Project Management . Capital Raising . Renewable Energy

Introduction

In our previous article on the e-mobility subject, we took a pulse at the current state of the EV market and expounded on the key building blocks that are critical for the industry’s growth. These include the need for patient capital, the importance of an enabling policy, the significance of business model innovation and consumer education. This article presents the second and final piece on the EV sector.

 A recent study by Dalberg and FMO (which complemented our article) argues that to realize mature e-mobility ecosystems, a range of five (5) mutually reinforcing conditions must  be present (as shown below). These typically evolve organically and in uneven/less structured ways across stages of ecosystem growth, from start to scale.

Source: Dalberg & FMO [Catalyzing Investment in Electric Mobility – The case for Africa and the Middle East]

In this submission, we will look at practical examples around these factors from selected markets. This does not mean that those markets have  matured but rather are treading in the right direction. Note: The graph below maps countries like South Africa and India in the introductory stage  and China and the US  in the growth stage based on their current sales levels of EVs.  

Source: East  Africa EV Stakeholder Workshop presentation by Ignatius Maranga held at Strathmore University, Nairobi.

So, what is working in business model innovation and policy formulation/implementation?

Business Model Innovation – The case of India

India as a developing economy has rich socio-economic aspects that mirror majority of the countries in Africa. These include rapid urbanization, population growth, and dependence on agriculture as a building block of the economy. Unlike  majority of the African countries, India  has continuously employed value addition by developing niches in technology, manufacturing and other “layer 2” sectors thus making the leap from a basic production heavy economy to a specialized manufacturing one. While it is still early days in the development of the e-mobility sector in India, there’s already an elaborate body of knowledge that we can glean on from what has been achieved so far.

There are broadly three (3) business models in the EV sector in India that market players have been undertaking with various levels of success. These are[1];

  • The purchase business model
  • The lease business model
  • The battery separation (or battery as a service) model

For each of the above business model, we will analyze the different approaches of implementation and how they impact scale.

  1. The Purchase Business Model

In this model, ownership of the asset is transferred to the buyer either through upfront self-financing or through financing from institutions. The key feature is the need for ownership for the buyer. The chart below further elaborates this model.

Source: RMI India

ii. The Lease Business Model

In this model, the burden of upfront financing is reduced by spreading payments over a long time. This can be implemented by a “dry-lease” or a “wet-lease” mechanism as shown in the chart below;

Source: RMI India

iii. The Battery Separation Model (or Battery as a Service)

This model removes the battery component from the purchase value of the EV product to enhance affordability. The model is often deployed in several ways including conventional battery swapping, battery leasing and Pay-as-you-save (PAYS) options as shown in the chart below.

Source: RMI India

Next, we will explore some of the policy incentives that have been developed globally which could serve as lessons for Kenya and other East African countries as they chart their individual and collective EV journeys.

Policy formulation and implementation – Examples from several countries.

The  government is a critical player in the formulation and execution of policy but with varied levels of success and scale. Some government have developed regulations around charging infrastructure, and other critical investment assets as well as incentives around subsidies and tax breaks to encourage the uptake of EVs.

Additionally, some governments have  ensured budgetary allocation for spending on e-mobility  through  procurement of government vehicles, co-financing with private sector manufacturers among other activities. The table below is a summary of some initiatives across the globe.

Source: E Africa EV Stakeholder Workshop presentation by Ignatius Maranga

Conclusion

Whereas the above examples have shown initial positive results in the respective markets, it is important for the East African countries to design their own regulatory models that address the unique challenges of their demographics. A straight jacket or copy and paste approach would not work. For instance, there is need to consider the impact of government policies on the affordability of EVs given that some products such as motorcycles typically serve the BOP segments in both urban and rural regions. Considerations around retrofitting, repairs & maintenance, grid integration of EV charging infrastructure among  other aspects related to skills transfer need to be adequately discussed by stakeholders before full blown implementation. Finally, broader discussions within the East African Community (EAC), now emboldened with the entry of DRC need to incorporate E-mobility and work in tandem with the East African Power Pool (EAPP), [a regional institution that coordinates cross border power trades and grid interconnection] as well as other regional infrastructure elements.

It is also increasingly clear that majority (50.1%) state-owned utilities such as KPLC have a role to play with regards to stimulating EV adoption; if its recent remarks are anything to go by. However, utilities should seek ways to have PPP (public-private partnership) models to avoid duplication of efforts with private sector partners and prevent possible overreach of their mandate. Moreover, investments in adequate technology remains critical. For instance, lack of smart billing systems, metering and data tracking may expose utilities to losses due to illegal connections of EV infrastructure into the main grid as has been the case with residential and informal business users in the past.

Lastly, governments should take bold actions to achieve a fully decarbonized transport future. Continuous provision of fossil fuel subsidies as a political tool is counteractive to the green transition as envisioned in most of their National Climate Action Plans (NCAPs) and other government manifestos and dossiers. Here, an argument can be made that reallocation of fossil fuel subsidies towards e-mobility might be a better use of public resources in the long run. However, such a policy switch may distort and potentially hurt until a trigger point of EV inception and adoption is realized for the much-anticipated dividends from economies of scale to kick in. However, a “wait and see” approach would simply not do as this exposes our markets to be dumping sites of legacy internal combustion engine (ICE) products from the developed world as they rapidly and conveniently transition into the fourth industrial age.

Yes, to ACT, we MUST!!!

Wanjohi Theuri is a Climate Finance and Energy Advisor based in Nairobi. Additional contribution by Louise Mathu, Shelmith Theuri, Khatuchi Khasandi and Daniel Kitwa.