Electric vehicles (EVs) are growing in popularity and certainly in mind space. They are cleaner and more efficient, and even fun (think Tesla). Their growth, however, is still considered just a market problem: The end user should choose on the basis of what it costs to buy and run, or how it performs, etc. Markets matter, but there is also a need for government and policy inputs. EVs, after all, operate within broader energy and transportation ecosystems with their own distortions. Unless we understand Indian-use cases, drivers (in both senses of the word), limitations and opportunities, we risk ambitious targets that remain aspirational.

EVs IN THE INDIAN CONTEXT

Indians are famously value conscious. This is why consumers love diesel cars, despite their higher MRP and pollution relative to petrol counterparts. Even at today’s low oil prices, running a diesel sedan can cost about Rs3.8 per kilometre versus petrol’s Rs5.5. In contrast, CNG costs roughly Rs1.9/km, but it’s not widely available. The cost of EVs depends on electricity price, which varies significantly. At Rs7/kWh (kilowatt hour) of power, they cost only about Rs1.1/km This saves consumers driving 5,000km per year over Rs20,000 annually, and taxis much more as they drive 10-15 times as much.

The catch is the upfront cost. EVs are expensive, primarily because of the battery. A single kWh of electricity is enough to go about 6km, so a 200km “full tank" range requires about 35 kWh of battery. Today’s prices for lithium ion batteries are about $250/kWh globally, which comes to Rs5.7 lakh in battery costs, excluding import duties. Even with an eight-year lifespan and a 12% interest rate, justifying the battery costs on per kilometre savings alone means one would have to drive over 25,000km per year. Doable, but not for everyone. However, when battery prices fall to $100/kWh, as projected a few years out, EVs can become a game changer.

Range turns out to be key: 5,000km per year is only about 15km per day on average, while an urban taxi may do 300km daily. Higher range means not only more battery cost but weight as well. In an ideal world, we would have a smaller battery pack and simply recharge periodically. In practice, taxi and fleet vehicles can only charge overnight, and even private users may have limits on charging options. Without fast-charging infrastructure—fast-charging an EV requires much more power than household 15 amp sockets, which can only offer about 3 kW of power, so 35 kWh takes almost 12 hours to charge—one inevitably has “range anxiety". Unlike the US, most Indians don’t have a personal garage. Hence, widespread and company-agnostic public charging infrastructure becomes a key policy choice.

EVs SHOULD BE A WIN-WIN FOR STAKEHOLDERS

The power grid is also a key stakeholder in the ecosystem. Not just where but when does someone charge? The worst-case scenario is consumers coming home after work and plugging in at the same time, which also happens to be the grid’s demand peak. One solution is charging consumers a variable rate based on time of day, but that isn’t yet the norm for most users in India, and certainly not households.

Done right, EVs and the grid can have enormous synergy. Not only can EVs charge whenever there is “surplus" power, they have a battery useful for absorbing variable renewable energy. They can even offer backup power for the grid. This is one reason we should create a new electricity consumer category for EVs, one that includes aggressive time-of-day pricing (cheap charging when power is surplus). Otherwise, we risk commercial users attempting to charge EVs on subsidized residential power prices. Or worse, utilities disliking EVs if they hurt their viability, to the extent that they don’t provide essential support (this already happens with renewables).

Not only are EVs efficient—with regenerative braking capturing energy otherwise wasted and also due to the inherent efficiency of motors, especially at low speeds—they pollute less. We should value such environmental co-benefits, not just carbon reductions (which are roughly a wash, but avoided local air pollution. We could compensate cleaner vehicles through reduced registration charges, or even aim for mandating EVs for taxis and selected (urban) public transport vehicles. These are often diesel, and thus far worse polluters.

There are other distortions to consider. Over half of petrol’s pump prices are for taxes. Petrol taxes are 1% of GDP (gross domestic product) and diesel, 2%. Fully switching to EVs means affecting some 2% of GDP. Of course, oil is predominantly imported, so moving to EVs should be a worthwhile trade-off. Plus, over time, more and more electricity will come from renewable sources.

There are other ways to spur EVs, including dedicated charging spots, and discounted or free parking. The long-run goal isn’t just to make vehicles electric but to reduce personal driving. This means urban redesign for walking/biking, more shared services, and more and better public transport (convenient and fast enough that the rich will also choose it). Instead of trying to pick technology winners, the government mainly needs to create the right frameworks and help overcome “network effect" problems, covering both the grid and charging infrastructure. Innovation is already happening in these areas.

Rahul Tongia is a fellow at Brookings India.

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