If designed appropriately, a private sector focus for the US-India electric bus partnership could have a catalytic effect on electric bus penetration in India
As part of Prime Minister Modi’s whirlwind visit to Washington D.C., the United States (US) and India announced a partnership to facilitate the deployment of 10,000 electric buses. This partnership, among the many other strategic and economic announcements, suggests that energy transitions could be a key pillar of the reinvigorated relationship between the two countries.
Electrification of the public bus system has been a decarbonisation priority for India. The induction of electric buses into the public fleet has been driven almost exclusively by the public sector through the State Transport Undertakings (STUs). Based on the procurement guidelines provided by the Central government, these entities have employed a wet lease’ model of adoption, where they do not purchase the buses outright but lease them from Original Equipment Manufacturers (OEMs) and pay a certain fee based on utilisation. The FAME-II scheme also provides a subsidy of INR 20,000 per KWh of battery capacity for around 7,000 buses adopted by STUs under the leasing model.
The induction of electric buses into the public fleet has been driven almost exclusively by the public sector through the State Transport Undertakings (STUs).Last year, Convergence Energy Services Limited (CESL) successfully concluded a tender to deploy 5,450 e-buses across five cities in India with an intention to induct 50,000 buses in the near future. As per data from the Vahaan database there are around 4,776 e-buses currently registered in the country. While the electrification of public transport is a laudable goal, a public sector-driven adoption approach has its limitation. The STUs are among the most indebted public entities, perhaps behind only distribution utilities in terms of financial losses. In 2016-17, as per a government estimate, STUs incurred a mammoth cumulative annual loss of around INR 139 billion—this number has certainly increased since then. Crucially, the losses sustained by these entities are not due to capital expenditure on new buses but due to huge operational costs. Around 70 percent of the total expenditure of STUs is on staff and fuel costs. While the wet lease model is useful in spreading out the high upfront cost of e-buses (these buses cost almost five times as much as traditional diesel buses) over the lifetime of the vehicle, they still add a substantial additional operational cost for STUs who have to continue to pay the OEMs for the duration of their contract. The poor financial status of STUs also means that operators face a substantial risk of non-payment when they enter into these contracts. Financial institutions are also less willing to lend to OEMs for this reason. This has already led to a reduced appetite to participate in such tenders. A tender for 5,000 e-buses put out by CESL in the first half of 2023 saw very little interest from OEMs with only one company submitting a bid. The OEMs highlighted the lack of a payment guarantee mechanism from STUs as the primary reason for the lack of interest. Moreover, while the aggregation of tenders by CESL has led to a substantial decline in prices (CESL claims that the discovered prices in the previous tender are 29 percent cheaper than the cost of running diesel buses), they have also meant less potential for OEMs to make financial returns from these tenders. It is increasingly becoming clear that a public sector-driven adoption model may soon reach a saturation point.
The OEMs highlighted the lack of a payment guarantee mechanism from STUs as the primary reason for the lack of interest.A look at the distribution of bus ownership in India also highlights a need to move beyond the public sector. Around 90 percent of the approximately 2 million registered buses in India are owned by the private sector. Moreover, around 70 percent of these buses have valid stage and contract carriage permits to carry out various public services. Despite this, none of the policy measures has focused on private players—both the subsidies under FAME-II and the technical support from CESL have been directed towards the STUs. Yet even without any support, some private sector players have already chosen to deploy electric buses, signalling substantial appetite. An example of this is Nuego which provides intercity electric coach services from Delhi to nearby urban hubs. If the goal is to reduce emissions from buses, the maximum benefit can be accrued by enabling the private bus owners to make a shift to electric mobility. This would also resolve many of the issues with the STU-focused model, such as greater ability to pay and less chances of payment defaults. Thus, the policy framework must be reoriented to enable greater private e-bus adoption. The most effective move would be to extend the FAME- II subsidies to the private sector or provide additional subsidies through other financial entities. In addition to subsidies (which may not be feasible), the focus should be on reducing the cost of financing for private bus owners through some kind of priority lending mechanisms, the conditions for which can be developed by the Reserve Bank of India and piloted by National Development Banks. There is also a need to work closely with private operators to set up fast charging networks on certain routes. Finally, CESL can also look to extend its aggregation operations to the private sector and work towards revising permitting mechanisms which restrict the operation of leased buses for the private sector. The India-US electric bus partnership can be a major catalyst for greater private sector e-bus adoption. However, this will require reimagining the current scope of the engagement. Based on initial information, the partnership will focus on perpetuating the adoption of e-buses by STUs through the provision of payment guarantees that will alleviate some of the liquidity concerns of financers. Instead, the focus should be on setting up a fund to provide either subsidies or low-interest loans for private sector operators. CESL or other national development banks could be well-placed to administer such a fund.
The most effective move would be to extend the FAME- II subsidies to the private sector or provide additional subsidies through other financial entities.The partnership can also look to pilot innovative financial mechanisms for particular kinds of bus operations. For instance, there are around 1.8 lakh school buses in India, mostly owned by the private sector. These buses could be well suited for electrification given they ply on fixed routes and have long halts between journeys allowing ample time for charging. Of course, this also has the additional benefit of reducing exposure of school-going children to pollutants emitted by diesel buses. Buses involved in airport operations or short-distance intercity journeys could also be initial segments where the partnership could look to focus. If designed appropriately, a private sector focus for the US-India electric bus partnership could have a catalytic effect on electric bus penetration in India. Moreover, by reducing the burden on STUs to adopt electric buses, they can also focus their attention on their primary mandate of augmenting the public bus fleet in India, a pre-requisite for reducing dependence on private vehicles and creating an inclusive and affordable public transport system. This would also fit well with a broader Indo-US partnership that is driven by private-sector linkages with a focus on greater economic integration.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Promit Mookherjee is an Associate Fellow at the Centre for Economy and Growth in Delhi. His primary research interests include sustainable mobility, techno-economics of low ...
Read More +
PREV
