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Plugging Into The Future

Sumant Banerji     September 2, 2019

In the last few months, if there is one sector that has benefited from the largesse that policymakers can sometimes bestow on industries, it is the nascent electric vehicle (EV) industry in India. For long all that this industry got from the government was mere lip service even as the world moved ahead and charted a course. That has changed now.

First came the expansion of the Faster Adoption and Manufacturing Hybrid and Electric Vehicles (FAME) Scheme, the umbrella policy to encourage electrification of mobility in India, in March. The corpus of this scheme was increased more than 10-fold to Rs 10,000 crore for three years (fiscals 2020-22) from just Rs 895 crore for four years (fiscals 2016-19) in its first edition. Then, in her maiden Budget, Finance Minister Nirmala Sitharaman announced a slew of incentives, including income tax deduction on interest on loan on EVs, lower import duty on many components, and investment-linked income tax exemption for setting up manufacturing facilities for solar electric charging infrastructure and lithium storage batteries. Another booster dose came in the form of GST reduction on EVs from 12 to 5 per cent on July 27.

While these incentives are expected to expedite automakers into launching more EVs in the country, this thrust on electrification has opened up a new business area of EV charging infrastructure, which is attracting numerous companies from very diverse backgrounds. The potential size of this emerging business vertical is significant. According to a McKinsey report, even at a moderate rate of adoption wherein by 2030 about 11 million battery EVs would account for a third of overall vehicle sales in the country, India would need about five million charging stations, entailing an investment to the tune of $6 billion (about Rs 42,000 crore) in setting up that infrastructure.

With uncertainty on the policy front ebbing, the list of companies that want a piece of the action is growing. From oil majors like Indian Oil, Bharat Petroleum and Hindustan Petroleum to power generation and distribution companies like NTPC and Tata Power, ride hailing firms like Ola and Uber, the obvious ones in battery and power solutions businesses like ABB, Exicom, Fortum or Delta, to a clutch of start-ups like EV Motors, Sun Mobility or Lithion Power and even a company like Indus Tower, which is India's largest mobile tower installation firm, the EV dream has captured everybody's imagination.

"Globally, there are two or three different set of companies that are investing. The oil companies like Shell or BP are investing big time, trying to hedge their risks in the future by investing in charging because once electrification in transport takes off, it is their customer that will shift from oil to electricity," says Rajeev Singh, Partner and Automotive Sector Leader, Deloitte India. "Then there are power generation or distribution equipment manufacturing companies - the ABBs, Siemens and Schneider Electrics of the world - that are keen. Plus, there are a host of start-ups as they see a lot of opportunities. Some start-ups have already gone through their first few cycles of investment to establish credibility in the market. Some OEMs (original equipment manufacturers, in this case carmakers) have also now invested into them. We are likely to see something similar in India as well."

Different Ways to One End

With a small number of moving parts and high mechanisation, an EV may be easier to develop and produce compared to the vehicles of today that run on internal combustion engine (ICE), but the process of recharging them promises to be more complicated. At least for some time, it will not be as easy as a five-minute stop at a gas station.

From slow AC (alternating current) chargers at homes and offices that will require overnight charging, to relatively fast DC (direct current) chargers that take up to an hour or more to superchargers that may take just a few minutes, there are many ways to recharge the humble lithium ion battery that powers the EVs of today. The range of options also opens up many business possibilities.

Sanjay Aggarwal, MD, Fortum India

"We will plan the network in a manner that it has a combination of all types of chargers," says Sanjay Aggarwal, Managing Director, Fortum India, which is setting up India's first 50 Kilowatt fast charger. "In India, we will have 70-75 per cent public charging; the rest will be home charging. In public charging, there will be both AC and DC charging. In a shopping mall, for example, where you are going to spend two-three hours, we won't set up a fast charger. There we will set up a 22 KW or a 7 KW charger, which is also more cost effective. The ratio would be something like two slow chargers for every fast charger."

There are many combinations at present, "right from the standards for the charging stations to the revenue models. It is going to take a bit of time before it settles in India," agrees Singh of Deloitte. "It will be a mix and not one-size-fits-all."

"Technology like our Terra HP charger serves as a future-proof solution that will support development of next generation of EVs," says C.P. Vyas, President, Electrification Business, ABB India. "Capable of delivering 350 KW power, it can add 200 km range to an EV in a time frame not much longer than refueling a traditional gas engine vehicle (eight minutes)."

Another option is swapping batteries. Chetan Maini, who gave India its first electric car Reva almost two decades ago, is moving in this direction. He believes this route solves three of the biggest handicaps of an EV - high cost, range anxiety and long hours needed to charge batteries.

"Even when battery costs are falling 8 per cent year on year, it still constitutes 30-50 per cent of the cost of the vehicle. It is too high. Then there is range anxiety, which is psychological as well as technical. The third challenge is long refuelling; six-eight hours on regular charging, one hour for fast charging. For consumers who are used to five minutes for anything, more than that is an eternity," Maini says. "So if you remove the battery from an EV, it immediately becomes cost competitive with a conventional (ICE) vehicle. No compromise on performance. If you can then swap the batteries in a couple of minutes, you have successfully addressed both range anxiety as well as long refuelling time. The cost of energy of a battery is cheaper than petrol or diesel."

The concept is already finding traction among fleet owners. Maini's Sun Mobility recently tied up with ride hailing company Uber for battery swapping in the latter's upcoming electric three-wheeler range. The largest organised player in this business, SmartE, which runs almost 1,000 electric rickshaws in Delhi-NCR, also swears by it.

Goldie Shrivastava, Co-founder and CEO, SmartE

"We have seen the efficiency of the fleet go up by almost 40 per cent as unlike in the past when e-rickshaws were off the road when they were being charged, now the battery is swapped in a matter of minutes," says Goldie Shrivastava, Co-founder and CEO, SmartE.

Here's an example of Hyundai Kona charged through a fast charger. It has a 40 KW battery, 300 km range, and cost of charging is Rs 600 per full cycle (comparable to topping up a petrol or a diesel tank). The cost to the consumer will be Rs 2 per km, but the company earns Rs 300 (post-electricity costs). Its cost of equipment is Rs 20 lakh. If 15 vehicles are charged per day on one charger, it comes to Rs 1.35 lakh a month, or about Rs 18 lakh per year."In a year or two, we will reach break even, depending on the number of vehicles. There will be some challenges in profitability because the number of vehicles will be less and the need would be to spread the network. But once the scale comes in, it will become much easier. Rs 2/km when it is Rs 6-7/km on petrol would be very attractive," says Awadhesh Jha, Vice President, Fortum Charge and Drive India.

"There is no need for a single solution for everyone - charging can be as ubiquitous as electricity for small vehicles. However, for heavy users and available battery technology, battery swapping innovations should be encouraged because they eliminate wait time, optimise land resources, and require smaller batteries," adds Anand Shah, Co-founder, Ola Electric.

Battery swapping has its drawbacks though and most believe its utility will be restricted to fleet consumers. "An individual customer may not be receptive to swapping batteries as he sees the battery in his new car as an asset which he would like to maintain himself," says Jha.

Making It Work

Slowly but surely, charging stations are coming up in some key areas of metro cities in India. Government-owned Energy Efficiency Services Ltd (EESL) has a head start. EESL, a joint venture of four power PSUs that famously heralded the LED bulb revolution in the country, saw a business opportunity in buying electric cars in bulk to replace all petrol and diesel vehicles used by the government. It soon realised that the plan would come unstuck unless charging infrastructure is laid out. It has now changed tack to focus only on setting up charging points. So far, it has set up 300 charging stations, mostly in Delhi-NCR, and in the next three years, plans to take that number to at least 4,000 across the country.

"We have big plans in this area. In three years, this segment should have a revenue of Rs 3,000 crore and account for 20 per cent of our overall turnover," says Saurabh Kumar, Managing Director, EESL.

Others have equally bullish plans. Tata Power, which currently has about 85 charging stations in five big cities, plans to open at least 500 more in the next one year alone. Delhi-based EV Motors has earmarked an investment of Rs 1,400 crore to set up 6,500 of its PlugNGo charging stations in 15 cities in India over the next five years. Mumbai-based IT services firm Vakrangee also wants to convert each of its centres into an EV station. Similarly, Indus Towers is looking at transforming its 1,60,000-odd mobile towers into EV charging points.

The three government-owned oil marketing companies are also looking into the possibility of converting their network of petrol pumps into charging stations for EVs. There are over 60,000 petrol pumps in India at present. India's largest oil marketing company, Indian Oil, is one of the early entrants in this business and has already installed 24 charging stations across eight cities.

"Primarily in major cities and dedicated highways, our focus is NCR, Jaipur, Chandigarh, Delhi-Chandigarh Highway, Agra, Delhi-Agra Highway, Bengaluru, Greater Mumbai and Kochi," says a company spokesperson. "Subsequently, we plan to target Kolkata, Chennai, Ahmedabad, Pune and Surat. For select highways connecting metros, EV charging stations are proposed along the Mumbai-Pune Expressway, Ahmedabad-Vadodara Expressway, Yamuna Expressway (Delhi to Agra), and Delhi-Jaipur, Bengaluru-Mysore, Bengaluru-Chennai and Surat-Mumbai expressways."

Even the government is betting big with the Ministry of Road Transport and Highways floating an expression of interest for setting up 1,000 charging stations with 6,000 chargers across all big cities. The subsidy on offer is up to 70 per cent of the cost of public charging stations being set up under this exercise. This is just one of the many tenders the government intends to issue in future.

On a broader scale, the government wants to set up charging stations every three km in all the cities with a million-plus population (46 cities) and every 50 km on highways. The demand from this alone would be around 30,000 slow and 15,000 fast charging points over the next five years.

Cautious Approach

"The size and quantum of tenders for EV chargers will only increase in future. This is the industry to invest in," says a senior Ministry of Heavy Industries official.

Yet, most companies are hedging their plans and are not willing to commit fully for now. And with good reason. Sale of EVs in India remains abysmally low: just 0.06 per cent of the overall vehicles sales. Apart from this, while there are a number of products available in two- and three-wheelers, only a handful exist in cars and commercial vehicles.

"We have not reached the inflection point yet, but it will probably come in three-four years," says Aggarwal of Fortum. "When it does, it will be in huge numbers. We have taken the decision that we will jump in now and tune ourselves and based on the market we will decide whether to accelerate or not."

While a lot hinges on how quickly EVs spread, there is enough money to be made by recharging batteries.

"Today, if we have to make our plans based on visible profits tomorrow, I do not think we will go very far. This business is going to take time to mature," says Ramesh Subramanyam, CFO, Tata Power. "We are not going in with so much money that we lose sight of the returns but this requires incubation. Players like us will have to invest in this sector for the long haul, and time ourselves so that we do not put in too much capital ahead of time."

Globally, EVs have been helped by subsidies and incentives by governments and while fiscal constraints do not provide much headroom for the government in India, the FAME-2 scheme did earmark Rs 1,000 crore specifically for charging infrastructure in the country.

"Unless you lay down the infrastructure, the cycle doesn't start. It is a chicken and egg situation. We are trying to break the jinx by participating in creating the infrastructure and in parallel watching the evolution of EVs," Subramanyam adds. "The first few years will be formative where there will only be investment. We will need to fix the network, and help car penetration and eventually charge the subscribers. Once it crosses a threshold, there will be revenue to be made."

While the first round of investments is being made, it is scale that everybody is looking at in the longer term. "For a couple of years, you may not make money because you do not have the volume, but in this business the upside is very lucrative," says Aggarwal of Fortum. "We have taken a conscious decision that smart unmanned chargers are the future. There is no need to have a person there. Business is profitable and it will become even more so as the scale increases."

Wider availability of EVs and related infrastructure in India is just a matter of time. Companies don't want to miss out on the opportunity this offers.

@sumantbanerji


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