Battery Swapping Policy: Provisions, Benefits and Challenges – Explained, pointwise

Introduction

NITI Aayog has released draft battery swapping policy, keeping all the inputs provided by relevant stakeholders in consideration. This comes after the Finance minister had announced in the Union Budget 2022-23 that the government will be introducing a battery swapping policy. The policy has been formulated with the aim to promote adoption of EVs (Electric Vehicles) by enabling an effective, safe and reliable battery swapping ecosystem across India.

What is the background?

India is on the cusp of an e-mobility revolution led by the two-wheeler (2W) and three-wheeler (3W) vehicle segments. 2Ws account for 70-80% of all private vehicles, and 3Ws play a critical role for public transit, freight transport and last mile connectivity in cities. While the upfront costs of EVs are typically higher than internal combustion engine (ICE) counterparts, operation and maintenance costs over their lifetime tend to be lower. Government has launched several supporting initiatives such as the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) I and II to promote EVs. 

Further, there is a National Programme on Advanced Chemistry Cell (ACC) Battery Storage (NPACC) to boost indigenous battery manufacturing capacity.

EVs are traditionally purchased with “fixed” batteries which can only be charged using the power supply while housed within the EV. Several bottlenecks related to charging of batteries act as a hurdle in adoption of EVs. 

What is Battery Swapping and its advantages?

Battery swapping is an alternative which involves exchanging discharged batteries for charged ones and provides flexibility to charge them separately. (Battery-as-a-Service model).

Cost Benefits: While battery swapping involves a greater number of batteries than conventional batteries, each swappable battery can be smaller in capacity (kWh) which reduces the cost.

Reduces Charging Time: With existing technologies for e-2Ws and e-3Ws, regular charging takes at least 3 to 4 hours, adding to inconvenience and creating range anxiety. Whereas, battery swapping is done in minutes, as the batteries are pre-charged in swapping stations.  

Less Space: Charging stations require more space, since vehicles need to be parked next to the chargers during the charging process. Battery swapping is a relatively quicker exercise and swapping stations will require limited parking. This would address space constraints in urban areas.

What are the key provisions of the draft Battery Swapping Policy?

General Requirements: This Policy stipulates the minimum technical and operational requirements that battery swapping ecosystems would need to fulfil.

Incentives: It highlights the possible ways through which various government agencies may provide direct and indirect financial support to Battery Providers (for the cost of batteries) and EV users (for the upfront cost of purchasing EVs). It proposes the development of a subsidy disbursement platform that will act as a seamless mechanism.

Battery Reuse and Recycling: BIS or other relevant organizations shall develop regulations for the minimum battery performance and durability parameters. BIS shall also develop standards for re-use or re-purposing of the batteries, keeping safety, reusability and sustainability of the business model into consideration.

Vehicle Registration: It mentioned that the registration of vehicles with swappable batteries should exclude any battery details in order to ensure the validity of registration when using a certified battery.

Implementation: The implementation of the battery swapping policy is proposed to take place in two phases: (a) The first phase will come into effect in all major metropolitans with more than 4 million population; (b) Major cities, State Capitals and Union Territories will be covered under the second phase, given the importance of E-2-wheelers and E-3-wheelers in such growing cities. 

The Bureau of Energy Efficiency (BEE) will be responsible for the rollout of the battery swapping networks nationwide. The Central Nodal Agency is also responsible for the implementation of EV public charging infrastructure.

Other provisions: It emphasizes enabling innovation in adoption of possible business models, and de-risking the investment in required infrastructure. It also lays the groundwork to create unique battery codes for ACC (Advanced Chemistry Cells) batteries falling under this Policy.

What is the need for a battery swapping policy?

First, the policy will create a framework for greater interoperability and safeguard the innovation potential for the EV battery ecosystem.

Second, the policy will boost the adoption of EVs in India. This will reduce the demand of fossil fuel driven vehicles eventually reducing the import bill on oil.

Third, the policy will also help in fulfilling India’s national and international commitments for tackling climate change as EV adoption will decarbonize the transport sector in the country.

Fourth, this policy will encourage private sector participation in the EV sector and boost the inflow of foreign investment in India.

What are the challenges associated with battery swapping?

First, most companies offering EVs for personal buyers have already moved to the fixed battery model. Any changes would require the vehicle to be re-engineered significantly, thereby entailing more investment. 

Second, batteries and battery technology are the biggest cost components of a vehicle, and a key differentiators for automakers. Standardization of batteries will eliminate this advantage and disincentivize automakers.

Third, passenger vehicles are not amenable to swapping as batteries weighing 250 kg or more would be placed under a chassis that would need robotic arms and special tools. It is an exercise demanding precision, and fraught with huge investments and risks.

Fourth, battery as a service, even for E2Ws and E3Ws, faces financing hurdles. Autos and bikes are typically financed but when the auto frame and battery are separated to make the sale, financiers would be reluctant to fund the shell (without battery). The frame and motor still account for half of a vehicle cost but are useless without the battery, and banks cannot dispose of a repossessed frame in case of a default.

Fifth, skewed tax structures also stifle battery as a service. The GST on battery that comes with vehicle is 5%. It is 18% on batteries sold separately. This puts battery swapping operators at a disadvantage as they not only absorb half of the vehicle cost but also face a very high tax burden, thus making the business unviable.

Sixth, Many consumers in India are skeptical about battery-swapping. They fear that they might get sub-standard battery on exchange instead of company-guaranteed battery that comes with the vehicle. A survey by Del­oitte found that 76% of Indians prefer charging at home. Hence, many auto sector analysts fear that adoption of battery-swapping option may remain low.

What lies ahead?

First, the GST Council should consider reducing the differential across the tax rates on Lithium-ion batteries and Electric Vehicle Supply Equipment (EVSE). This will aid in boosting EV adoption in the country.

Second, transport departments of states and UTs should establish procedures to streamline the registration of EVs at respective RTOs once the policy comes into force.

Third, Electricity consumption will be the major operating expenditure for battery charging stations (BCS) and battery swapping stations (BSS). Thus, the government should provide subsidies and concessions in this domain.

Conclusion

The policy, by and large, shows direction but due to nascent market dynamics, it lacks a constructive fixed roadmap for setting up Battery as a Service or BaaS infrastructure. However, in time, there can be further amendments to ensure a better level playing field and options for setting up an interoperable EV ecosystem with regulated tariff.

Source: Business Standard, Times of India, Economic Times, Down to Earth