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059

Case 059Costing, pricing and unit economicsCore

A Vidyutpath Charging 50 kW charger costs Rs 15 lakh, buys power at Rs 9 a unit and sells at Rs 18, pays a 10% site fee and Rs 1 lakh a year of maintenance. What daily utilisation gives a five-year simple payback?

1The situation

Vidyutpath Charging installs fast chargers for electric cars at malls and highway restaurants. One 50 kW charger costs Rs 15 lakh installed. It buys electricity at Rs 9 per kWh and sells it to drivers at Rs 18 per kWh. The site owner takes 10% of charging revenue, and maintenance and software cost Rs 1 lakh a year.

The investment committee wants every site to pay back its capex within five years on a simple, undiscounted basis. Ignore tax.

2Your task

How many kWh a day, and how many hours of full-power use, does a charger need to pay back in five years? What does that tell you about where to put chargers?

Quick check

Roughly how many hours a day must the charger run at full power for a five-year payback?

Worked solution

Try it on paper, then open one step at a time.

30-second answerThe answer to give first

About 152 kWh a day, roughly 3.0 hours at full 50 kW, a utilisation of about 13%. Each kWh earns Rs 7.20 after power and the site fee. A five-year payback needs Rs 3 lakh a year plus Rs 1 lakh of maintenance, so Rs 4 lakh of margin, about 55,556 kWh a year. Payback is very sensitive below this: at two hours a day it stretches to 9.2 years.

Step 1What does one unit of electricity earn?

Start with the margin per kWh, because everything scales from it. The driver pays Rs 18, the site owner takes 10%, Rs 1.80, and the power costs Rs 9, so each kWh leaves Rs 7.20. A tea stall works the same way: the price of a cup less milk, tea and the rent share is what is left to pay off the stove. Fixed costs come next: Rs 1 lakh of maintenance a year must be covered before a rupee goes toward the Rs 15 lakh charger.

Step 2How much must it sell for a five-year payback?

A five-year simple paybackThe time it takes for the cash an investment generates to add up to what it cost, ignoring the time value of money. on Rs 15 lakh needs Rs 3 lakh of cash a year. Add Rs 1 lakh of maintenance and the charger must earn Rs 4 lakh of margin a year. Rs 4 lakh divided by Rs 7.20 is about 55,556 kWh a year, or 152 kWh a day: 3.04 hours at the full 50 kW, about 12.7% of the day.

The relationship
kWh a day=(15/5+1)×1057.20×365≈152hours=15250≈3.0\text{kWh a day} = \frac{(15/5 + 1)\times 10^5}{7.20 \times 365} \approx 152 \qquad \text{hours} = \frac{152}{50} \approx 3.0
15/5Rs 3 lakh a year to repay the charger in five years
1Rs 1 lakh of annual maintenance
7.20margin per kWh after power and the 10% site fee
What it says in wordsThe charger needs about 152 kWh of sales every day, roughly three hours at full power.
Step 3How sensitive is the payback to usage?

Very, because the fixed maintenance cost is paid whatever the usage. Each hour a day of full-power use earns about Rs 1.31 lakh a year. At two hours a day payback is 9.2 years; at four hours it is 3.5 years; at one hour it is about 48 years, longer than the charger will last. The curve is steep on the left: the difference between a good site and a poor one is not a few months of payback but whether the charger ever earns back its cost.

A charger's payback is a utilisation bet5 yrs10 yrs15 yrs3.0 hours a day = 152 kWh: 5-year paybackutilisation 12.7% of the day2 hours: 9.2 years4 hours: 3.5 years1 hour a day: about 48 years, off the chart1 h2 h3 h4 h5 h6 hHours a day at full 50 kW output
Vidyutpath's charger pays back in five years at about 3.0 hours a day of full-power use, 152 kWh; at two hours payback stretches to 9.2 years and at one hour to about 48 years, so the economics are a bet on utilisation.
Hours a day at 50 kWkWh a dayMargin a year, Rs lakhCash after maintenancePayback, years
1501.310.3147.8
21002.631.639.2
31503.942.945.1
42005.264.263.5
63007.886.882.2
Each hour a day at 50 kW earns Rs 1.31 lakh a year of margin. After Rs 1 lakh of maintenance, payback falls from 48 years at one hour a day to 2.2 years at six.
Step 4What does that mean for where the chargers go?

Size the site before spending the capex: count the cars that stop for 30 minutes or more, not the cars that pass. 152 kWh a day is about five to six cars each taking 25 to 30 kWh, which a highway stop with long dwell times can deliver and a mall car park with one-hour visits and home-charging owners may not. Three caveats belong in the answer. A 50 kW charger rarely delivers 50 kW for a whole session, because many cars draw less as the battery fills, so the real hours needed are higher than 3.0. Utilisation usually starts low and rises as more electric cars arrive, so the first years are the weakest. And a simple payback ignores the time value of money, which a discounted payback or NPV would add.

Where candidates lose it

The usual miss is forgetting the site fee or the fixed maintenance cost and computing payback on a Rs 9 margin. That understates the usage needed by about two fifths and makes marginal sites look viable.

The second is quoting utilisation as hours over 24 without saying what it means. Twelve to thirteen percent sounds low; the interviewer wants to hear that it is about six real charging sessions a day, which is the number a site survey can test.

What the interviewer asks next

  • The site owner asks for 20% of revenue. What utilisation is needed now?
  • How would a time-of-day power tariff change the economics?
  • Would you rather pay the site owner a fixed rent or a revenue share, and why?
← Case 058Tulsikunj Naturals will grow revenue 60% from Rs 200 crore to Rs 320 crore at an 8% EBITDA margin, with working capital at 25% of revenue. What is next year's free cash flow, and at what growth rate does it turn positive?Case 060 →Prakashika Solar Glass can build a plant now for an NPV of Rs 20 crore, or wait a year to learn whether demand is good or weak. At 10%, should it invest now or wait?

Company names and figures are illustrative.

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