The future is now

AT PENPOINT

At a meeting on electric vehicles, Prime Minister Shehbaz Sharif made an important point about them: of all the benefits, there would be a reduction in the fuel import bill. He did not take the next logical step, which was to note that solarization provides the same benefit, nor did he consider it necessary to speculate about the role of the government in the process of transition to solarization, and the use of EVs.

The government is a major consumer of both electricity and vehicles. Solarization gives a prime example of how the government could save money, but the saving is not as much as it seems, because the government doesn’t pay electricity bills anyhow, defying the distribution companies to cut off their electricity, and thus impede the work of the government, DISCOs have threatened to do so, but have backed off at the last moment. Instead, they have notched another increase in their receivables from the government.

At the moment, the DISCOs have the great advantage that solar electricity generated cannot be stored. The consumer needs the DISCOs to supply electricity during the night. The problem the DISCOs are facing is that solarized consumers are not buying from them, and are paying them much less cash than they used to, creating all sorts of financial problems for the DISCOs.

They must be dreading the time technology allows storage of electricity generated, and an increase in the power of sunlight conversion by solar panels, because that would mean consumers would no longer need them for the night.

Storage is already possible, but it is expensive and high-maintenance. However, the majority of government offices are closed at night, which means they can go off-grid without any harm done. However, that would be terrible for the DISCOs, for even if they do not pay their bills, their dues are listed as receivables, and ultimately are paid.

Then there are EVs. It would cost too much to replace the government’s fleet of vehicles all at once, but if the government was to make a move in this direction, it might help redress those problems of the transition to economies of scale. It would have to be a gradual process, for some of the government’s vehicles, like police vans or garbage trucks, are not easily substituted. EVs have not successfully been developed to replace trucks, for example.

It is also worth noting that a successful transition to EVs will mean an increased demand for electricity beyond the ability of the DISCOs to deliver.

There is more technological change up ahead, which have already started posing questions, like cryptocurrencies and e-wallets. What happened to generation capacity when EVs switch to solar charging. Then there is the clouds, Artificial Intelligence and much more. The government might come to see EVs and solarization as minor issues.

Interestingly, the reform of the transmission and dispatch network is a recurring demand from power sector critics. However, it is not fulfilled, not only because it is expensive, but it makes it more difficult than temporary patches to earn money for the DISCO officials.

One of the goals, indeed prerequisites, for the government is local manufacture. After all, it does not make sense to reduce the import bill by saving on fuel while increasing it by importing EV kits. One of the advantages of manufacture is that the raw material is likely available in the form of rare earths, needed for the manufacture of the batteries which power the EVs.

Another problem with EVs is that while their operating cost is nonexistent, unlike the internal combustion engine, they are not easily repaired. Total replacement might well mean it would make more sense to just buy a new EV. Some work, like body and tyre work would remain the same, but much of the mechanical work would be different. Apart from auto manufacturers and vendors, mechanics would also see a major shakeup.

Then there is the question of whether the downstream industries will be able to deliver or not. Does the right ecosystem for mining and processing rare earths exist? They will have to be machined and made ready for manufacture. The view has been expressed that the demand for vehicles in Pakistan is insufficient for manufacture here alone. It is only feasible if manufactured parts or engines are exported. Airily saying that is not quite the same as finding export markets.

There is also the question of resale value. Internal combustion engine vehicles have a resale value, and a vehicle can also act as a store of value because of that. A lot of vehicles are paid for by the proceeds of the sale of a previous vehicle. A small minority of sales are exchanges of vehicles, with one party paying the other some money, to make up the difference in value.

There is no secondhand EV market in the USA, which has had the longest experience of such vehicles, which means that one will probably not develop in Pakistan. The main reason is that while there are (admittedly a very few) conventional cars over 100 years old still around, EV batteries have a built-in life. Once the battery runs down, taking it out and putting in a new one is so expensive that you might as well buy a new car. The problem is that the journey from value as a car to mere scrap value is much faster for EVs than for conventional vehicles, and this will be recognized by any secondhand market that might develop.

There is a convergence of interests in oil-powered power generation and fuelled transport. Both involve oil imports on a vast scale. If solarization in the power sector and EVs in the power sector catch on, oil imports are going to go down. That might be what the government is aiming for, and that might be good for the country, but the profits made by oil importers will fall. That has created a lobby which opposes both solarization and the adoption of EVs.

Actually, there may develop a closer link between the two.

Already, one can see the result of this in the rollback of the solarization process, by revising the buyback rate. This means the buyback rate does not compensate the consumer for the cost of the generation equipment he puts up, something which had been a DISCO monopoly. It is analogous to the old computers, huge machines using glass vacuum-tubes instead of silican motherboards, but which were less powerful than a laptop. Imagine a government order forbidding the use of computers except at government institutions, where time at the computer could be bought at a rate the government set.

Another loss caused the government by consumers going solar is the taxes it took from them. It has been decided that the consumer shall pay taxes as if he was only buying from the DISCO, and not using solar power. This means that if storage technology improves enough, there will be more incentive to go off the grid. The government will still force the payment of taxes, but collection will be more cumbersome.

The government is even more dependent for revenue on petroleum products, and conversion to EVs will have a similar effect as falling global oil prices do: falling revenue. There are two places where the government could make up revenue. It could tax the units being charged, and it could tax the sales price. The first would reduce its cheapness to run, the second its upfront cost.

There is more technological change up ahead, which have already started posing questions, like cryptocurrencies and e-wallets. What happened to generation capacity when EVs switch to solar charging. Then there is the clouds, Artificial Intelligence and much more. The government might come to see EVs and solarization as minor issues.