Economic Undertakings

electric vehicle: what budget 2022 can do to fuel the electric vehicle charging scene

The Government of India, through the Ministry of Energy, recently promulgated the “Revised Consolidated Guidelines and Standards for Electric Vehicle (EV) Charging Infrastructure” on January 15, 2022. Among many issues, these guidelines have set the timelines for providing grid connectivity for the installation of public charging stations, which is a good step to facilitate the establishment of this critical infrastructure. State Electricity Regulatory Commissions will need to implement these guidelines in letter and spirit. The guidelines set the following geographic density targets for the deployment of public electric vehicle charging stations:
  • At least one charging station in each 3×3 km grid
  • A charging station every 25 km on either side of highways and roads
  • A fast charging station every 100 km on highways/roads for long range/heavy electric vehicles

The need to invest and deploy electric vehicle charging is irrefutable. But demand and other uncertainties combine to make public charging infrastructure risky and an unattractive investment. To achieve scale, debt financing is essential and the industry must gradually reduce its reliance on policy-based grants. Simply put, the business case needs to be vastly improved. Understanding the levers that can increase revenue and reduce costs is key to making the business case more attractive to traditional investors. There are significant business, structural, and operational levers to reduce latency, increase revenue, and reduce costs. Smart charging services, advertising, retail colocation and network interoperability are levers for increasing revenue.

In this context, the guidelines promote a revenue sharing model for the establishment of public charging stations. Land available from government/public entities can be monetized for the installation of public charging stations on a revenue sharing basis at a fixed rate of Re 1/kWh (used for charging). It is a step in the right direction if widely adopted with transparent and competitive bidding mechanisms. However, the budget can further specify how this land will be made available.

The upcoming budget can also reinvent ways to promote the ease of charging electric vehicles with low-cost renewable energy (RE) systems. Coupling EV charging with low-cost renewable energy systems can go a long way to improving the economics of EV and RE adoption. The guidelines notified by the Ministry of Energy took the first step in this direction for public charging stations by allowing free access, stipulating time limits for free access requests and applicable free access fees. Access to cheaper finance can also be made available for a period of time until it becomes self-sustaining. Moreover, even larger commercial vehicles are just as polluting and should go electric as soon as possible. Capital subsidies could also be granted to them.

Furthermore, although incentives have been provided for charging infrastructure, other incentives can also be provided for battery swapping – this is a big enabler for electric mobility, especially for the business segment. In addition, the GST on electric vehicles has been reduced, but that on batteries seems to be even higher. This can also be considered for a reduction in line with that of electric vehicles.

Budget proposals to promote green hydrogen
GH2’s supply chain is complex like any other fossil fuel and includes generation from renewable energy sources, storage and delivery (if the generation and demand centers are not co-located). Beyond that, many potential end-use applications may require technology and infrastructure to support energy transformations such as H2 to electricity and vice versa, H2 to ammonia, H2 to methanol, etc. Production, storage, and supply of GH2 must meet the purity, pressure, and volume requirements of specific industries and applications.

Reaching parity with the gray prices of hydrogen and natural gas will determine the speed and extent of GH2 adoption. This requires driving the demand for GH2 incrementally, thereby realizing economies of scale across the entire supply chain, indigenizing the supply chain, and improving technology to improve the efficiency of GH2 production and transformations with abundant raw materials on earth. R&D investments and programs are crucial for technological indigenization throughout the supply chain.

Much of the debate over reducing the cost of GH2 centers on production, particularly electrolyser systems and renewable energy supply. Government interventions and pilot projects should also address and demonstrate the cost-effectiveness of GH2 storage and delivery systems. Our models simulating the techno-economics of the GH2 supply chain indicate that the goal of reducing GH2 costs to less than INR 100/kg cannot be achieved without cost-effective storage and delivery systems.

The launch of the National Hydrogen Mission (NHM) and various GH2 pilot projects initiated by public sector companies are steps in the right direction. The upcoming budget may provide more clarity on NHM’s near-term strategies to drive GH2 demand, including but not limited to GH2 purchase obligations, GH2-to-gas blending targets channeled natural gas, local manufacturing and technology demonstration pilot projects. However, the main objective of the budget should be to stimulate R&D investments with public-private partnerships (PPP) and grand challenges to demonstrate efficient and cost-effective GH2 electrolysers, storage and delivery solutions using electrocatalysts and abundant materials in the earth. The Council for Scientific and Industrial Research (CSIR) can spearhead this initiative and design a PPP program to stimulate R&D investment from India Incorporated in collaboration with leading academic institutes in the country. The budget should provide a concrete roadmap for the development of testing facilities and certification mechanisms based on globally harmonized standards and regulations for the production, storage and delivery of GH2. Funding for the viability gap should be focused on GH2 projects enabling low carbon steel, cement, trucking and shipping. Renewable energy systems are usually oversized to account for the variability in the production of green hydrogen systems. A purchase guarantee mechanism to buy back excess renewable electricity can generate alternative income for investors and reduce the overall cost of production.

The budget should also focus on creating world-class talent in the GH2 value chain by introducing dedicated university programs/degrees and establishing national research institutes focused on GH2. This is important to kick-start the indigenization of technology development and support industry ambitions for R&D, product development and services across the value chain.

Budget proposals for other clean energy technologies
The solar industry still depends on a large number of imports for various equipment. These always attract a high price, which makes our native modules uncompetitive. The budget could consider measures to reduce the cost of imported equipment to promote the solar industry. Also, new and more innovative applications as well as efficiency modules are needed as we move forward. Clarification should also be provided on the duration of the basic customs duty on the import of solar modules to promote the domestic industry.

It is imperative that the budget establishes a fund for R&D to promote this in India. We need to do a lot more in R&D to scale new technologies that could be mass-produced and exported.

Another measure could be to restore the benefits of accelerated depreciation. Some sort of viability gap financing can be considered for emerging sectors that are still not viable, such as energy storage, offshore wind, floating solar, etc. The LIP program has had a phenomenal response and the expenditures and reach of this program can be expanded.

MSMEs are a very promising segment that can play a huge role in electric vehicles, batteries and distributed renewable energy. The potential of this segment must be fully exploited. To this end, some additional benefits could be extended such as access to concessional finance or even special finance products given the perception of risk, access to common manufacturing facilities and test centers, etc

The author is partner and leader – Power & Utilities, EY India. The opinions expressed are personal.