A greener future: Thoughts on India’s proposed battery swapping policy

Mounting concerns over transport emissions contributing to climate change, coupled with the insatiable demand for expensive petroleum from Internal Combustion Engine (ICE) vehicles, have compelled countries around the world to embrace electric vehicles (EVs). Home to the world's largest two- and three-wheeler markets, and the fifth-largest passenger car market, India considers e-mobility and clean energy generation mission critical for its 2070 Net Zero target.

The Government of India (GoI) is matching ambition with resources and favorable policies to drive EV adoption. Nevertheless, the high upfront EV costs impose major barriers in price-sensitive India, with batteries making up around 50 percent of the price tag.

Battery swapping is emerging as a cost, time, and space efficient solution for two and three wheelers. Users can buy vehicles without batteries, subscribe to batteries-as-a-service, and swap discharged batteries for charged ones at kiosks. Time wise, swapping resembles refueling. It takes minutes versus at least an hour for charging. This drastic reduction in vehicle downtime will increase the productivity of commercial fleets, and could nudge fleet users to switch to EVs. Swappable batteries can also be charged in stacks, requiring less space per EV compared to fixed battery charging, and allow better quality control of charging conditions.

So far though, swapping hasn't taken off in India. Majority of battery swaps happen within closed circles that exclude the public. The GoI is making a bold attempt to democratize swapping in the country to unlock this solution at scale. The sale of EVs without batteries has already been legalized. On the heels of a 2022-23 Budget announcement, India's policy think-tank NITI Aayog released a draft Battery Swapping Policy for consultation.

Considering the nascency of battery swapping, and EVs more generally, in India, a clear policy and accompanying incentives could prove decisive.

Such a policy is unprecedented globally. Even in countries where swapping is more prevalent like China and Taiwan, policy intervention has been relatively light. Considering the nascency of battery swapping, and EVs more generally, in India, a clear policy and accompanying incentives could prove decisive.

The draft Policy scores high on five key fronts: interoperability, safety, transparency, customer-centricity, and sustainability.

1. The draft Policy takes a nuanced approach to fostering interoperability. Battery swapping is premised on aligning different parts of the ecosystem - vehicles, batteries, and charging stations. Instead of prescribing single technical standards which could restrict innovation, the Policy gives room for the market to develop multiple internally consistent ecosystem solutions, open for other players to plug in to. Such a permissive approach can foster innovation for this nascent technology.
2. At the same time, the Policy doesn't leave safety to chance. Ecosystems will have to meet safety and performance requirements for certification, particularly relevant given the recent spate of EV-related safety incidents in India. Such an emphasis on safety and performance resonates with standards elsewhere, like in China and Singapore.
3. An important step to enhance asset security and transparency in functioning is the Unique Identification Number-based tracking and monitoring system for ecosystem elements.
4. The Policy will also pave the way for a data sharing and communication protocol to allow users to make informed decisions.
5. Last, but not least, the Policy drives towards long-term environmental sustainability by outlining a system for battery re-use and recycling.

The devil is likely to be in the details. The Policy's goal of creating a level playing field across fixed battery and swapping business models is an important one, to reduce entry barriers and increase user choice. In addition to the recommendation of Goods and Services Tax normalization and land/electricity tariff concessions, the calibration of direct subsidies for swapping relative to fixed battery models would be critical to address industry feedback. Technical standards accompanying the Policy would also need to strike a fine balance between fostering interoperability and leaving room for innovation. Market views on this are mixed, with some quarters calling for standardization to some degree, and others advocating a laissez-faire approach.

Access to competitive financing remains a key piece of the puzzle.The Policy will go a long way in providing clarity on the regulatory environment, and in facilitating information flow which could bring down risk premia. NITI Aayog has also been working with the World Bank to develop programmatic solutions to unlock commercial financing for the EV transition. A Risk Sharing Program for two and three wheelers offering a first-loss partial credit guarantee to bring down financing costs could mobilize private capital and stretch the government's dollar efficiently. Such facilities have proven useful for other nascent markets such as renewables, and should also be considered for swapping.

The ongoing consultation is a valuable opportunity to incorporate feedback from the EV ecosystem and put in place a landmark policy for India's green transition.