in the shorter term (5-10 years) will be more robust as compared to the uptake of 4W EV. 2W EVs do not require as much electrical input as 4W EVs mainly due to smaller battery sizes. Considering the sporadic supply of electricity in semi rural and rural India, 2W EV may not experience robust sales in these markets. However, cost conscious urban dwellers may purchase an 2W EV as a second vehicle rather than a primary vehicle which can be used by family members to travel short distances. A low price tag aided by state subsidies makes electric 2W affordable where there are a range of financing options available from financial institutions. Due to higher sales volumes as compared to 4W EV, insurance companies are able to charge lower premiums. With a favourable policy/regulation climate and consumer appetite for 2W EV vehicles backed by readily available consumer finance and lower risk perceptions to facilitate corporate finance decision making, the growth story of the 2W EV market in India is sound. 7.2 Long Term Horizons EV 4W manufacturers are addressing risk concerns across the value chain with innovative business models and cautious capacity expansion. Although OEMS52 Electric Vehicles in India: Challenges and Opportunities
  • 55. have taken some giant leaps forward in terms of technology, leap frogging the hybrid andalternative fuelled engines phases and jumping straight to EVs, still faces major infrastructuralhurdles, in India, that impedes the dynamic growth of the 4W EV market.India suffers from severe energy deficiency, power generation and supply capacity to meet risingdemand to power from industrial and commercial activity as well as homes with a rising numberof electrical appliances. Power outages still occur in major cities like Delhi NCR and Kolkata andthey are an everyday reality in semi urban and rural India where 24 hour power outages are notuncommon. Furthermore, despite having one of the largest coal reserves in the world, Indiaimports premium coal for efficient thermal power generation.With over 59% of grid electricity being powered by coal, major transmission leakages due tooutdated infrastructure, rising demand and insufficient supply, the pollution free, energy efficiencyand energy security perspectives of owning an EV simply do not hold weight in India. Consideringexisting ICE technology has successfully reduced toxic fume emissions and improved fuelconsumption, whereas coal combustion for electricity generation continues to be amongst themost environmentally offensive industrial activities, introducing EVs as a mainstream personalmobility solution into this ecosystem could have a more detrimental impact on the environmentas compared to existing and future ICE technologies.Some OEMs have developed innovative solutions to offset the consumption of coal powered gridelectricity by incorporating solar panels into the roof design of EV cars as well as supplementingelectricity feeds into charging ports with renewable energy. However, renewable energyretrofitting for EV is still a relatively expensive proposition and a technical challenge fordevelopers, hence we can only expect to see such solutions becoming mainstream in the longterm. RE retrofitting for EVs and EV charging stations have the potential to earn OEMs andcharging service providers Certified Emission Reduction (CER) under Clean DevelopmentMechanism (CDM) and Bureau of Energy Efficiency (BEE), Energy Saving Certificates (EsCerts)under the Perform, Achieve and Trade (PAT) scheme which will facilitate faster RoIs and validatethe claim of EVs being a clean mobility solution.Considering a lack of 4W EV options and variants in the Indian market and that they are currentlybeing showcased as alternatives to low range personal urban mobility where customers havepurchased 4W EVs as a secondary and tertiary vehicle, it is not surprising that the Government isnot considering immediate development and deployment of smart grids and public charginginfrastructure. As EV uptake increases, it will become critical for OEMs and/or utility companies towork with Municipal authorities to install charging points that receive supplementary power fromrenewable sources. The public charging points will serve a dual purpose as they will increase thevisibility of EVs to the public thus giving comfort to potential buyers. Studies are currently beingundertaken to understand how highly visible public EV charging facilities shape consumerperceptions and decision making. Electric Vehicles in India: Challenges and Opportunities 53
  • 56. 7.3 Concluding Thoughts 2W ICE vehicles will continue to dominate sales in the Indian personal mobility market where rising petrol prices may steer consumers towards exploring 2W EVs . Since 2W EV are essentially used and ideal for short range travel and existing EV battery technology only allows limited range travel on one charge, the consumer transition from ICE to EV in the 2W segment will be relatively smooth. In fact many 2W consumers are already migrating to 2W EVs due to the tremendous long term operating cost savings and attractive chassis design, where the industry enjoyed growth rates of up to 200% in sales year on year. However, the recent withdrawal of consumer focused subsidies by MNRE for 2W EV has significantly dented sales, which have dropped by over 70% (from 7000 per month to 2000-3000 per month) and leading to the widespread closure of dealerships [82]. The 4W ICE market is growing at a rate of 5% per annum [81], however this growth has not been mimicked or enjoyed by the 4W EV market considering the various challenges highlighted in this paper. Despite supportive Government subsidies, high petrol & diesel prices and informative advertising on the economic and environmental virtues of going electric, there has been minimal impact on sales. Value chain risks for the EV sector resemble that of the regular ICE market, with the addition of battery manufacturers, adverse consumer perceptions & utilities. Ultimately, the future efficiency and cost effectiveness of the EV value chain is hugely dependent on product innovation and growth of EV battery manufacturers production capacities. Further, the key roadblock to EV market growth do not seem to be related to the value chain, lack of charging infrastructure, policy, economics or environment related, but rather Indian consumer perception. More specifically chassis design, range anxiety, concerns about battery longevity, cabin capacity and high purchase costs are the key factors considered when a vehicle purchase decisions are made. Further, it is competition which triggers product innovation and the presents choice to the consumer. In the Indian 4W EV market there is simply no competition. Currently, Mahindra REVA is the only OEM that is manufacturing and selling 4W EV at scale in India, however, their offering cannot be compared by customers to any other 4W ICE vehicle in the same price range/category. It is therefore unimaginable at this stage, and for the short term, that a buyer will purchase a 4W EV as a primary mode of mobility, but rather a secondary vehicle for short range travel, as the current consumer trends suggest. YES BANK and TERI BCSD believe that a real turning point for 4W EV sales in India will come when it is considered as a primary vehicle. Increased OEM competition in this space is critical as it will lead to further value chain efficiencies and product innovations with particular emphasis on attractive chassis design, improving battery technology leading to increased range and economies of scale, ultimately leading to lower purchase prices. These developments will shape consumer perception of 4W EV as being a credible primary mode of personal transport where environmental and operating costs will not be the only factors considered.54 Electric Vehicles in India: Challenges and Opportunities
  • 57. Finally, major multinational OEMs are launching hybrid and hydrogen fuelled vehicles in theInternational markets to much fanfare. Oil and Gas majors are advocating bio-diesel and hydrogenas future fuels as they will be able to leverage their refinery, logistical and refuelling infrastructure,therefore sustaining their business models. Their influence on ICE design, shaping OEM strategicdirections and Government policies are also well known. With these realities and trends in mind,OEMs will be wise to develop and implement alternative business models to leverage an existingecosystem and be a part of the incremental transition from ICE to EV, rather than going againstthe grain and pushing a disruptive technology, in a market, consumer landscape, andmanufacturing ecosystem that is simply not ready for it, yet. Electric Vehicles in India: Challenges and Opportunities 55
  • 58. Acknowledgement YES BANK would like to thank Mahindra-Reva for contributing thoughts and research articles that have enabled YES BANK and TERI BCSD to produce this knowledge paper.56 Electric Vehicles in India: Challenges and Opportunities
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  • 64. YES BANK, Indias fourth largest private sector Bank, is the outcome of the professional &entrepreneurial commitment of its Founder, Rana Kapoor and his top management team, toestablish a high quality, customer centric, service driven, private Indian Bank catering to theFuture Businesses of India. YES BANK has adopted international best practices, the higheststandards of service quality and operational excellence, and offers comprehensive banking andfinancial solutions to all its valued customers.YES BANK has a knowledge driven approach to banking, and a superior customer experiencefor its retail, corporate and emerging corporate banking clients. YES BANK is steadily evolvingas the Professionals Bank of India with the vision of building the "Best Quality Bank of theWorld in India" by 2015.With a vision to create a synergy for the corporate sector as a whole to move towardssustainability, TERI-BCSD (Business Council for Sustainable Development) India was set up byThe Energy and Resources Institute (TERI) in 2001. It has now evolved into a strong industrybody, with membership from diverse sectors, including public sector undertakings,multinationals, and private companies from across India. They work towards evangelizingbusiness sustainability through industry specific initiatives that provide a platform forknowledge, learning and encourage sharing of best practices. It is also the Indian partner of theWBCSD (World Business Council for Sustainable Development), Geneva. TERI-BCSD Indiamember company representatives identify, conceptualize and implement projects inpartnership with researchers at TERI and the structure of the business council reflects thispartnership. TERI provides research and implementation support to the business council andacts as the permanent technical resource for various theme specific action oriented projects,knowledge papers, seminars and capacity building workshops. Membership is by invitationonly. For more information please visit www.teriin.org/bcsd