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Savings from the switch to Electric Vehicles (EVs) in India – IMPRI Impact and Policy Research Institute

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Savings from the switch to Electric Vehicles (EVs) in India - IMPRI Impact and Policy Research Institute

Tripta Behera

Abstract

Transport is an integral part of the energy system, and the demand for transport has been ever-increasing with the increase in population. One of the main causes of climate change is greenhouse gas emissions from the usage of fuel in vehicles. A switch to Electric Vehicles (EVs) is a way to minimise such pollution. EVs have been started to reduce carbon emissions due to other advantages such as lower noise pollution, maintenance requirements and power consumption. However, EVs involve a high capital cost, which is why there remains uncertainty among the general public on whether or not a switch to EVs leads to savings. This paper aims to better understand the components that make up the cost of EVs and whether these costs are less as compared to fuel-run vehicles. This paper seeks to draw a regression and find a correlation between Savings and Distance Travelled for both Electric and Conventional vehicles. By comparing the costs incurred with the use of both vehicles, it should be seen that the usage of EVs leads to substantially higher savings. The calculation of savings and cost is based on formulas and information provided by the Delhi Government (on their Switch Delhi portal), the Niti Ayog (on their E-Amrit portal) and tools available on the International Energy Agency (IEA) website. This calculation makes this study relevant to the Indian context.

Keywords: Electric vehicles, Savings, India

Introduction

India is single-handedly responsible for contributing to 7.08 per cent of all global greenhouse gas (GHG) emissions. It ranks third amongst nations with the worst air quality. And transportation plays a detrimental role here. It contributes to nearly 305.3 MtCO2e (metric tons of CO2 equivalent) – 0.64 per cent of all GHG emissions globally. Therefore electrification plays an essential role in decarbonising the transport sector.

Two and Three Wheelers (2W and 3W) are India’s most important personal transport. The public adoption of EVs requires a policy mix of financial, behavioural and charging infrastructure incentives. India initiated a scheme of its own, the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme. It was launched in 2015 to encourage electric and hybrid vehicle adoption by providing financial support for its purchase. The second phase, FAME II, aims to support the electrification of public transport by way of financing charging infrastructure and subsidizing electric buses, four-wheelers, three-wheelers and two-wheelers.

The Indian transport sector is responsible for 13.5 per cent of India’s energy-related CO2 emissions. Road transport accounts for 90 per cent of the sector’s total final energy consumption, followed by railways and the aviation industry (IEA 2020). In addition to the GHGs, the transport sector is also responsible for a range of other harmful gases, such as nitrous oxide and carbon monoxide. These result in adverse health effects and premature deaths.

The growing population of India has greater transportation needs. But a further growth in transport emissions will exacerbate these health problems and put additional pressure on the already burdened healthcare system. Thus, decarbonizing the transport sector in India can substantially help in reducing the ill effects caused by such emissions. It would also reap added benefits of improving public health, fuel savings, noise reduction, quality of life and reduction in commuting time of the public. Lower congestion also paves the way for pedestrians and cyclists to make use of the roads.

EVs vs Conventional Vehicles

Due to EVs’ myriad benefits, a switch means moving towards a better, more holistic future. Yet there are apprehensions on the public’s part to adopt EVs regarding their cost. The following analysis seeks to compare EVs to conventional vehicles.

There are many variables that we must factor in. For ease of this analysis, we are comparing Battery electric vehicles to petrol-operated vehicles.

The calculation is done by using a Total Cost of Ownership Tool designed by the International Energy Agency. It has been used to calculate and compare the costs of owning and operating fossil fuel and electric vehicles and observe the impact that different variables have on the cost. For simplicity, we assume that the vehicle in question is a medium-sized car that most of the country owns. The Operating Costs have been calculated keeping in mind that it is in the Indian context. The Electricity Day Cost (inclusive of Taxes) has been taken to be 0.07 USD/kWh (or 5.71 INR/kWh) and the Fuel Cost (inclusive of Taxes) has been taken to be 1.16 USD/L (or 94.61 INR/L).

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The above graphs show the relationship between cost over time for electric vehicles and petrol-operated vehicles. It is a cumulative cost curve that adds the costs in each year to those in previous years. Here, both vehicles have upfront costs: the money paid to cover the vehicle price and other upfront expenses. Over time lower operating costs can compensate for higher upfront costs. So cost parity can be achieved. The reason for a kink in the middle is because of due to financing.

Usually, a buyer doesn’t pay the entire amount in one go, but rather the purchase is generally paid back over time using financing (or a loan). Different down payments, interest rates, and loan lengths, collectively known as financing conditions, will have different effects on how much is paid each year, and the total amount paid back at the end. As is the case with many alternative vehicles, the electric vehicle has lower operating costs but a greater amount of money must be borrowed to purchase one, as shown above. Combining the operating and financing costs gives us the Total Cost of Ownership.

The green curve represents the costs incurred from using a battery-operated electric vehicle and the purple curve represents the costs incurred from using a petrol-operated vehicle. The progression that we see from figures 1 to 5, is the variable of ‘distance’ changing. Figure 1 was obtained by taking the annual driving distance to be 1000km/year. Figure 2 was calculated using annual distance as 12000km/year, 25000 km/year for figure 3, 37000 km/year for figure 4 and 50000 km/year for figure 5. By changing the average distance travelled variable we obtain very different results. For lower annual distances, the cost of ownership of an EV is higher than that of a conventional vehicle. As we increase the distance travelled in a year, we observe that the total cost of ownership of an EV is lower than the petrol-operated one. Thus making electric personal vehicles a viable solution only if one travels relatively longer distances annually.

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The above graphs show the decomposition of the total cost of ownership. It constitutes vehicle cost, home charger cost, purchase taxes, financing, annual registration fees, liquid fuel price, liquid fuel taxes, electricity purchase, electricity taxes, insurance, maintenance, residual/resale value and net cost. Figure 1 is obtained using 10000 km/year as the average annual distance travelled, whereas figure 2 is obtained using 50000 km/year as the average annual distance travelled.

Observing both graphs again tells us that the higher the distance travelled by an electric vehicle, the lower the total operating cost. We also see that the reason for the reduction in total cost for an EV is due to the fall in vehicle cost. On the other hand, the reason for the rapid increase in the total cost of a petrol-operated vehicle is due to a rise in liquid fuel purchases. As the average distance travelled increases, it also requires a higher quantity of petrol. As a result, the total cost of ownership of a petrol-operated vehicle increases.

Conclusion

It becomes evident from this analysis that although EVs might seem like the cost-effective outcome in most cases, it is only when our annual consumption needs are higher that reap benefits as compared to conventional vehicles. We observe that for an annual average distance travelled of more than 37000 km/year for an EV, the cost break-up fares well compared to conventional vehicles. So it makes sense to turn public transportation systems fully electric to reap such benefits in the long run.

As policies aim to decarbonize the transport sector, we should see the movement of EVs from the margin to the mainstream. Since cost is one of the main apprehensions of the public, access to adequate capital is critical in kick-starting India’s growth in the EV sphere. EV loans today carry a high rate of interest, making it difficult for prospective buyers to enter the market. Overcoming this problem by way of policy can enable better access to finance and thus provide a greater incentive for change.

EVs are also currently an evolving technology. With time, the improved battery could bring down the cost of EVs and resolve the fire hazards associated with this sector – thus making EVs a safer investment, financially and otherwise. If India wants the transport sector to be revolutionized, innovative reforms need to be introduced with regard to vehicle ownership and financing. What might work for India is vehicle leasing, battery subscriptions and a pay-as-you-go model, which mitigate the risk of the high ownership cost. Policies that can induce a behavioural change in the public include – free parking to EVs, increased subsidies for the purchase of EVs and tax benefits for ownership and purchasing of EVs.

References

  • Wu, G., Inderbitzin, A., & Bening, C. (2015). Total cost of ownership of electric vehicles compared to conventional vehicles: A probabilistic analysis and projection across market segments. Energy Policy, 80, 196-214.
  • Kumar, P., & Chakrabarty, S. (2020). Total cost of ownership analysis of the impact of vehicle usage on the economic viability of electric vehicles in India. Transportation Research Record, 2674(11), 563-572.
  • Contestabile, M., Offer, G., North, R., Akhurst, M., & Woods, J. A. (2012). Electric vehicles: A synthesis of the current literature with a focus on economic and environmental viability. LCA Works, London (Great Britain), June.
  • Helmers, E., & Marx, P. (2012). Electric cars: technical characteristics and environmental impacts. Environmental Sciences Europe, 24(1), 1-15.
  • Tracker, C. A. (2020). Decarbonising the Indian transport sector pathways and policies.
  • Friedrich, J., Ge, M., & Pickens, A. (2020). This interactive chart shows changes in the world’s top 10 emitters.
  • IEA (2022), Global EV Outlook 2022, IEA, Paris https://www.iea.org/reports/global-ev-outlook-2022, License: CC BY 4.0
  • IEA (2022), Electric Vehicles: Total Cost of Ownership Tool, IEA, Paris https://www.iea.org/data-and-statistics/data-tools/electric-vehicles-total-cost-of-ownership-tool

Tripta Behera is a Research Intern at IMPRI. She is pursuing her bachelor’s from Shri Ram College of Commerce, DU.

Read more by the author: Budget for Population: Making the Most of the Demographic Dividend

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