E-Buses Most Cost-Effective Even Sans Subsidy, CESL Bidding Results Show
The unsubsidized prices are 23-27% lower than the cost of diesel/CNG bus services
Electric buses (e-buses) as a service are now the most cost-effective approach to urban public transport with or without subsidy, the bidding process conducted by the Convergence Energy Service Limited (CESL) has shown.
The bidding for what is said to be the largest global tender to procure 5,450 e-buses through the Grand Challenge (GC) process has opened up a critical pathway for the future of public transport in India.
The unsubsidized per-km prices discovered by the GC under the Gross Cost Contracting model are 23-27% lower than the current cost of diesel/CNG bus services and 31-35% lower if the Union Government’s FAME II subsidy were to be included.
In CESL’s assessment, e-buses would continue to remain cheaper even after oil prices stabilized.
“Therefore, the GC marks the inflection point wherein the purchase of electric bus services at scale with enhanced contract terms become the de-facto most cost-effective approach for cities,” a CESL case study, ‘The Grand Challenge’ for Electric Bus Deployment: Outcomes and Lessons for the Future, has said.
The second phase of the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles program carries a subsidy corpus of ₹55 billion (~$665.42 million). The FAME II program, which will be in force until 2024, provides subsidies for purchasing all types of electric vehicles.
Under the tender, the prices discovered were lower by 28% (Surat) to 52% (Kolkata) compared to contracted prices under phase-1 of the FAME program. This is equivalent to a saving of more than ₹108 billion (~$1.31 billion) over the 12 years of the corresponding contracts.
Bids were invited for five lots of buses covering 12-meter and 9-meter, and AC and Non-AC buses. Bidders were asked to submit their price bids per km, assuming demand for subsidized buses. Tata Motors was selected as the successful bidder for all the lots.
The FAME II program provides a subsidy of ₹5.5 million (~$66,542) or 40% of the cost of the bus, whichever is lesser, for a 12-meter bus. In the case of a 9-meter bus, the subsidy would be the lesser of ₹4.5 million (~$54,444) or 40% of the cost of the bus.
However, due to the competitive quotes realized through the tender, the 40% of bus cost reduced the subsidy required to ₹3.5 to ₹4.1 million (~$42,346 to ~$49,605) per 12-meter bus depending on the city-wise quotes and ₹2.6 million (~$31,457) per bus in case of 9-meter buses.
CESL estimates that with the government’s increasing focus on e-mobility, India will require over 100,000 e-buses, or 100 times the number in operation now, by 2030.
One of the key learnings from the bidding process was that while cost-effectiveness was established through the tender, the planning and delivery of e-bus services is complex and requires a solid institutional framework.
Among other learnings, the CESL case study listed the following:
- State transmission utilities (STU) need to plan and monitor service delivery considering the specificity of e-buses involving range and charge, manage large contracts effectively, carry out timely payments, and prepare depots and their connection to the power grid in line with contractual requirements
- Financing needs to be de-risked because the upfront capital cost of e-buses is a major cost for concessionaires, requiring large-scale access to commercial financing. Certainty in payment timeliness plays a major role in unlocking such financing.
- In addition to demand aggregation and price discovery through credible processes, the national-level platform could offer additional measures to improve the bankability of contracts across cities
- A national level Payment Security Mechanism for e-buses, in line with similar measures adopted for solar energy, could be established. Such measures would attract more investors into the sector, in particular for cities with a weaker financial standing
- The GC demonstrated the benefits of demand aggregation across cities and the benefits of the combined experience of the participating cities. These factors encourage future aggregation of demand with or without subsidy to drive down the cost of the adoption of e-buses