In the past 3months, the NITI Aayog has published two important reports regarding electric mobility in India. The first report presents a blueprint for inclusion of electric vehicles (EVs) in priority sector lending to stimulate the demand for EVs. The second report, emphasises on the need for advanced chemistry cell energy storage in India. These two are inarguably amongst the primary considerations to promote faster and wider adoption of clean fuel operated mobility solutions in the country.
It is pertinent to note in this context that India has committed to the global community that by the year 2030, the share of electric vehicles in the total vehicles sold in India would be 30% (EV30@30).
The key highlights of the NITI Aayog’s reports are as follows:
Facilitating easy and adequate credit for EVs
· Cumulative investment in India’s electric vehicle (EV) transition could be as large as INR 19.7 lakh crore ($US266 billion) between 2020 and 2030. There is a need for higher liquidity and lower cost of capital for EV assets and infrastructure.
· Given the nascency of EV technology and adoption, FIs such as banks and non-banking finance companies (NBFCs) are not lending to EVs due to associated asset and business model risks (see Exhibit 3). These risks are both real (e.g., uncertainty of resale value) and perceived (e.g., product quality). As a result, if financing is available, EV buyers are unable to obtain terms (i.e., interest rates and tenures) that are comparable to ICE vehicles. Governments across the world are recognising this challenge and are introducing supportive measures to facilitate easier financing of EVs.
· Off-grid solar and off-grid renewable energy solutions for households were included within PSL guidelines in 2012.21 In 2015, renewable energy was included as a priority sector. This widened the scope of lending to larger installations and renewable energy-based public utilities.
· Including EVs in the Reserve Bank of India’s priority sector lending (PSL) guidelines can complement the $US300 million facility and encourage the financial sector to mobilise necessary capital. It can ensure a swift and equitable transition to EVs.
· The economic case for promoting the adoption of Electric two- and three-wheelers, as well as four wheelers in commercial use cases is compelling. Easy and cheaper formal credit is desirable for higher rate of adoption in rural areas, especially due to high employment creation potential.
· While inclusion of EV credit in priority sector lending mandate is promising, additional policy and market measures would be required to address other challenges, which include state level fiscal incentives, open data on vehicle performance, industry-led buyback programmes, and loan guarantee facilities.
· NBFCs will be important to expanding financing for EVs due to several factors. First, the vehicle finance market share of NBFCs has been increasing over the past five years. However, NBFCs have been facing a liquidity crunch since 2017 that has been worsened by the effects of COVID-19. This may translate to EV-first NBFCs struggling to access low-cost finance from banks. The PSL guidelines allow for co-origination of loans to the priority sector between banks and NBFCs. Both entities thus share risks and rewards.
Developing an advanced energy storage ecosystem
· At the COP26 summit, India committed an ambitious target of 500 GW of non-fossil fuel-based energy generation in India by 2030 and reduction in the total projected carbon emissions by 1 billion tonnes by 2030. Obviously, to meet these targets India needs a significant amount of grid storage and a large increase in the number of electric vehicles (EVs). This requires stepping up local manufacturing, exploring new avenues, and allowing global competition in the energy storage business.
· A matured domestic battery manufacturing ecosystem is expected to create competitive advantages and contribute to India’s energy security. This will require a combination of demand and supply-side measures.
· The annual market for stationary and mobile batteries in India could surpass US$15 billion by 2030, with almost US$12 billion from cells and US$3 billion from pack assembly and integration, under the accelerated case scenario. Even under a more conservative case it amounts to an annual market of US$ 6 billion.
· Currently, India has a negligible presence in the global supply chain for manufacturing of advanced cell technologies. Advanced batteries are a cornerstone technology, and their manufacturing within India could allow domestically sourced batteries to cater to the demand generated from EVs, grid storage applications, consumer electronics, and other uses. It is an opportune time for India to step forward and support the development of a domestic battery manufacturing ecosystem that meets its future energy storage market needs and helps reduce its dependence on imports to meet the future advanced energy economy demands.
· In the accelerated scenario, battery demand is expected to rise to 260 GWh by 2030. This would require nearly 26 gigafactories with an average advanced battery production capacity of 10 GWh per year. The conservative scenario battery demand would require 10 gigafactories by 2030. Since India has no manufacturing plants at this scale now, developing and rapidly scaling its advanced battery manufacturing industry is expected to require focused and coordinated public-private actions.
· Batteries currently account for 25%–50% of the total cost of an EV depending on range and performance. While battery costs are declining rapidly, the battery will remain a critical component of the EV supply chain.
· For grid operators, energy storage systems can provide a suite of ancillary services that supports the reliable and efficient operation of the electricity grid. Renewable resources such as wind and solar can fluctuate in output both at the daily scale and the seasonal temporal scale. Seasonal storage is required at very high levels of renewable penetration to store large amounts of energy for weeks to months to bridge the gap between seasonally variable renewable energy output.
· The mobile and electronics industry in India is fast growing and diverse with a significant reliance on high-performance batteries across a wide range of applications. Mobile phones, power banks, IT hardware, telecom devices, smart agriculture, defence electronics, and other portable devices all require high density and safe integrated batteries.
