Economy

Adoption of more CNG, electric vehicles to reduce fossil-fuel consumption: Crisil

Our Bureau | | | Updated on: Nov 23, 2021
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Petrol and diesel together account for 93% of the transportation fuel basket, and the government’s effort to control emissions will impact the energy transition matrix.

The share of fossil fuels in the transportation segment is expected to come down as the adoption of CNG-powered vehicles and electric vehicles will gather strong momentum on the back of the green push by the governments in this decade, says Crisil.

The United Nations Climate Change Conference, better known as COP26, has emphasised the pivotal role India will play in the global energy transition matrix. Petrol and diesel together account for about 93 per cent of the overall transportation fuel basket.

Government initiatives to control emissions will impact the transportation sector in this decade. Through fiscal 2025, aggressive adoption of compressed natural gas (CNG) and ethanol blending will help slow down growth in demand for petrol. Beyond that year, there will be further flattening as electric vehicles (EV) hit the road rapidly, it said.

“A more than three-fold increase in the number of CNG stations, advancing of the ethanol blending target, and a significant decline in EV battery prices are likely to slash demand growth in petrol to 1 per cent this decade from 8.4 per cent in the last. Demand for diesel will be relatively resilient (2 per cent annual growth compared with 3.9 per cent earlier) because of non-exposure to the two-wheeler segment, where the shift to EVs is sharper, and the presence of a significant proportion of freight vehicles where CNG and EV penetration would be limited,” said Hetal Gandhi, Director, CRISIL Research.

Healty CNG demand

CNG demand logged a healthy 10 per cent CAGR between fiscals 2015 and 2020. During this period, the total number of CNG vehicles on the road increased from about 2.5 million units to about 3.5 million units. Growth is expected to accelerate at 14-16 per cent CAGR between fiscals 2020 and 2030.

It is estimated that CNG will affect the average annual demand for petrol by 8-10 per cent from fiscals 2022-30. Impact on diesel will be lower, at 2-4 per cent, as commercial vehicles (75 per cent of diesel consumption) will continue running on the fuel.

EV adoption

India’s road to EV adoption has been bumpy. The government initially targeted 30 per cent EV penetration (in volumes) by fiscal 2025 and redefined the target to 30 per cent by fiscal 2030, citing unpreparedness of the ecosystem. Since then, however, its stance on direct subsidy for the purchase of vehicles has shifted positively. Revision of FAME II incentives for two-wheelers, and additional purchase incentives announced by state governments in different forms, seem to be catching pace.

Vehicle costs are, therefore, seeing a sharper reduction. Declining battery costs, evolving technologies, and the Indian government’s push for localisation will drive the final cost-of-ownership dynamics. That, in turn, will decide the adoption curve.

Adoption of EVs will be sharp for segments such as two- and three-wheelers, followed by taxis. The transition is expected to be steep post fiscal 2025. To put it in perspective, in fiscal 2021, EV penetration in new vehicle sales stood at less than 1 per cent. By fiscal 2030, this is expected to rise to over 10 per cent.

Published on November 24, 2021

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