India’s e-bus adoption has a financing bottleneck

A Centre-owned and run e-bus financing programme can mitigate many current challenges and cut the high upfront costs for the state road transport undertakings.
Last Updated : 03 August 2023, 10:04 IST
Last Updated : 03 August 2023, 10:04 IST
Last Updated : 03 August 2023, 10:04 IST
Last Updated : 03 August 2023, 10:04 IST

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India launched an ambitious National Electric Bus Program (NEBP) in 2022 to deploy an additional 50,000 electric buses over five years, backed by a significant investment of $10 billion (Rs 820 billion).

So far progress has been slow. Of the 359,432 buses registered between April 2015 (the inception of the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme) and May 2023, only 4,506 are electric—that’s just 1.25 per cent.

The government has adopted a two-fold approach to achieve the NEBP target. First, Union government-owned Convergence Energy Services Limited (CESL) is implementing the demand aggregation model, negotiating competitive prices for electric buses by leveraging economies of scale. Second, the gross cost contract (GCC) model involves e-bus original equipment manufacturers (OEMs) providing electric buses on a lease, with payment determined per kilometre.

There are challenges in the existing approach, particularly concerning the weak financials of State Road Transport Undertakings (SRTUs), who will operate these buses. A Union government-owned dedicated e-bus financing facility can help overcome these challenges.

Challenges for OEMs

The recent CESL electric bus tender, valued at Rs 50 billion ($610 million), faced setbacks as major automotive OEMs refrained from bidding.

The OEMs are sceptical of delayed payments by the SRTUs because of the latter’s poor financial health and operating performance. According to the latest financial data from the Ministry of Road Transport and Highways (MoRTH), the 56 SRTUs collectively have a debt of Rs 380 billion ($4.6 billion) and had a combined net loss of approximately Rs 180 billion ($2.2 billion) in the fiscal year (FY) 2018-19.

Further, becoming bus operators under the current GCC model may not be desirable for the OEMs as it does not align with their core business. Besides, the OEMs will have to hold electric buses on their balance sheet and source capital to finance them, impeding their ability to increase manufacturing capacities that may not be in the best interest of India’s e-vehicle adoption plan. Therefore, while the government’s implementation of a payment security mechanism (PSM) addresses delayed-payment concerns, the balance sheet risk remains unresolved.

This calls for a re-evaluation of the financing approach.

Electric bus financing programme

An electric bus financing programme can mitigate these challenges and cut the high upfront costs for the SRTUs. This programme would be owned and run by a financial institution under Union government control. The institution for public electric bus financing will resemble the financing technique of Indian Railway Finance Corporation (IRFC) and the Indian Renewable Energy Development Agency (IREDA).

This programme would aggregate funds for e-buses for the SRTUs. It will procure the e-buses from OEMs via a tender process managed by the CESL, and enter into operating lease agreements with the SRTUs for either the entire bus or just the batteries. The SRTUs will also establish separate service and maintenance contracts with the OEMs for the efficient operation and upkeep of e-buses — this will help keep the collateral value of the e-buses intact. Moreover, the programme can become a one-stop shop for financing other zero-emission vehicles, including private-sector ones.

Capitalisation and financing sources

Capitalising this programme would be the responsibility of the nodal financial institution, which can tap into public and private sources. Public financing can come from the Union government's FAME subsidy (financial incentives for electric vehicles), development finance institutions (DFIs) and international public finance, including multilateral development banks (MDBs), and donors. Private financing could come from commercial banks, capital markets, and other private financiers. This blend of public and private financing can significantly reduce the capital cost for the financing programme. Lastly, the financing programme can generate additional revenue by selling carbon credits derived from the emissions avoided by leasing electric buses.


International climate financiers, including MDBs/DFIs, typically prefer providing capital through Union government-controlled entities rather than private companies or state governments. Such financers, mandated to invest in climate-friendly assets, can offer concessional capital and risk mitigation solutions, such as partial risk guarantees, to the facility. Moreover, private financiers may be more inclined to invest in the financing programme if public financiers take a riskier position in its capital structure.

Challenges can be solved

Provisions for proper recycling and compliance with environmental standards are essential to prevent retired buses from re-entering the market. Such strong Climate Change commitments are crucial for attracting international climate finance.

A PSM is necessary even with the proposed e-bus financing programme. However, such a model can address the financial challenges the SRTUs face while not impacting the OEMs. The financing programme can play a crucial role in accelerating the transition to sustainable public transportation in India.

(Saurabh Trivedi is Energy Finance Analyst, Institute for Energy Economics and Financial Analysis (IEEFA), and Labanya Prakash Jena is Senior Manager and Head, Centre for Sustainable Finance, Climate Policy Initiative.)

Disclaimer: The views expressed above are the author's own. They do not necesarily reflect the views of DH.

Published 03 August 2023, 10:00 IST

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