The Indian automobile industry recorded sales of 26.27 million units in 2018-19, of which only 0.75 million were electric vehicles (EVs). The EV industry is at a nascent stage in India and has the potential to grow significantly in the coming years owing to favourable factors such as government initiatives, improving cost viability and growing awareness among consumers. To support this change, the number of EV charging stations is expected to reach over 5,000 by 2021. While the demand side has witnessed strong growth due to recent tenders by central and state agencies and partnerships of PSUs with technology providers, the supply side still suffers from a lack of initiatives and a scattered market. The setting up of charging stations is an essential requirement for the uptake of EVs. Therefore, suitable business models need to be designed for the segment.
Several parameters need to be considered before selecting an appropriate business model. The uptake of EVs essentially depends on the comprehensive availability of public charging stations. The types and sizes of EVs are expected to vary, and different types of EVs are expected to have varying charging needs. The proposed business models also need to develop a strategy for energy sale, and provide demand response-based ancillary services, uninterrupted charging and frequency control.
An appropriate business model may not be based solely on direct revenues, but may also include indirect revenues. Various business models are being explored globally as well as in India. As per Deloitte’s report titled “Recharging India’s electric vehicle ambition by electrifying public transport: Plugging the gaps through business models”, there are five potential business models for setting up EV charging infrastructure.
An overview of the five business models highlighted in the report…
In most cases, an urban local body (ULB), which includes municipal corporations and development authorities, is the nodal agency playing a significant role in the development of a city. ULBs already play a key role in transportation. The transition to EVs can thus be accelerated with support from ULBs. Under this business model, the ULB will set up the infrastructure on its own land, acquire and install the equipment, and operate the charging station with its own resources. The ULB will charge a predetermined per unit price for the delivery of measured services.
This model will help in gradually scaling up demand, and ensure that the costs are optimum and the resources are not exploited. This will also enable better utilisation of existing municipal facilities. The surplus land in these facilities can be optimally utilised. Another advantage of this model is that the government has a higher capacity to bear losses as against other stakeholders. Moreover, since there is centralised control, the model facilitates coordination of operations. However, this model limits the private sector’s expertise and potential for innovation. In addition, it may lead to operational inefficiencies owing to limited precedence and technology upgradation. All investment and revenue risks are borne by the ULB. The investments could be a challenge for ULBs since most of the ULBs are dependent on government grants for sustenance.
Public-private partnership (PPP) is one of the effective ways of implementation. Under this model, the ULB provides land for the charging station and the private operator undertakes acquisition, installation, and operations and maintenance (O&M) of the charging system. The private operator collects revenue from users at rates fixed through a competitive and transparent process. This model ensures operational efficiency as it leverages the expertise of the private operator. The investment and revenue risks are borne by the private operator. Further, owing to their prior experience, private operators help in driving cost efficiencies in the system. However, the duplication of efforts should be avoided and accountability should be fixed in advance. This system is suitable for a near-mature market. The bidding parameter for the selection of the private operator is the fee charged per unit of energy supplied including the service charge.
Management by utilities and power generators
In this model, electric utilities and power companies that are equipped with an understanding of the grid and grid load management, including the dynamics of vehicle charging during peak and off-peak hours, will be expected to acquire, install, operate and maintain the charging infrastructure in the EV operational areas. The charging infrastructure will be set up by the electric utilities or power generators (service providers) on government or privately owned land. The service provider will operate the charging infrastructure and collect revenue from users at predetermined rates. This model leverages the domain knowledge and expertise of utilities for improving operational efficiency and service delivery. Managing charging infrastructure will be a new service line for utilities. The balancing of the grid can be better monitored and demand can be effectively managed under this model. However, the service provider may face challenges in improving the battery efficiency, charge density and operational range owing to the lack of domain knowledge.
Globally, utilities are following this model. Recently, Enel acquired eMotor-Werks, an advanced energy and e-mobility solutions company and leading supplier of EV charging stations. This will enrich Enel’s e-mobility offerings and integrate a highly sophisticated smart EV charging solution with a portfolio of grid flexibility services, which includes a demand-response network, distributed energy management systems and battery storage solutions.
Facilitation by public transport corporations and aggregators
In this model, public transport corporations and cab aggregators have set up charging infrastructure for their own vehicles. This infrastructure can also be utilised by other vehicles if required. For example, buses are only available for charging during the night, leaving the charging infrastructure poorly utilised during the daytime. Public transport corporations may improve the utilisation of their system by offering charging services to private vehicles and may provide their services at market rates. Similarly, cab aggregators help in aggregating the demand by deploying a large EV fleet. To meet this demand, they set up their own charging stations. A good example of this model is Ola, which has set up charging infrastructure for its fleet in Nagpur. Thus, public transport corporations and aggregators generate additional revenue from vehicle charging.
However, these companies have limited financial and risk bearing capacity. The lack of expertise and experience is a potential drawback of the model. As system O&M costs are significantly higher for public transport corporations as compared to private operators, revenue margins at market rates may be limited.
Vehicle and equipment manufacturer-driven model
Manufacturers are familiar with the vehicle design, and the compatibility of the vehicle battery and chargers. Thus, in this model, vehicle/equipment manufacturers set up and operate their own charging infrastructure on privately acquired land. Vehicle/Equipment manufacturers could set up charging infrastructure at their own expense and include these costs as part of “marketing costs” to increase the sale of their own brands and improve electric mobility. They may collect service charges at market rates. Manufacturers will be able to build confidence among users. However, each manufacturer may install proprietary charging infrastructure, limiting interoperability. Thus, the government would need to make sure that no manufacturer creates a monopoly. This model may help promote the standardisation of chargers across vehicles.
This model is followed by Tesla, which sets up its own charging stations that are compatible with its cars. This has been a key reason for the success of its cars. In India, MG Motor provides a charger, the cost of which is included in the company’s ZS EV.
The way forward
Renewable Watch Research projects annual EV sales in 2030 to reach 15.78 million in a realistic scenario. The total annual power and battery demand by 2030 is projected to reach 45,810 MW and 293.48 GWh respectively. The highest demand is likely to come from four-wheelers owing to their large battery capacities. The number of incremental captive charging stations is projected to reach 2.36 million and public charging stations to reach 2.82 million by 2030. In addition, 8,314 battery swapping stations are estimated to be set up to primarily cater to the three-wheeler segment. The industry will have to adopt business models that best meet the requirements and will also have to come up with innovative models going forward to adapt to the changing market dynamics.