The future of electric vehicles [Part - II]

Are electric vehicles (EVs) economical or affordable? Although an EV may not be exactly economical, it is fast approaching the required cost objectives. Rising demand and scale economies would bring the cost down in the short- to mid-term. Actually, the initial capital expenditure – CapEx – or buying cost is higher (150 percent and in some cases 200 percent), fuel/electricity costs are quite low as much as one-third of gasoline cost, depending on the relative cost of petrol/diesel vs electricity.

However, the same is not true in developing countries like Pakistan where gasoline costs are lower than in Europe and the incentives for an EV switchover are much less – for example, EV energy cost in Pakistan is only three-fourth of gasoline prices. Fuel cost advantage in Europe is much higher than it is in Pakistan, especially in the case of cars. In the case of motorcycles, since CapEx contribution in the total cost of ownership (TCO) is less, switchover incentives may be higher.

It also depends on who is buying and what is being bought. Electric motorcycles can be charged at home, and those users who belong to low-income classes may enjoy low electricity tariffs, and this could be a good deal. Also, EV cars can be charged at home but with much difficulty, as distribution lines in our part of the world do not have much strength and high electric tariffs may dilute the fuel economics of electric cars.

The purchase cost of EVs is almost 150 percent higher. In Pakistan, EV motorcycles are available in the range of $600-1000, while conventional motorcycles are sold at $350-400. For poor societies or people, this upfront cost is a major constraint. If interest or leasing rates are high, they may increase the cost. On the other hand, incentives on custom duties or concessional electricity tariffs may improve the overall economics. Eventually, EV prices would come down with the expansion of the market and the economies of scale.

We have calculated the comparative economics of EV motorcycles and EV buses vs conventional fuels. There can be a lot of variations based on possible variations in assumptions regarding CapEx, fuel cost and exchange rates. Nonetheless, some useful typical comparison is possible. An EV motorcycle’s cost per km is around Rs0.5 and that of a gasoline-dependent motorcycle is Rs2.54. The gasoline rates of Rs150 per liter have been assumed as against higher rates in Europe and India.

The electricity rates of Rs10 per kWh have been assumed for EV owners who may be enjoying a low electricity tariff slab. EV car users may not be at this advantageous situation and may have to pay three times the assumed tariff for EV motorcycles. The TCO – without financial cost – of EVs is one-third of that of conventional motorcycles – Rs151,100 as opposed to Rs500,350 of conventional motorcycles.

The payback period of EV buses is 4.08 years which should be quite acceptable as opposed to 3.58 years for diesel buses. Assumptions can make a lot of difference in the results. A diesel bus may give more mileage per year as it is not constrained by electric charging hours. For comparison purposes, we have assumed 35 passengers in both cases – EV- and diesel-run buses. The same revenue per km of Rs4 has been assumed, while the better competitiveness of EV may be able to attract a better ticket price – or diesel may get a lower ticket price. Low diesel prices in Pakistan as compared to that in Europe and India put EV buses in a better competitive situation.

For comparison, we have assumed the electricity rates of Rs30 per kWh, while in reality it may be 25 percent higher if the regulated Nepra price of Rs47 is taken. It is assumed that EV buses would have dedicated charging stations and may not have to pay the high regulatory rates of Rs47 per unit. The diesel price of Rs150 per litre has been assumed, which is higher than normal rates but is still lower than that in India where diesel sells at PKR 250 per litre. Thus EV economics may be looking comparatively better in India than in Pakistan.

The least attractive economics is that of EV cars whose running cost per km is approximately Rs7.078 as opposed to that of gasoline-run cars – Rs9.375 per km. The energy cost advantage is little ie only 32 percent higher gasoline cost, which is low as compared to electric motorcycles. The reason is high electricity charges of charging stations at Rs47 per kWh as opposed to the normal highest electricity tariff slab of Rs25-30. The CapEx per km of ECM is twice that of gasoline-run cars. The TCO of EVCs is Rs6.85 million vs Rs5.06 million of convential cars.

In advanced countries, pricing is unregulated in both electricity and charging sectors. In developing countries, where the power sector is regulated, there is a debate on whether charging tariffs should be regulated as well. Nepra has recently announced a charging tariff of Rs47 (26.8 USc) per unit which is comparable to other countries in Europe and the US, although Indian EV charging tariff is somewhat lower (24.7 USc). Pakistan’s exchange rate variations make the exact comparison quite difficult.

An argument can be made in terms of unregulated pricing. First of all, true prices are never known. Second, there would be many variables in the charging-related business. The utilisation level (capacity factor), as known in the case of IPP tariffs, would vary from case to case.

A higher tariff would discourage EV adoption and a lower tariff would discourage the charging-related business. It would be fair if Nepra determines the power tariff for electricity purchases for charging stations and leave the charging tariff for consumers open and unregulated. For home charging, it is advisable that no special electricity tariff is issued. One pays for the tariff slab one belonged to. This way, the low-income group using motorcycles would benefit. Similarly, EV car owners would pay a higher tariff since they belong to the highest tariff slab.

EV economics will become attractive with time, as the EV market and cars’ efficiency increase. Pakistan has until 2030 to improve things at home. The EV policy should prioritise the EV motorcycles and buses markets which appear to have better economics. Also, the conversion of existing conventional vehicles to electric may be encouraged as it utilises existing investments and reduces upfront costs, increasing switchover incentives. Our destiny in terms of climate issues is common, and we should participate in such ventures so long as they make sense under our economic and social conditions.

Concluded

The writer is a former member of the Energy Planning Commission. He can be reached at: akhtarali1949@gmail.com