Revving Up The EV Revolution: How Policy-making And Technical Challenges Can Be Overcome

Electric Vehicles (EV) are the future of the automobile industry. Lofty visions have been unveiled and even loftier targets have already been set. What seems to be the biggest roadblock is the absence of charging infrastructure (CI) for EV in India. Technical challenges aside uncertainty in policy-making is also considerably slowing the pace of the expansion of CI. Some positive movement has been seen at last, in the government recognising that setting up of CI for EV will not require any distribution licence under the Electricity Act, 2003 (Act).

Precious time was lost in taking what should have been an obvious interpretation of the Act with the forum of regulators (a body consisting of electricity regulatory commissions) initially taking a view that charging of electricity at a charging station would amount to sale of electricity. The controversy is at rest, at least for now, that charging through CI does not amount to sale of electricity, and hence players setting up CI will not require a distribution licence. This potentially removes a major roadblock, with private players getting the opportunity to set up such infrastructure.

Policy on tariffs is the next battleground. For an EV revolution to kick off, at least in the short term, the operating cost of an EV needs to be significantly lower than the operating cost of running a vehicle on conventional fuel. Higher electricity tariffs will effectively make EV unattractive vis-a-vis its conventional counterparts. Some state regulatory commissions (SERC) have already woken up to the reality of electric charging stations as a distinct category of consumer, and charging stations have been given a separate category under the tariff orders. These SERCs are taking a reasonable view in keeping the tariff for charging stations lower than the industrial and commercial tariffs, while keeping it marginally higher than the retail consumer tariff.

The states which have not yet implemented a separate category of tariff for charging stations are putting the tariff at much higher levels corresponding to the commercial tariff category. While this may appear tempting, particularly for distribution companies (Discoms) that are stressed, such higher tariffs are not desirable to further the overall goal of transitioning to EV. It is also important to reduce chances of price arbitrage in EV charging. Lower retail tariff than the tariff at charging stations is likely to incentivise consumers to shift to charging through home-based charging points, which in turn, will result in electricity demand peaking at times when the demand is expected to be low. This may create problems in grid management.

Open access for charging stations is another area that needs intervention. Open access is the ability of a consumer to buy power from any other generator or trader under a private contract. Open access for charging stations needs to be allowed on a pan-India basis to ensure consistent supply. The idea that the bill of consumers, which are being subsidised, should be recovered from customers who can afford to pay higher tariff has already prevented the development of an orderly power market in India. Discoms, perhaps for some good reason, have for long resisted attempts at permitting open access, and where permitted, cross-subsidy surcharges are increasingly making open access a costly proposition.

Whether cross-subsidy surcharge is indeed required or not, or should such subsidy be borne by the governments through budgetary allocations, requires much broader policy debate. However, the policy goal of replacing conventional vehicles with EV should leave no one in doubt that EV charging stations need consistent supply of power, and they should not be subsidising any other category of consumer. Consistent supply of power makes open access a paramount requirement on a pan India basis, considering many Discoms reeling under financial stress may not be able to guarantee consistent supply of power to CI. Similarly, such open access should not be subject to cross-subsidy surcharges to ensure that the price of power is not artificially inflated through such charges.

Further, where such charging stations are setting up or investing in captive generation units, there should be low wheeling and no banking charges. Wheeling is the use of the transmission or distribution network of transmission or a distribution licensee for conveyance of electricity, while banking is the process whereby excess electricity generated by a generator is fed into the grid (i.e. banked into the grid), which can be used at a later point in time by the generator. Banking essentially involves accounting of electricity generated and fed into the grid, creating a credit entry, which can be debited once the consumer utilises the same through the grid. Wheeling and banking charges are being used by some Discoms as a tariff measure, much like cross-subsidy surcharge to meet the subsidy deficit. For reasons similar to the arguments for no cross-subsidy surcharges, banking charges should not be levied for EV charging stations. Time-of-the-day charges during peak demand may be introduced, but the same should not be used a tariff measure to recover subsidies.

Since providing CI is recognised as a service, as opposed to sale of electricity, one may hope that the CI providers will have the flexibility to charge for their service on the basis of the quantum of charge supplied (as perhaps unit of electricity delivered in charging the battery (or charge basis), or the time for which the battery is plugged into the CI (time basis). The flexibility may enable the CI providers to deploy technologies for faster charging, the cost of which may not be directly linked to the tariff structure determined in the tariff orders. This may be understood more simply as follows: If an EV user is charged merely on the charge basis, the CI provider may not have the incentive to invest in faster/optimum charging technology, as its recoveries are linked to the units of charge supplied to the EV.

On the other hand, by charging on time basis, a CI provider may be able to charge a premium, and use such premium in investing on faster charging technology. Flexible pricing may also enable the CI provider to price the use of CI as per ‘time-of-the-day’, with off-peak charging being cheaper than peak hour charging. It is imperative that the CI providers are not forced into choosing one model over the other, and the entry barrier for setting up the charging infrastructure is sufficiently low, subject to traffic management and urban planning constraints. Lower entry barriers will enable appropriate level of competition which should automatically result in balanced pricing, with need for little or no regulatory intervention.

CI expansion obviously needs certain policy decisions on the technical front as well, such as the decision between AC charging stations versus DC charging stations, and managing peak demand and grid stability. These issues will eventually need to be addressed by a combination of technological advances and strengthening of the transmission infrastructure. However, what is indeed required is the necessary flexibility in the regulatory framework to enable technology and market to develop symbiotically. Solutions may, in fact, emerge if the regulations do not pre-judge a solution to be better than the other.

Also Read: India Needs An Electric-Vehicle Policy; Here’s How It Can Go About It