The fund will be used largely to set up charging infrastructure for a test fleet of electric cars due here from mid-2010.

An initial fleet of about 50 cars will be from the Renault-Nissan alliance, which is among several carmakers working to launch battery-powered cars worldwide.

'Singapore is an ideal location for electric vehicles,' said Mr Lawrence Wong, chief executive of Energy Market Authority (EMA), which is chairing a multi-agency team involved in the trial.

'Our small geographical size and high-density urban setting mean that driving distances are short. The average passenger vehicle mileage is less than 60km a day, well within the electric driving range.'

Mr Wong was speaking on Wednesday at a ceremony to formalise the trial that involves the Economic Development Board; Agency for Science, Technology & Research; National Environment Agency; Land Transport Authority; Renault-Nissan; and Keppel Energy, which will help set up public charging stations.

The test-bedding, expected to last till 2012, is the first government-funded initiative to help pave the way for EVs to run here. The move mirrors similar plans in various other cities. London has been testing a fleet of 100 electric Smarts since December; California opened its first quick-charge station last month; and in Paris, a new online map shows the location of charging points in the city.

In Singapore, several other carmakers are expected to join the three-year evaluation programme. These could include BMW, which is producing more than 500 electric Minis for tests in cities from New York to Berlin; and Volkswagen, which recently stated that it would be the first to produce an affordable electric car.

Part of the $20 million set aside will go towards research, particularly on how EV owners can sell unused power back to Singapore's electricity grid.

Mr Wong said: 'If EVs are able to provide power to the grid during peak periods and draw power from the grid during off-peak periods, they will help to level demand...enabling our power system to operate more efficiently.'

Read the full story in Thursday's edition of The Straits Times.