State subsidy for the purchase of electric cars for businesses is wrong from the start

On Tuesday, the government supported the regulations developed by the Ministry of Climate and Energy (KEM), which provide five million euros in funding to entrepreneurs, municipalities, as well as state institutions for the purchase and construction of electric cars and their charging infrastructure.

Entrepreneurs, including municipal capital companies, municipalities and state institutions. In the case of companies, in their possession (not less than one year) on the date of submission of the project application must be at least five fossil fuel vehicles(category M1, M2, N1 or N2) and the company intends to purchase at least three electric cars.

The total funding of the modernization fund support program is 5 million euros. The maximum available support for one project for municipalities and state institutions is 100 thousand EUR, but for merchants - 300 thousand EUR. For the purchase of one light passenger car (M1), the state support is up to 5 000 EUR, light commercial vehicle – 7 500 EUR, but for a minibus – 15 000 EUR,

When purchasing electric cars, the charging infrastructure and the purchase of renewable energy equipment (solar panels and/or wind generators) are offered as an additional supported activity, allowing the project applicant to adjust their project as needed. The introduction of charging infrastructure and the purchase and installation of renewable energy equipment without the purchase of electric cars will not be supported. The project applicant will have to evaluate the necessity of purchasing and installing the charging infrastructure from the point of view of availability and use of the existing infrastructure, as well as economic aspects, taking into account the existing charging infrastructure network in the country.  

The funding available for the creation of electric vehicle charging infrastructure is from 500 EUR to 25 000 EUR, depending on the capacity and availability of the charging point (publicly available charging point or not publicly available). For the purchase, construction, installation and connection of a solar installation, including the electricity storage device (battery) - up to 400 EUR/kW, while in the case of wind generators and battery installations – up to 1000 EUR/kW.

In accordance with the provisions of the Cabinet of Ministers (MK), the implementation of projects will have to be carried out within 18 months after the contract comes into force. The project submitter will be able to implement only one project within the subsidy support scheme.

The tender will be announced within 10 working days after the MK regulations come into force. The application will be open for at least 30 working days after the announcement of the project tender. Current information about the announcement of the project tender will be available on the website of the Environmental Investment Fund (www.ekii.lv).

If the project applicant chooses to purchase an electric vehicle within the tender and the project applicant owns an existing vehicle powered by an internal combustion engine, the project applicant has the opportunity to receive additional points in the quality evaluation criterion if the existing vehicle is written off by handing it over to a processing company.

Evaluation of project submissions will be carried out by SIA Environmental Investment Fund(VIF) established a commission for evaluating project submissions, which will consist of representatives of VIF, KEM and the Ministry of Transport. The decision on granting support in accordance with Regulation no.  2023/2831 will be accepted until December 31, 2025. 

You can familiarize yourself with the rules of the MK here.

Where did the support for companies get stuck?

By setting the requirements that at least 5 fossil cars should be available and that they want to buy at least 3 electric ones, the state has narrowed down the range of applicants considerably. What if the company has the entire car fleet electric and has plans to expand? What if the company only has 3 fossil cars? What if the company has rented their a car park?

Well, you could get the subsidy in an indirect way - through rental offices. Here again the restrictions - one such company can apply only once and get a maximum of 300 000 EUR, ie, a maximum of 60 electric cars from one company. Companies like Hertz, Sixt and Europcar could, in theory, quickly drain the bowl, if they were allowed to, but combined with the above factors, it's not like they would have much of a competition.

Fortunately, it is not mandatory to install solar panels or charging stations, but if you want to do it with the help of this support mechanism, then you need to buy an electric car. What if the company already has an electric car? At least they have made sure to forbid as much as possible to repeat such affairs as did the Ministry of Agriculture, where a charging network was developed by wasting state money.

This all looks like the good old “we approve a half-baked thing just for the heck of it, and then a year later change the rules to what they should have been because the available funding wasn't spent” scenario. The same as we see happening to state subsidies to private individuals, which gets better with each iteration. Things that need to be improved in the current version:

• cancel the minimum requirement for a certain number of existing fossil cars in the fleet,
• cancel the minimum requirement for a certain number of electric cars to be purchased,
• cancel the condition that you can apply only once within the project,
• increase co-financing for minibuses,
• extend the program until 2030,
• introduce a write-off scheme similar to that for private individuals;
• increase the total amount available for support.

If we brutally look at the maximum result, if the program will be implemented completely as it is, then by the end of 2025, when the project submission period ends, they will be only 1000 electric cars (assuming that support for the construction of charging infrastructure or solar panels/wind farms will not be used). This is 0,14% of the fleet or 6,89% of new cars within the year. That is, assuming that everything approved is immediately purchased and registered.

In general, it is good that such support is available at all, but the conditions require a proper audit. If the idea is to really increase energy efficiency in the transport sector, then the improvements mentioned above must be taken into account.