Economic Times (ET) poll on March 22, 2018 revealed that 62% of people voting believe that the Electric Vehicle (EV) plans of the Government, look good only on paper. This result has emerged despite the recent announcement made by Dr. Rajiv Kumar, Vice Chairman, Niti Aayog on their plans of working on a comprehensive policy to ensure connected, shared, electrified mobility for the people with focus on two and three wheelers, which constitutes a major chunk of privately owned transport, and the public transport.
The debate on future of mobility in India has somehow become a binary narrative, EVs v/s the rest. While it is true that the global electric stock has surpassed two million vehicles and it is expected to reach 9-20 million by 2020 and between 40-70 million by 2025, there are many challenges in policy regulatory environment, creation of EV ecosystem for battery charging system or swapping, and having a robust grid to accommodate unpredictable loads that need to be addressed before making transition to e-mobility. The continued dominance of Internal Combustion Engines (ICE) due to improved fuel efficiency itself is seen to be narrowing the prospects of a transformational quantum jump for transition to e-mobility. A policy debate on the future of mobility in India needs to address the following key issues:
One: The current binary narrative of EVs vs the rest has gained traction due to different public announcements made by senior ministers of the Government. These have varied in focus from “aiming all-electric car fleet in the country by 2030” to “not bringing a separate policy for electric vehicles”. At the same time, headlines like, “diesel demand may grow threefold by 2040” have added to the uncertainty over future fuel policy mix. This calls for a harmonised, integrated and well synchronised national response after multi stake holder consultations.
Two: It is more important to analyse the influencing drivers for determining the policy for mobility in India. It requires a deep dive in the likely process of urbanisation, aspirational demographic profile seeking economic opportunities in cities and controlling increasing pollution in cities for improving ambient air quality. Besides, a major rationale will always be to reduce dependence on imported crude oil and save outgo of foreign exchange by developing alternate non fossil fuel based options using local resources.
India has about 53 cities with population of more than one million, including three mega cities with population of more than 10 million each. Besides, there are about 400 other cities with population above one lakh each. All million cities are expected to grow further in population. It is estimated that 183 million more households will move to urban areas by 2050. The physical space for roads is limited. The road space is further reduced by the parking length (15% to 60%), and pedestrian fatalities are becoming an area of concern for common man.
If one looks at the night satellite images of NASA for the past five years, it can be clearly seen that urbanisation in India is happening faster than expected. From the 32% (264 million households) in 2015 to 51% (447 million households) in 2050, urbanisation is going to be the major challenge in mobility planning. Luckily, over 70% of the people in a city like Mumbai and suburban commute to work in either train, bus or foot. The people commuting to work in cars is the highest in Delhi NCT. The use of public transport in India for daily commutes in major cities is high. Public transport is logging over six trillion passenger KMs, of which the share of traffic by road is 85%.
Three: The journey for seeking electric mobility in India started in 2013 with the announcement of the National Electric Mobility Mission Plan (NEMMP) by the Government with a proposed cumulative outlay of Rs. 14,000 crores, including industry contribution. An ambition target to achieve 6-7 million sales of hybrid/electric vehicles y-o-y by 2020 was announced. Various policy levers, like demand side incentives, promotion of R&D in technology, promotion of changing infrastructure, supply side incentives and encouraging retro-fitment of on-road vehicles with hybrid kits was announced. Regrettably, various flip-flops, lack of coordinated action and lack of funding has not created an enabling environment and clarity for developing an ecosystem to support transition to electric mobility. The Society of Indian Automobile Manufacturers (SIAM) recently circulated a white paper which merits a serious discussion for developing consensus that is in the best national interest. A major shift in vehicle mix will affect millions of people employed in auto sector and require massive re-training. On the contrary, it could also result in loss of jobs and employment opportunities. Surely, we have no need to encourage autonomous or driverless vehicles, considering the availability of large number of trained drivers in the country.
While reducing the outflow of foreign exchange for the imports of crude oil (cited as a major rationale for switching to electric mobility), it needs to be recognised that the lithium battery cell accounts for 50% of the EV battery cost and the battery grade lithium price has more than doubled from $ 6000/MT to $ 12000/MT in the past 2 years. More than 95% of the global lithium reserves is located in four major countries — Chile, China, Argentina and Australia. Hence, EVs will shift imports from oil to Lithium. However, Lithium will have one advantage over crude oil i.e. it can be recycled after sometime, once the necessary infrastructure and process is in place, thus reducing larger outflow. R & D and innovation are urgently required to develop substitutes for Li-ion.
Four: In the best case scenario of technology disruption as of date, one can see projections of shares of 16% of electric two wheelers, 35% of three wheelers, 30% of buses and 25% of cars in the plan projection for 2040. Since two and three wheelers comprise about 80 percent of the private vehicles on the road, greater emphasis may be required for conversion of this sector to electric mode with necessary policy support.
Five: BP India Insights 2018 has estimated the impact of the disruption by Electric Vehicles on oil demand in India during 2016-2040. It has estimated the growth in demand for travel in cars (22.6 mb/d) to be almost met by other gain in fuel efficiency (18.2 mb/d). It has estimated the impact of switch to electric vehicles to be around 2.5 mb/d. Hence, the liquid demand for transportation fuel for cars is seen to be flat as the increase in the fuel demand is offset by tight efficiency. So, it is necessary to prioritise actions by targeting segments and sectors where the end-result justifies investment in terms of the impact on emission, customer experience and reduced cost of imports.
Six: Global and national forecasts from the IEA, the OPEC, the EIA, Niti Aayog and BP 2018 are unanimous in stating that fossil fuels will remain the primary source of energy in India till 2040. While the share of oil is expected to go down from 29% to 25%, the share of gas is likely to increase from 6 to 7% and that of renewables from 2% to 13%. Coal is still expected to contribute to 50% of India’s primary energy demand in 2040.
BP Global Insights 2018 also indicates growth of 4.4% per year in transport and oil remaining as the dominant fuel source with a 96% market share in 2040. This is how one gets to see the 2040 energy mix of India as of today, while projections may change with change in technology and disruptions due to new innovations.
Seven: Currently, we have an annual demand of around 195 MMTPA per annum of the petroleum products with the existing refining capacity of 237 MMTPA. The surplus in the refining capacity is used for exports. If the planned refining capacity addition of 205 MMTPA comes on stream by 2030, our likely refining capacity will be 442 MMTPA in 2030. This will be in far excess of the average of the demand in India in 2030 as projected by the IEA (317 MMTPA), the OPEC (393 MMTPA) and the EIA (357 MMTPA). While some surplus capacity can always be utilised for exports, it will be equally important to make prudent assumption for the impact of technology on the demand of products in other export markets and product cracks by investors in the refining sector, whether in private or public sectors. The bankability of new investments in refining by investors shall require robust analysis of the business case to factor transformational changes in mobility that are happening after almost a century. So, prudent assumption for exports to neighbouring and other markets will be required, unlike earlier. Some numbers for export projection may look good on paper and still may not be in sync with the understanding of the basic risk of product specifications, refining economics and the nature of international trade in neighbouring markets. Surely, we would not like to create NPAs in a sector which has so far been a stellar performer.
Finally, after 15 years, the policy of scrapping old vehicles has been approved by the Government last week. Dr. Mashelkar’s report on Auto Fuel Policy had recommend retirement policy for vehicles without any delay in 2003. This was further recommended in 2014 by the Saumitra Chaudhury Auto Fuel Policy & Vision 2025 (AFP&V 2025) Report as well. Scraping old vehicles and policy for retro fitment of after treatment devices in pre-BS IV vehicles will go a long way in reducing emissions as it will take over a decade for new technology vehicles to have increased and significant market share of on-road vehicles.
India is a vast nation with about 62,000 retail outlets that provide fuel to vehicles. EVs will require charging or swapping infrastructure on the national level and also adequate vehicle footfalls for viability. Meanwhile, we can improve customer experience and generate employment by inducting independent players and creating common carrier to target competitive Herfindahl Hirschman Index (HHI) of around 2000 as recommended in many policy papers.
Eight: The area where India can be proud of and has done exceedingly well is that of ambient air quality due to the up-gradation of fuel quality and engine technology. Sulphur has been reduced from 10,000 ppm in diesel in 1996 and 2,000 ppm in Petrol in 1999 to mere 10 ppm in Delhi/NCT now. The entire nation will have 10 ppm sulphur fuels (BS VI) by April 2020. There is sufficient availability of BS VI fuels currently and major cities can be covered earlier if the anomaly of double incidence of duty on export refineries is addressed as recommended by the AFP&V 2025 Report. This transition has become possible with an estimated investment of Rs. 88,500 crores in the refining sector. With this transition, we will reach the limit of process technology for reducing the level of sulphur in fuels. In parallel, around Rs. 100,000 crores are estimated to have been invested by OEMs and auto component manufacturers for upgrading to BS VI technology. Now, we need to look at other fuel options.
Biofuels/CNG/AutoLPG /Hydrogen/Fuel Cells are emerging as options for Autofuels to reduce GHG emissions in future. Some cutting edge technology innovation is required for fuel cells and producing hydrogen. Biofuels of domestic origin are an area of renewed focus (eg. ethanol, methanol, biodiesel). However, efforts in promoting Jatropha have not borne fruit. The erstwhile Planning Commission had aimed to cultivate 13 million hectares with Jatropha to improve the earning of farmers. Using bio-diesel from imported palm oil residues does not help farmers in India. Using methanol in blends too has technological challenges. Proof of concept and scale up trials are desirable for announcing mega plans in future, to avoid failure of Jatropha or diesel with pour point of – 15 deg C in early 1980’s type of mega initiatives.
Nine: India has a transport model mix where the traditional modes like hand pulled carts, bullock carts, bicycles and tractors co-exist with modern buses, trains, cars and metros. We are also longing to absorb futuristic technologies like hyper loops, bullet trains and shared mobility like Ola and Uber. The increase in the level of incomes will mean higher per capita ownership of cars, putting additional stress on already over-congested road space.
We are looking for economic growth and hence urbanisation, demography and climate change should shape the primary discourse on planning for mobility. We may have to undertake city wise Local Comprehensive Mobility Planning (LCMP) as one national solution may not suit all cities.
Ten: Discourse on the future of mobility in India should hence be broad based. It requires reconciliation of projections of various energy models, moderation and multi stakeholder consultation. The Niti Aayog is well placed to provide leadership to steer such a discourse for integrated comprehensive planning by encouraging multi stake holder consultation and setting stretch targets in select sectors with positive trade-offs in short, medium and long term. We need to find answers to which business models will best suit various cities and allied clusters. What could be the shape of new cities? How can city clusters be re-designed and made compact to avoid need for mobility and last mile connectivity. Use of technology for pick and drop and making payments has helped over 20 million users of shared bike users in China as compared to only about 2.5 million a year before. Can this model be successfully scaled up in Indian cities?
Hence, discourse on areas of demand sector intervention in energy policy for transport and mobility needs to take a holistic view, than be driven largely by raising CAFÉ standards, EV and hybrid etc. In my judgment, a dedicated group will require 12-15 months of rigorous work to come up with such a policy framework.