Effective policies, not deadlines, the need of the hour

By Taponeel Mukherjee

As India looks to balance its twin needs of clean energy and increased energy demand, a look at policies that may help in expediting the process is worthwhile. Additionally, there are valuable lessons that can be learnt from other sectors that can significantly assist in taking a call between effective policies and time-bound ones.

Recent news suggested that the implementation of electric vehicles may be based on specific deadlines that need to be complied with. The move towards vehicles utilising electricity, generated from a clean source, is a step in the right direction and one that needs further emphasis. However, we must reassess whether setting deadlines is the best strategy to achieve the ends. An incentive-based system that allows the electric vehicle industry to grow and flourish may help bring about the necessary change in a much more feasible way.

 

At the cost of stating the obvious, a crucial point that needs attention is that electric vehicles will help move us towards clean energy only when the source of the electricity used for the vehicle is clean. Therefore, paying attention to the building blocks of the clean energy ecosystem is as important, if not more, to spur electric vehicle usage than just the end product of EVs. Resolving issues around generation and evacuation of clean energy will go a long way in laying a much-needed sustainable foundation for the clean energy future.

Additionally, the creation of electric vehicle infrastructure needs a roadmap around incentives, costs and strategies that will help expedite the process. Though done with the right intention, simply mandating deadlines can severely hamper vehicle dependent sectors in the economy. For instance, if businesses utilising commercial vehicles face a regulatory change that mandates the compulsory usage of EVs after a specific date, then such a deadline causes a significant hit to the balance sheets of these companies. Not only does capital expenditure on current vehicles need to be written off faster, but additional capital expenditure on new EVs also needs to be undertaken.

While promoting EV usage is vital, the above-stated ramifications on the balance sheets of companies must also be considered. Policy changes must carefully weigh the costs and benefits of a deadline-based change. Perhaps, a gradual move in the right direction is more prudent not to topple the apple cart. Mainly, allowing market forces to work in tandem with effective regulations will help boost EV adoption in India in a smooth manner.

While a shift towards renewable energy is essential, the coal power sector also deserves attention. In the report by The Energy and Resources Institute titled 'Transitions in Indian Electricity Sector 2017-2030', the estimate for installed coal-based capacity for electricity in India by 2030 ranges from 218 Gigawatt (GW) to 474 GW. A comparison of these numbers with the current installed capacity of coal-based electricity of 191 GW (as per Ministry of Power, March 18, 2019) tells us that while percentage contribution of coal to the electricity mix might reduce, coal will remain a significant contributor towards meeting the increasing energy demand in the country.

Possibly the most compelling reason why coal energy dynamics deserve utmost attention vis-?-vis boosting EV infrastructure in India is to ensure not just greater operational efficiency regarding plant load factors and raw input supplies of coal-based electricity plants, but, more importantly, financial efficiency to free up precious capital that is stuck in the coal-based electricity sector. This capital will be vital to finance renewable energy and the much-coveted EV infrastructure. Primarily, attention towards boosting EV adoption is critical, but ensuring a more efficient coal-based electricity generation sector has significant financial multiplier effects to expedite capital availability for EV infrastructure.

It would be sagacious to take a leaf out of the journey of the mobile phone industry in India. Increased access to mobile phones has been nothing short of a revolution in India with an entire ecosystem of retail, finance and healthcare being built upon the mobile phone infrastructure. Both the telecom and the handset industry evolved with changing dynamics, policy changes and various firms entering and exiting the market. Economic needs and returns, coupled with effective policies, paved the way for rapid mobile phone penetration in India. Effective policies and competitive markets helped, and deadlines were not required to achieve the same.

As India moves towards the next decade, multiple objectives such as clean energy and greater energy access will have to be balanced. It is vital that regulations and policies help create market dynamics that deliver solutions, and more importantly provide solutions that are financially sustainable in the long run. India has much to gain from cleverly designed policies that aid in gradual but structural shifts towards EVs than through the imposition of deadlines.

(The views expressed in this article are personal and that of the author. The author heads Development Tracks, an infrastructure advisory firm. You can contact him at taponeel.mukherjee@development-tracks.com or @Taponeel on Twitter.)