28 Aug 2019
Putting the ‘electric’ in EV
The year 2018 was another record-setting year for the electric vehicle industry. Plug-in vehicles are selling better than ever before, and new milestones – e.g. 4 million EVs on the road globally – were reached. While these are positive signs, the global EV market share is still in the low single digits, and growth has not quite reached ‘exponential’ scale yet.
Several factors that have been discussed as inhibitors for stronger growth in e-mobility – cost, lack of model variety, and lack of knowledge – remain valid. The biggest factor might yet be the lack of a public charging infrastructure for electric vehicles. But it appears that this is about to change, which is an exciting proposition, as it creates new investment opportunities.
However, it also creates challenges for companies, as it means that:
- non-energy companies need to understand energy markets and networks;
- energy companies need to understand transport; and
- new companies will need to be formed and new business models established.
We have spoken with several project managers about their thoughts on these three areas.
Non-energy companies need to understand energy markets and regulation
For companies outside the sector, dealing with energy can be a tough task. It may seem overly complex, heavily regulated, and intransparent. However, since electricity costs make up a large portion of the cost associated with setting-up and operating a vehicle charging station, their developers will need to understand energy markets, networks and regulation. The main fixed cost components for a vehicle charging station are grid connection, transformer installation and the actual charging connections themselves, including buildings and land costs. Of these components, grid connection makes up a significant proportion. Extending the distribution grid to build a new connection can cost roughly €350k, depending on the location and country. On the variable cost side, the main component is the electricity itself. Charging station operators need to understand electricity markets in order to be able to profit from offering charging to their customers.
Lisa Figge, from our Düsseldorf office, has recently helped an automotive client lay out a plan to design, construct and operate a private electric van charging network in Germany. In her experience, “clients need support in the analysis of regulatory and energy market characteristics on the design and operation of DC-fast charging depots for electric vehicle fleets. Especially in the early stages of planning, it is important to define the preliminary parameters in terms of business model and dimensions for charging stations with the customer in advance. It has proved particularly helpful to answer questions on the energy market/grid connection using scenarios.”
In Pöyry's 'Full Energy-Sector Decarbonisation Study', we investigated how to fully decarbonise the transport sector across Europe. Across the pathways that were investigated, EVs accounted for at least 75% of all road transport by 2050. The chart above shows the result from our 'Zero Carbon Gas' pathway.
Energy companies need to understand charging needs and implications
At the same time, energy companies need to be ready for the impact that the EV charging industry will have on the energy sector. There are opportunities and challenges. On the one hand, extra volumes of demand create new revenue potential. On the other hand, ignoring or underestimating the impact of EV charging could lead to supply issues, or at the very least cost increases. From a business perspective, electricity suppliers will want to make sure they capture a part of the value that is created by the additional energy demand. For single customers, Paola Lualdi in our Milan office has worked with utilities on their strategy in incorporating electric vehicles into their portfolio. She describes her experience: “Energy suppliers are excited about the additional electricity sales, and they will look to get involved in providing charging services and mobility services. For some utilities, this might include investing and operating charging structure, or even fleets of electric vehicles.”
On the other hand, electricity networks companies will be even more significantly affected. When looking at the nature of energy consumption by electric vehicles, it becomes clear that while adding additional volumes of demand, e-mobility adds even more in terms of required network capacity. An EV typically consumes around 3,000kWh per year, less than the average household in most Western European countries. Even if EVs were to achieve a market share of 50% in 2030 across Europe, electricity demand would only increase by around 70TWh, the size of the Austrian market, or 2% of the whole European demand. However, most home EV chargers are rated at 6-11kW, which more than doubles peak electricity demand in an average household. Even more impressively, Ionity’s ultra-fast charging network will offer charging with up to 350kW. An EV, charging at that speed, adds a load comparable to that of a medium-sized warehouse. Distribution networks will be on their heels. They need to act fast, but also need a long-term strategy for dealing with electricity load from electric vehicles.
New business models need to be established
Rob Lee is Pöyry’s expert for the GB electricity market and he has been watching closely as vehicle charging has slowly entered his area. Since April 2018, more than 450 public charging points per month have been added in the UK alone. And this is even though the sector faces great uncertainty. “Electric vehicle charging is a difficult business proposition. There is a consensus that the sector is growing and companies should be able to generate strong revenue. However, without any history and reference point, it is difficult to attract finance into such a business”, Rob explains.
A common feature of many of these ventures is that they do not enjoy the luxury of relying on a proven and well-known business model. While it is clear that public charging infrastructure requires an influx of investment, it is important that the right mix of charging connectors are provided in the right places. Therefore, any revenue projections for an EV charging business are not only influenced by one’s expectations of how many people will drive an electric vehicle, but also about how and where they will want to charge their car. The companies’ main concern is about utilisation of their asset, since it comes with high up-front investment cost. As a result of this uncertainty, companies are looking to stack revenue streams to create a sustainable and investable business model.
Reflecting on this uncertainty, Rob thinks that solutions are being developed: “One way that developers and investors could combine electric vehicle charging with more reliable revenue streams is through a business model which includes electricity storage projects, with access to more bankable revenue streams, alongside vehicle charging. Indeed, commercial propositions along these lines are emerging.” And Paola explains how business models could go even further: “EVs are basically mobile batteries. Utilities can benefit from scheduling EV charging when prices are low. They can also sell services, such as response or reserve, to grid companies, utilising the flexibility of EV charging. At the moment, this is mostly done via demand side management or response. In the future, this could involve vehicle-to-grid.” Obviously, the need for revenue stacking is not a new phenomenon. Since filling stations operate in a very low margin industry, their operators have always been creative in identifying extra ways to make money. It has often been reported that the sales of coffee and other drinks and snacks are more important to filling station operators than the sales of fuels. And it also works the other way around. In an effort to attract more customers to spend time in their stores, super market chains like Tesco in the UK and Aldi in Germany have petrol pumps at some of their store sites. Sure enough, those same players have already made an effort to secure a place at the table in the large banquet that is the electric vehicle charging industry. Tesco have joined forces with Volkswagen, to create one of the largest public charging networks in the UK. Aldi is providing free charging at some of its stores in Germany. Time will tell if their selection of charging technology will mean this investment can pay dividends.
In the long term
We at Pöyry believe that electric vehicles will play a key role in the decarbonisation of the energy sector. Our analysis shows that in a world with >50% renewable penetration, the flexibility from EV charging is key to managing intermittent power supply, and to keeping the lights on and power costs down.
Read more about the challenges and opportunities electric vehicles create by taking a look at Pöyry's Point of View Report: Electric Vehicles - Who's in charge?, or contact .