Context

• India's commitment to combating climate change and reducing emissions is evident in its recent efforts to promote electric vehicles (EVs), specifically electric buses.
• The recent approval of the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme by the Union Cabinet marks a significant step forward.
• Analysing the current state, challenges, and potential solutions for private-sector integration, it is important to explore how India's transition to electric buses can be accelerated to meet ambitious climate goals.

Public Sector-Driven Electric Bus Deployment

• The PM E-DRIVE scheme builds on previous initiatives like the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles in India (FAME) scheme, which provided financial support to public entities for EV adoption.
• Under FAME I and FAME II, over 7,500 electric buses were approved for purchase subsidies, but these subsidies were limited to state transport undertakings, city transport bodies, and municipal corporations.
• As a result, the shift toward electric buses has primarily been driven by the public sector.
• However, public transport buses represent only 7% of India's 24 lakh registered buses, leaving private bus operators—who account for 93% of the bus fleet—largely unsupported.
• This limited approach hampers the potential for large-scale adoption of electric buses, as the transition of private buses is essential for meaningful environmental impact.

Challenges in Transition to Electric Buses for Private Operators in India

• Financing Difficulties and High Upfront Costs
  • Financing remains a primary obstacle for private bus operators considering a shift to electric buses.
  • Unlike public sector entities, which benefit from government incentives under schemes like FAME, private operators face a high-cost barrier with limited access to subsidies.
  • This financing challenge is exacerbated by the high initial costs associated with purchasing electric buses, which are typically more expensive than their diesel counterparts.
  • Private bus operators often struggle to secure affordable financing options due to the perceived high-risk profile of electric buses.
  • This perception arises from several factors, including uncertainties surrounding the lifespan of EV batteries and a lower perceived resale value, which reduces their effectiveness as collateral.
• Charging Infrastructure Limitations
  • Access to reliable and affordable charging infrastructure poses another substantial hurdle for private bus operators.
  • The FAME scheme funds charging stations primarily for public transport units, which are typically located within government-operated bus depots.
  • Private operators, however, lack access to these facilities and are therefore required to invest independently in charging infrastructure.
  • For most private operators, who often operate fleets of fewer than five buses, establishing proprietary charging stations is economically impractical.
  • Constructing a charging station involves high capital expenditure for both land and equipment.
  • The land required for charging stations—estimated between 70 to 120 square meters—is often expensive, particularly in urban areas where real estate costs are high.
• Operational Constraints and Limited Charging Access
  • Even if private operators can access or establish charging stations, operational constraints and limited access make it difficult to integrate electric buses into their fleets effectively.
  • For instance, the typical operational range of an electric bus on a single charge—usually between 250 and 300 kilometres—can be a limiting factor for long-distance intercity routes.
  • Without accessible, strategically placed charging stations along high-traffic corridors, private operators are restricted in the routes they can cover.
• Perceived High-Risk Profiles and Uncertainty Around Battery Life
  • Uncertainty around the lifespan and replacement costs of electric vehicle batteries adds to the challenges private operators face in transitioning to EVs.
  • Battery health degrades over time, particularly with frequent high-charge cycles, which may reduce vehicle range and reliability.
  • Battery replacement, which is typically necessary after a few years of operation, represents a substantial expense, often accounting for a significant portion of the initial vehicle cost.
  • This perceived risk further complicates financing, as financial institutions may hesitate to provide favourable loan terms for vehicles with uncertain long-term value.
  • The resale market for electric buses is also underdeveloped in India, making it difficult for operators to offset depreciation costs.
• Regulatory and Policy Gaps
  • Current national policies and incentive schemes largely exclude private bus operators, focusing primarily on state and city transport undertakings.
  • This policy gap means that private operators have limited support for transitioning to electric buses, resulting in a lopsided growth model that prioritises public sector EV adoption but neglects private sector needs.
  • Additionally, regulatory inconsistencies across states can create further complications, as differing rules on permits, tariffs, and land usage can make it challenging for private operators to invest confidently in electric mobility.

Potential Solutions to Drive Private Sector Transition

• Addressing Financial and Infrastructure Challenges
  • To accelerate private electric bus adoption, it is essential to address these financing and infrastructure challenges.
  • First, offering favourable financing options, such as interest subsidies, longer loan tenures, and credit guarantees, could alleviate the financial burden on private operators.
  • These measures, as highlighted by the ICCT report, could reduce investment risks for financiers and make electric buses more accessible to private operators.
• Development of Shared Public Infrastructure
  • Secondly, developing shared public charging infrastructure within cities and along high-traffic intercity corridors is crucial.
  • State governments, leveraging financial subsidies under the PM E-Drive scheme, can take the lead in establishing accessible charging stations.
  • Structuring tenders for charging infrastructure on a design-build-operate-transfer (DBOT) basis and providing additional fiscal incentives could further encourage private investment.
  • By ensuring minimum daily energy consumption guarantees, states can make these investments economically viable, especially for small private operators.
• Innovative Business Models to Support EV Transition
  • The Battery-as-a-Service (BaaS) model, which separates battery ownership from the vehicle, presents a viable solution to reduce upfront costs.
  • By adopting battery swapping and usage-linked leasing, like systems implemented in China and Kenya, private operators can minimise financial strain while benefiting from the cost savings associated with electric buses.
  • Platforms such as India’s Vertelo by Macquarie offer solutions tailored to reduce barriers for private sector operators.
  • Scaling BaaS could provide significant incentives for private operators, facilitating widespread adoption of electric buses and promoting competitive growth within India’s EV market.

Conclusion

• As India moves forward with the PM E-DRIVE scheme and strives to meet its climate goals, integrating private bus operators into the electric bus ecosystem is imperative.
• The government’s current support for public sector EV adoption is essential, but it must be expanded to create an inclusive framework that encompasses the private sector.
• Addressing financial barriers, developing charging infrastructure, and exploring innovative business models can bridge the gap, enabling a holistic transition to electric buses across India.