Even as electric buses proliferate in state plans to reduce carbon emissions from the transportation sector, the roadmap to finding sustainable funding remains a work in progress. The demand for agile financial policies that eliminate risk from manufacturers and operators of electric buses has never been greater. Electric buses are at least 40% more expensive and require a completely different infrastructure ecosystem to operate. With the segment in its infancy, private investment backed by state support is key to getting the ball rolling. Current proposals under the FAME-II program call for spending Rs 3,545 crore to induce state governments to purchase 7,090 electric buses by 2023. In addition, state transport companies are also to reallocate existing infrastructure to the use of electric buses.
The challenges are forcing a variety of players – from automakers and electric utilities to startups and local governments – to come together and craft a workable funding structure.
Policy developments – key to innovative financing mechanisms
Since the announcement of the National Electric Mobility Mission Plan (NEMMP) in 2013, policies have evolved taking into account market trends, the challenges facing state-owned transport companies and the need for new financial models. . By encouraging dialogues among many stakeholders, the centre’s policy interventions included provisions for funds to make the operation of electric buses less expensive to operate and in long-term goals such as indigenous research and development of skills. The recently announced Production Incentive Program (PLI) for the manufacture of advanced chemistry cells with a total expenditure of Rs 18,100 crore over the next five years gave the industry the confidence it had so much. need to make the necessary investments.
The restructured FAME II focuses on aggregating demand through standardized supplies while defining the responsibilities of different stakeholders. State government sustainability gap funding can match the price gap between ICE and Electric Buses for Operations (VGF). Changing business models, increased awareness and greater trust among financial institutions would advance the cause of e-buses. Targeting business operations – including last mile delivery operations and fleets for businesses – would further catalyze charging infrastructure and electric buses.
Shifting financial risks and allocating demand
The “Grand Challenge”, announced by Convergence Energy Services Ltd (CESL), is an example of the government using its financial resilience to reduce risks for OEMs and electric bus operators. As part of this initiative, CESL is inviting state-owned transport companies in nine cities to come forward and voice their demand for electric buses. This model of demand aggregation is based on subsidies, incentives and concessions and should promote commercialization in specific areas, with inputs from commercial financiers. This helps to shift supply and demand, for which innovative financing and the diffusion of risk are essential.
Green bonds and carbon pricing
New financing instruments such as green bonds and carbon pricing are now targeted to further catalyze the adoption of electric buses. Bonds are market-based debt instruments that depend on the creditworthiness of investors. Financial institutions use credit scores to assess an investor’s ability to repay loans. A government guarantee – and a strong economic landscape – will eliminate the need for a higher credit rating, allowing smaller entities to invest in this upcoming industry. For example, when the center supports investments in electric buses, international funding agencies like the World Bank and KfW will not hesitate to collaborate with project leaders and issue bonds to raise capital.
Carbon pricing, on the other hand, induces price parity between electric buses and fossil-fueled buses. By increasing the price of high-energy carbon, the demand for carbon-intensive fuels can be reduced. A strong government commitment to carbon prices creates much needed certainty for investors. This indicates that it pays to invest in low-carbon technologies, prompting OEMs to ease their purse strings.
The electric bus scenario in India is constantly changing. As state-owned transport companies face startup challenges in their efforts to procure more electric buses, the center is learning from its experience by not shying away from changing policies to meet market demands. . A multi-pronged approach to raising funds for electric buses is the need of the hour. However, this will not always be the case as the sector grows and achieves financial sustainability.
[This piece was authored by Aparna Vijaykumar, Manager – Electric Mobility, and Pawan Mulukutla, Director, Energy Technology and Green Mobility, at World Resources Institute India]