Facilitating electric bus adoption by private bus operators across India

This piece was originally published in The Hindu.

In a major push towards achieving India's climate targets, the Union Cabinet recently approved the PM Electric Drive Revolution in Innovative Vehicle Enhancement(PM E-DRIVE) scheme, which allocates funding for electric vehicles (EVs) across many segments, including ₹4,391 crore for subsidies/demand incentives that support procurement of 14,028 electric buses in nine cities. This is an important move that strengthens the public transport sector's shift to EVs. But private bus operators are left out of the subsidy framework, and this raises concerns about the potential to scale electric mobility beyond state-run buses.

Electric bus deployment in India has thus far been driven by the public sector, which was supported with financial subsidies under the national Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme. Under FAME I, which ran from 2015 to 2019, 425 buses received approval for purchase subsidies,and that rose to 7,120 buses under FAME II, which ran from 2019 to 2024; the incentives were available to state and city transport undertakings, municipal corporations, and other public entities. But public transport buses make up only 7% of the 2.4 million registered busesin India.

Indeed, despite private buses representing 93% of the buses in India, they are not yet included in any major national schemes or special incentive programs. While a few leading private bus operators such as NueGoand Chartered Speedhave deployed electric buses in their fleets, the numbers remain small. If there is to be scale in the electric bus market in India, the transition of private buses is critical, and there are several areas where policy can help.

A recent ICCT studysuggested that the limited availability of financing is a key hurdle for the uptake of electric buses by the private sector. Higher perceived risk-return profiles, high upfront costs, and low perceived resale value of electric busesas collateral have thus far made financing a challenge. Uncertainty regarding battery life further increases this perceived risk.

Studies show that electric intercity buses can be more profitable than diesel buses over their service life. However, high interest and loan instalment costsmake them less financially viable during the loan period. Despite this, private intercity bus operators in India could benefit greatly from electric buses, as they would offset rising fuel costs. Intercity buses play a major role in India's transport, with 22.8 crore (228 million) passengers daily, covering 57% of total ridership and 64% of vehicle-kilometres. Additionally, 40% of intercity trips fall within the 250-300 km rangethat current electric bus models can cover on a single charge. These operations are well suited for electric bus deployment.

As India aims to replace 800,000 diesel buses with electric ones by 2030, this recent ICCT reporthighlighted the potential of offering favourable financing options such as interest subsidies and longer loan tenures to ease the financial burden. Additionally, credit guarantees, potentially rolled out via government banks and other designated financial institutions, are a way to help reduce investment risks for financiers.

Another key hurdle for private electric bus adoption is charging infrastructure. FAME-funded facilities are limited to state transport units' depots, and as 90% of private bus operators in India manage fleets of fewer than five buses, the high land and infrastructure costs can easily make investing in charging facilities economically impractical. Even if the required space of 70-120 sq.m.is available, the high cost of land lease rentalcould severely impact the economic viability of charging stations. Private intercity bus operators may also face challenges due to power supply interruptions, limited grid capacity, and inadequate upstream infrastructure. To accelerate private-sector electric bus adoption, it's essential to develop shared public charging infrastructure within cities and on high-traffic highways, particularly key intercity corridors. State governments could lead the development by leveraging financial subsidies offered under the PM E-Drive scheme, which aims to subsidise 1,800 bus chargers. To encourage private investment, states could also offer additional fiscal incentivesor structure tenders for shared charging infrastructure on a design-build-operate-transfer (DBOT) basis, and ensure viability through guarantees of minimum daily energy consumptionper charger.

Another emerging business model, Battery-as-a-Service (BaaS), could reduce the high upfront costs of electric buses by separating battery ownership from vehicle ownership, as seen in Kenya and China. This model, along with battery swapping, has the potential to accelerate private electric bus adoption through usage-linked leasing and other solutions, such as Macquarie's Vertelo platform in India. This ICCT blogdiscussed these in detail and highlighted how they could help transform electric bus deployment in India.

To create scale and reduce costs in the electric bus market in India, promoting uptake in the private sector is crucial. As the government forges ahead in supporting the EV transition under the new PM E-DRIVE scheme, there are opportunities for policy in the areas of financing incentives, charging infrastructure, and innovative business models to help overcome barriers to electric bus adoption by private operators.