India – Electric Vehicles: Disrupting The Automotive Ecosystem.

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28 March, 2019

 

India – Electric Vehicles: Disrupting The Automotive Ecosystem.

 

The Indian economy is one of the fastest growing economies in the world, with an increasing demand for energy. Given that historically India has relied on pollutant hydrocarbons to run its power plants and vehicles, there has been an increasing focus on setting ambitious ‘green’ targets, especially in light of the alarming levels of pollution in India. The Government of India (GoI) has actively encouraged the adoption of electric vehicles with the idea of shifting the production of new automotive vehicles from internal combustion engine models to electric vehicles by 2030.

 

What are electric vehicles (EVs)? Unlike conventional vehicles (internal combustion engine models) that run on petrol, diesel or CNG powered engines, the ‘fuel’ for an EV is electricity. EVs use the energy stored in a battery (or series of batteries) for vehicle propulsion and can be connected to a charging point and recharged for their next use. Energy storage systems are varied in nature including: hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs) and all-electric vehicles. They are operated on different battery technologies varying from lead acid batteries, nickel metal hydride and lithium ion batteries.

 

As technology and innovation disrupt the traditional electricity chain (our traditional electricity regulations certainly did not envisage a car being plugged into the grid), so does the need to revisit the existing regulatory framework, to examine whether it is ‘catching-up’ with the transitions. As part of a three-pronged series of articles, this first part will focus on providing a general overview of EVs, the policy progression formulated by GoI and the way forward; the second part will briefly review existing electricity laws and amendments or clarifications in relation to it, compare the various policies and regulations formulated by key states who are front runners and early adopters; and the third part will focus on the market landscape, early adoption, differing financial and business models like battery swapping or battery renting, incidence of costs, and the legal and commercial issues in developing the larger ecosystem around EVs.

 

Policy Progression

 

Policy Progression for Electric Vehicles in India

The Government of India (GoI) has been keen to promote and support electric mobility. The National Mission on Electric Mobility, 2011 and further promulgated in 2013, and the National Electric Mobility Mission Plan, dated August, 2012 and launched in 2013, were both approved by the GoI to accelerate the adoption of EVs.

 

GoI policies are formulated to target: (a) an increase in demand through providing subsidies and direct incentives to buyers; and (b) building and sustaining the required infrastructure, especially charging stations. While adoption of EV vehicles by private players has been encouraged, GoI policies lay great emphasis in adopting EV as a viable, affordable and environmentally friendly alternative for public transport.

Fame Policy - ELectric Vehicles in India

The Department of Heavy Industry (DHI), being the nodal department for the automotive sector, formulated a scheme for the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME). It commenced in financial year 2015-16 and was subsequently extended till the end of financial year 2018-19. FAME aimed to support the development of the hybrid and electric vehicles market and the allied manufacturing ecosystem by focusing on technology development, demand creation, pilot projects and charging infrastructure; and utilise the funds allocated for FAME by offering a mixture of demand side incentives, concessions and state level incentives. The national automative board (NAB) has been constituted by the GoI as the main operating agency for implementation of FAME.

 

The FAME policy was revisited and reviewed by the DHI recently. Pursuant to it, the DHI through an office memorandum dated March 8, 2019 published a notification in the gazette regarding phase-II of the FAME India Scheme (FAME II). DHI continues to be the nodal agency and has the primary mantle of addressing any issues or hurdles in implementation of FAME II. Further, an inter-ministerial empowered committee, the ‘Project Implementation and Sanctioning Committee’ headed by the Secretary (Heavy Industries) will be constituted for its overall monitoring, sanctioning and implementation.

 

FAME II has been proposed to be implemented over a period of three years with effect from April 1, 2019. It is to focus on three broad verticals:

 

(i) Demand incentives:

 

Demand incentives shall be provided to directly increase demand in (i) electric two wheeler, three-wheeler vehicles, and buses; and (ii) electric and hydrid four-wheeler vehicles. This shall be done by providing incentives to original equipment manufacturers (OEMs) of such vehicles for the purpose of reduction of their purchase price. The GoI will periodically reimburse the OEMs[1]. The primary focus and outreach of the incentives are to be towards vehicles to be used for public transportation, and those registered for commercial purposes; along with privately owned and registered two-wheeler vehicles.

 

(ii) Establishment of network of charging stations

 

FAME II envisages support for setting up adequate public charging infrastructure through the participation of various stakeholders including government agencies, industries and public enterprises. A slow charging station for each electric bus, and a fast charging station for every ten electric buses have been proposed to be facilitated. Further, FAME II also envisages providing funding for 100% of the costs of establishing charging infrastructure, on a case-to-case basis. Notably, inter-linkage of renewable energy sources with charging infrastructure shall be encouraged.

 

(iii) Administration of FAME II

 

The DHI will appoint knowledge partners and other required agencies for logistic and technical support. Efforts will also be made to create public awareness including but not limited to public awareness, conferences and information, education and communication (IEC) activities.

 

The expenditure to be incurred under FAME II is planned to be primarily towards demand incentives, with the total fund requirements over the next three financial years planned at Rs. 10,000 crores.

 

One of the key criticisms of FAME was that the policy progression was stunted and in silo and not in tandem with the state policies. FAME II clarifies that state governments should provide supplemental support through fiscal and non-fiscal incentives. State wide policies have been gaining traction over the past few months; Karnataka, Andhra Pradesh, Telangana, Maharashtra and Uttarakhand have come up with their own policies, offering a mixed hamper of financing support and incentives, capital subsidy, reimbursement of stamp duty and power, land and skill development incentives. We will analyse some of the state policies in greater detail in the next part.

 

Going Forward

 

The Indian automotive market is distinct from the automotive markets in other countries in terms of composition, consumer preferences and the level of infrastructure development; the market remains dominated by two wheelers and small cars. Additionally, there is considerable government pro-activeness in the commercial vehicle category; several state agencies such as Navi Mumbai Municipal Transport, BEST Mumbai, Mumbai Metropolitan Region Development Authority, and Bangalore Metropolitan Transport Corporation have issued tenders in the recent past to procure electric buses on a public private partnership (PPP) model.

 

The National Institute of Transforming India (NITI) Aayog has also issued a draft concession agreement on a PPP basis for operation and maintenance of electric buses in Indian cities and has sought comments on the same from the stakeholders. Other measures for faster EV adoption included private players roping in cab aggregators to switch to EV (like Mahindra). As usage of EVs become more widespread, it will compel changes in several fields of law.

 

 

For further information, please contact:

 

Santosh Jankiram, Partner, Cyril Amarchand Mangaldas

santosh.janakiram@cyrilshroff.com

 

[1] All OEMs have to be registered with NAB.