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Rising Gas Prices Limit CNG Penetration in Commercial Vehicles: Report

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The medium-term outlook remains favorable given the push towards cleaner vehicles, according to Icra’s notes. (Case)

New Delhi:

Rising gas prices have limited CNG (compressed natural gas) penetration in commercial vehicles to 9-10% in the current fiscal year, from highs of 16%, Icra Ratings said today.

A spike in global energy prices has driven the price of CNG up 70% over the past year. This narrowed the gap between fuel and diesel, erasing the incentive to switch to cleaner fuel.

In a statement, the rating agency said CNG penetration in the domestic commercial vehicle (CV) sector has seen a decline in the current fiscal year, particularly in the MCV (Medium Commercial Vehicle) truck segment. .

“Rising CNG prices have narrowed the gap to diesel and in turn have diminished the operating cost savings of CNG vehicles, which has been the major deterrent,” he said. declared.

Despite the recent decline seen in CNG penetration, the medium-term outlook remains favorable given improved CNG refueling infrastructure and demand for cleaner vehicles, he added.

Icra said the CV industry has seen a contraction in the penetration of compressed natural gas (CNG) vehicles in the current fiscal year, which comes after peaking in fiscal year 2021-2022. previous.

The decline was particularly noticeable in medium utility vehicles (MCV) (12-16 tonnes) in the freight carrier class.

“The percentage of CNG-powered vehicles decreased from 38% in fiscal year 2022 to 27% in the first eight months of fiscal year 2023,” he said.

However, the passenger carrier and bus market continued to show gradual acceptance of CNG-powered vehicles, which was supported to some extent by government pressure for greener vehicles.

“This, along with the adoption of electric vehicles, is also expected to continue,” Icra said.

Commenting on the trends, Sruthi Thomas, Assistant Vice President and Area Head – Business Valuations, ICRA Ltd, said: “The contraction in CNG vehicle sales in the domestic CV sector in the current financial year is in largely due to the narrowing of the gap between CNG and diesel prices, which has reduced the operating cost savings of CNG vehicles. The operating costs of CNG vehicles have increased by around 20% over the past year and are even higher compared to comparable diesel variants in some cities like Delhi and Mumbai, by 5-20% now.

“With the higher cost of the vehicle and the lower load capacities of CNG trucks, the economic case for adopting it has become much less compelling,” she said.

As a result, CV’s monthly CNG sales, which had peaked at 11,000-12,000 units, are now trending towards 6,000-7,000 units.

“This will likely continue in the short to medium term given ongoing geopolitical challenges, particularly the war between Ukraine and Russia, and its impact on global gas prices,” she said.

Icra said gas prices have not been rising for centuries, and some cities continue to maintain a steep price differential between diesel and CNG.

This has resulted in varied trends in CNG penetration in the regions in the current fiscal year.

High variability in CNG prices across regions (ranging from 59 rupees per kg in some cities to 90 rupees per kg in others) has also had an impact on penetration.

“Given visible trends in the industry, CV OEMs are increasingly focusing on the development of alternative fuel/technology vehicles, including the introduction of new models into the electric vehicle (EV) space in some segments, and slowed the pace of introduction of CNG models,” says Thomas.

Equipment manufacturers are also investing in alternative technologies such as hydrogen.

“That said, despite the recent decline seen in CNG penetration, the medium-term outlook remains favorable given the improved CNG refueling infrastructure in the country and a general push for cleaner vehicles,” she added.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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