The supply of electric buses (e-buses) in India is expected to increase by 75-80% year-on-year, reaching 6,000-6,500 units this fiscal year, a communication from CRISIL Ratings has said. This growth is driven by various tenders awarded under government schemes for procurement by state transport undertakings (STUs) through the gross cost contract (GCC) model.
Key schemes contributing to this surge include the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) 1 and 2, the National Electric Bus Programme (NEBP) under Convergence Energy Service Ltd (CESL) 1 and 2, and the PM-eBus Sewa Scheme. Orders for e-buses stood at 24,000 at the start of the fiscal year, thanks to these initiatives.
The GCC model is particularly attractive as it provides an asset-light approach for STUs, with no upfront cost for e-bus acquisition, as these are financed by bus operators. Operators benefit from a steady income stream through assured rentals per kilometer, with tariff adjustments linked to inflation, resulting in a healthy internal rate of return of 10-11% over the concession period.
Gautam Shahi, Director of CRISIL Ratings, stated, 'E-bus adoption is in a favorable position because the GCC model effectively balances the interests of STUs and bus operators, ensuring an optimal distribution of risk.' However, the counterparty risk remains a significant concern for operators, particularly when dealing with STUs with weak credit profiles, which have led to stretched debtor cycles in the past. To mitigate this risk, the government announced a payment security mechanism (PSM) under the PM-eBus Sewa Scheme in August 2023. A dedicated payment security fund (PSF) is being established to secure the receivables of bus operators in case of delayed or failed payments by STUs.
For tenders recently awarded under the PM-eBus Seva Scheme, there is a provision allowing bidders to execute the concession agreement only after the PSM has been notified, providing further financial security to operators. The increase in e-bus orders will likely lead to economies of scale in production, while declining battery costs are expected to reduce the purchase price of e-buses. This potential reduction in e-bus prices could be passed on to STUs by bus operators through lower rentals per kilometer, thus encouraging further adoption.
Pallavi Singh, Associate Director of CRISIL Ratings, commented, 'The strong existing e-bus order book, along with the remaining orders for 7,800 buses under the PM e-Bus Sewa Scheme, will boost the sector. Additionally, the government is expected to expand this scheme, further supporting the growth of e-bus sales in the current and next fiscal years.' Also Read:
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