The Bhutan Electric Vehicle Initiative : Scenarios, Implications, and Economic Impact

This report summarizes the results of a technical analysis of the Bhutan Electric Vehicle Initiative. The analysis, assuming three scenarios for the uptake of electric vehicles (EVs) in the country, introduces international experiences and lessons learned in EV programs and looks at required investments—for example, for EV charging facilities—as well as expected economic impacts and policy outcomes. Overall, while the EV initiative presents an interesting opportunity for providing green mobility in Bhutan—with possible outcomes including reduced fuel dependency and greenhouse gas (GHG) emissions—the implementation of any such EV program requires careful planning, awareness raising, policy incentives, and investments to develop the market, while building on global technology developments, government fiscal capacity, and travelers’ behavior.

EV s Offer an Interesting Opportunity for Introducing Green Mobility in Bhutan

Bhutan is rich in hydropower resources, with activities in the hydropower sector contributing 12.5 percent of GDP and revenue from hydropower exports contributing 3.7 percent of GDP in 2013. These shares are expected to grow substantially as more hydropower projects are completed and start generating electricity. In 2012, about Nu 10,269 million (US$171 million)1 in power was exported to India. At the same time, Bhutan has to import about Nu 6,331 million (US$106 million) of fuel every year, of which almost 90 percent is used for transportation. Reducing dependency on fossil fuel is one of the main goals of Bhutan’s 11th Five-Year Plan, and using hydro-based electricity in the transportation sector is considered one of the policy options to achieve this goal.

The global market for EVs is still nascent but shows positive signs of development in the near future. The automotive industry has adopted electrification as a pillar of future drive train technology with an average penetration rate in 2012 of 0.6 percent of yearly new vehicle sales in the 10 largest markets and EV uptake is expected to continue to increase significantly. This penetration rate is generally indicative of a pilot stage technology prior to widespread adoption once costs decrease and availability improves. The International Energy Agency (IEA) has projected that by 2020 annual global EV sales will reach almost 6 million vehicles, or 5 percent of total passenger car sales.

In addition to research and development (R&D), public spending on EVs in EV leading countries is used for fiscal incentives and the development of EV charging infrastructure. In the top 15 countries with EV initiatives, most public funding is going to long-term R&D (over US$8 billion or Nu 0.13 billion), followed by fiscal incentives (US$3 billion or Nu 0.05 billion) and charging infrastructure (reaching US$1 billion or Nu 0.02 billion). In terms of investments in R&D and technology, Bhutan might best focus on learning from international experience and evolving in line with sector developments worldwide.

Several trends in the global EV market may accelerate EV uptake over the medium term. The first global trend is the ongoing improvement of battery technology, which is expected to increase the range of EVs. Current EV technology is best suited for customers driving less than 120 kilometers per day; only one manufacturer, Tesla, is currently producing vehicles with an electric range of about 400 kilometers—comparable to the range of conventional vehicles. International experience, however, has indicated that range is a critical factor in consumers’ purchase decisions. The second global trend is the falling price of EV batteries. Over the last five years, battery prices, which form a large part of the cost of EVs, have dropped significantly. Finally, the third global trend is the expanding number of EV models. Although Nissan did not introduce the first modern commercially available EV—the Nissan Leaf—until 2010, by 2014 there were already 20 commercial EVs on the market. Many other car manufacturers also have an extensive R&D roadmap to expand EVs over the complete model range.

When the local market is developed at a pace consistent with global market trends, an EV program can benefit from ongoing improvements in EV technology and resulting cost decreases in the global market. Technological improvements in terms of better and less expensive batteries, additional range, new product offerings, and increased availability of affordable EV models will increase the attractiveness and financial competitiveness of EVs. These improvements in the global market will allow for an increase in EV uptake in the medium term with less financial support from the government.