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25 Feb 2019

Infrastructure, EVs and opportunities

Nearly 200 participants from the energy and e-mobility sectors came together at the St Pancras Renaissance Hotel in London on 5 February for inspiratia’s second New Energy Infrastructure Conference.

The event – in partnership with Pöyry, Pinsent Masons and Engie – discussed electric vehicle infrastructure, decentralisation, the smart grid and battery storage. inspiratia has brought together four key takeouts from the conference:

1. There is room for new entrants and innovative business models in EV charging

As the charging infrastructure environment becomes increasingly competitive, companies are racing to improve the charging experience. “We see the electric revolution from a different angle,” said Eugenio de Blasio, the founder and chairman of E-GAP, which provides mobile fast charging services to its customers. “Everybody is focusing on the charging stations, cars, and batteries. We focus on the client.” Companies are increasingly turning to open payment platforms and operating protocols such as the Open Charge Point Protocol (OCPP) and the Open Smart Charging Protocol (OSCP) that allow operators and component vendors to optimise charging systems by mixing and matching hardware and software platforms and expand the payment options available to customers. Interoperability standards also create opportunities for companies to pursue increasingly specialised business models within either the hardware or the software sides of the market.

There are big opportunities for battery storage, and it really depends on the sort
of role they can play. Each electricity market is different and you’ve really got to
understand the detail of each of those markets if you really want to scale your business."

Matt Brown, Pöyry Management Consulting

2. EV partnerships will be forged for real estate and funding opportunities

Strategic innovation for charging businesses is, however, not limited to new market entrants and startup companies; established multinational corporations and private investors with a wide variety of specialities and expertise are forming partnerships that leverage their financial resources and global brands to develop charging infrastructure businesses that require significant investment. Daimler, BMW, Volkswagen, Ford, Audi, and Porsche recently formed Ionity, which is devoted to the development of market-leading, ultra-fast public charging stations across Europe. At the same time, the Dutch company Allego, owned by Meridiam, has linked with Shell and Total to provide fast charging stations at the oil giants’ service stations. These partnerships, and others, are igniting a race for the prime locations to host charging infrastructure.

While new groups are flooding into the market, it is some way from being a mature asset class for financial investors. Noting that most of the work he has done so far in the space has been with car companies and utilities, Pinsent Masons energy partner Peter Feehan said, “A lot of that has been corporately financed, through shareholders or reserves of the company; not much of it has been capital deployed from funds. On the infrastructure side, I think people are still struggling a little bit to understand the income streams.”

However, Feehan also pointed out that infrastructure funds are now circling and trying to tease out the situations where there are characteristics of an infrastructure investment. Meridiam’s Christophe Gégout, with his company’s acquisition of Allego, expanded on Feehan’s comment and explained that funds could find opportunities to invest in the charging sector by developing strategies that account for the unique characteristics of each market. He said, “I think that the only option is to recognise that there are very diverse markets. Only if you are innovative and find tailored solutions for each specific market, you can have a distributed portfolio of assets that can be invested in by infrastructure funds and leveraged by lenders.”

3. Decentralisation threatens the status quo

The proliferation of EVs has wide-ranging implications for the electricity system, and is just one facet of the grid’s increasingly decentralised nature. In the future, a large fleet of privately-owned EVs hooked up to home chargers could provide key services to the grid, helping with flexibility and managing supply and demand, according to Matt Brown of Pöyry Management Consulting. That said, commercial-scale vehicle-to-grid technology is still some way off, and panellists pondered whether the widespread behavioural changes required for it to make an impact will happen with relatively few incentives on offer. Nevertheless, such a scenario only serves to underline the fact that electricity is no longer the preserve of large utilities; instead, it is increasingly generated and stored on a domestic and commercial scale, as consumers turn into producers.

The rise of these ‘prosumers’ can help provide flexibility in a system with a growing penetration of intermittent renewable energy – while also helping network operators avoid having to pay for costly grid reinforcements. This trend also presents a growing opportunity for aggregators in the space, said Engie’s Cécile Cordier, and is also bringing through interesting financing models around the larger prosumers that have a need for on-site generation and storage. But there will still be a role for baseload power in the near future, according to Irena Spazzapan of SYSTEMIQ, even if it represents only a small component of energy supply, be it nuclear, hydropower or carbon capture and storage.

4. Merchant trading strategies are emerging for battery storage

Battery storage is seen as a fundamental component of the energy transition. But unlike the renewables industry, which has historically benefitted from long-term subsidies, the battery sector will develop as a commercially driven activity, said Mark Simon of Eelpower. In the UK, the market was catalysed by EFR and FFR but these were only ever going to support megawatts, rather than gigawatts, of capacity, noted Ben Irons of Habitat Energy. Indeed, the biggest market opportunity, according to panel members, is going to be in arbitrage – capturing the value from the system’s inherent volatility by charging when prices are low and discharging when they are high. In fact, long-term contracted returns could actually be a riskier theme in the battery market, said Gresham House’s Ben Guest, in the sense that merchant trading gives asset owners a greater control of their own destiny. For these merchant strategies, controls and software capabilities will be key differentiators for battery operators, according to Rupert Newland of Arenko.

All this might mean that the investors who will lead the way may have a different profile or risk-return appetite to the ones that have funded much of the renewables buildout. On the debt side, there will be project finance available for the assets with contracted revenues, said Santander’s Alejandro Ciruelos. If cashflows are more variable, other pools of debt – such as the leveraged loan market – might be more appropriate. There are also interesting developments around co-located solar and storage as a means of bringing both equity and debt into a project structure, said Helen Bone of Pinsent Masons.

Originally publised at inspiratia

Read more about the impact of electric vehicles on the generation and distribution of electricity by taking a look at Pöyry's Point of View Report: Electric Vehicles - Who's in charge?, or by contacting Matt Brown.

Contact information

Matt Brown
Head of Western Europe, Middle East and Americas