Is India's Power Sector ready for electric vehicles?

October 31, 2017

Just a few weeks ago, India's leading taxi aggregator 'Ola' launched India's first electric vehicle fleet of taxis in Nagpur, a small city in the heart of India.
This comes in the backdrop of India's Power minister Mr. Piyush Goyal announcing that all vehicles will be electric by 2030. This is an ambitious program whose timeline will extend far beyond the current Government and even perhaps Prime Minister Modi. It is also challenging given that the deployment plan will have to be supported by India's archaic Power Sector

India's power sector is not yet fully privatized.

While the generation sector has been opened up to full private participation, the transmission and distribution sectors are still monopolized by government run companies. Since, most consumers do not have a choice to procure power from the source of their choice, they are bound to the local distribution company in their neighborhood. This is unlike the telecom sector, where consumers can choose a service provider and change it in the event they are unhappy. But power needs wires to reach homes, unlike cell phones that operate wirelessly. The need for this physical infrastructure (i.e. wires) somewhat limits the ability to have choice at the consumer end. Otherwise it can lead to a messy situation where each power distribution company lays its own cables. Think of India's cable TV networks or broadband internet suppliers. Both these have ensured that India's neighborhoods look like a circus trapeze tent with wires running all over the place. Therefore, by law, only one power supply company can operate in one location. They are granted 'distribution licenses' that grant monopoly. This is what binds consumers to their power supply companies.

There is a solution that exists - Open Access. Open access ensures that a consumer can procure power from any generator of his choice by paying a 'fee' to the local distribution company. This is akin to a private vehicle paying a toll for using a Govt. owned expressway. Although this mechanism exists on paper there are two problems:

  1. Open Access is allowed only to those consumers whose power demand is more than 1 MW. This disallows most small consumers such as residences, small commercial establishments, retail shops and now electric chargers from enrolling.
  2. There is a conflict of interest. Why would distribution companies forgo their revenue by allowing open access?

Point two has played out again and again in India since the time Open Access was instituted in 2003. There are several legal petitions filed against distribution companies for frivolously disallowing open access. And this is precisely where the hurdle lies for India's electric vehicle market.

If India wants to seriously shift its transportation sector to electricity we require chargers - and plenty of them distributed evenly across India's cities and towns. The capital required to install, operate and maintain these charges will easily run into several millions of rupees. Almost all government owned distribution companies are in deep financial problem thanks to irrational power pricing mechanisms and political interference. These companies are simply not equipped to herald this transition.

Privatizing these companies and transferring the power distribution infrastructure to a infrastructure holding company needs to be done. This way the conflict of interest can be done away with. However, judging by the way the current Government has performed on privatization of loss making businesses (think of Air India), I am doubtful if this will be done with any celerity.

However, there does exist a quick-fix solution. Allow private businesses to instal, operate and maintain the electric charging systems (there is no law currently that prevents this). The problem arises when these businesses have to supply power and charge for it. This is currently not allowed by India's power laws (Electricity Act 2003). Therefore, until India's power distribution sector is privatized, this law must be relaxed for charging stations owned. This implies that the 1 MW cap for procuring power must be relaxed. This will allow all electric charging stations in India to procure power from any source of their choice. For instance a solar park in Rajasthan or Gujarat. This allows tremendous flexibility and ensures that power at the lowest possible price is made available to electric car owners.

The repercussion of such a model will be significant. A large part of power demand will move away from traditional government owned power companies and shift to privately owned businesses. This could set the stage for slowly privatizing the entire retail power sector. A second consequence of this is that power sale agreements will drastically shorten from the current 25 years. This is already happening thanks to the revolution in the power sector that India is currently witnessing (refer my previous article). These short term agreements will further provide opportunities for new, efficient and cheaper technologies to disrupt existing energy technologies. The cycle is vicious in a positive sense.

The transition to electric vehicles is a tremendous opportunity for India - not just to shift to a climate friendly transportation technology, but to also completely reform the power sector. I just hope this opportunity isn't lost.