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30 Jan 2019

Q&A EV revolution creating collaboration opportunities for Pöyry

inspiratia recently sat down with David Cox and Benedikt Unger from Pöyry Management Consulting to chew over current developments in the electric vehicle infrastructure sector. Hear more from Pöyry and others at inspiratia's 2019 edition of New Energy Infrastructure in London next week.

The enormous growth in the number of electric vehicles on the roads in almost all advanced economies across the world clearly has dramatic implications for the electricity systems in these nations.

As an increasing volume of plug-in vehicles are bought by consumers, an industry has risen to provide charging facilities not only in homes (or at least on adjacent driveways or pavements) but also in many public places.

This naturally requires investment decisions to be weighed up alongside potential returns, but also introduces wider questions around how the resulting increase in power demand can be efficiently accommodated into existing electricity systems.

It is in this interaction between the energy industry and the EV sector that Pöyry Management Consulting has found a place for itself as the latter sector develops, bringing a wealth of experience from the former in such disciplines as asset valuations, power system modelling, network regulation and policy analysis, as well as power price scenarios.

"If you're a conventional car company [for example] and all of a sudden you seem to be disrupted or challenged by EVs… then you need to know more about electricity markets and networks and that's where we come in," says Benedikt Unger, a senior consultant at the company.

In addition to EVs opening up a new facet to the energy system, the sector also provides for much more opportunity for the consulting and engineering arms of Pöyry to combine forces on work they do for clients.

"One of our USPs at Pöyry is that we can offer both energy engineering and management consulting services. However, the scope for collaboration is sometimes limited as not all of our projects actually fall into an overlap of need," says Unger.

"But the EV revolution creates new areas of overlap, which is quite exciting and creates more collaboration opportunities."

Scenarios

While the EV sector is still in its relative infancy, there are a number of question marks around which aspects of it will provide richer rewards for charging infrastructure providers, and all the signs so far are that this will materialise in varying forms in different markets.

"Countries are thinking about decarbonisation in slightly different ways, so we are able to draw on a wide range of experiences from experts located right across the Pöyry European footprint to develop best practice scenario analysis," says David Cox, also a senior consultant at Pöyry.

Undeniably, electric transport is a fast growing sector. Studies point towards strong EV growth until 2030, and even faster thereafter. But there are credible scenarios that range between 100 million and 250 million EVs on the road, globally, by 2030. At the same time, public charging points are lagging behind that pace. The number of EVs in Europe grew by 57% between 2016 and 2017, while public fast charging points only grew by 37% over the same period.

Even within any given individual market, there is not yet a well-formed idea of exactly what type of investment will produce the best results. That is not to say that one business model, for instance rapid charging along major trunk routes, will emerge as a winner over all others. In reality a number of plans will grow and complement each other. Yet still there is a feeling that some thinking is needed over how best to funnel capital into the sector.

Even more than that, a rush by infrastructure providers to dramatically expand EV offerings could lead to some sleep-walking into developing portfolios of assets that do not perform as intended, because demand is developing at a different pace or in different areas of the sector.

"Do you know exactly where the infrastructure investment opportunities are? Do we need a high-voltage charging network or chargers on every street?" asks Unger.

"The consensus seems only to be 'more of everything' but that leads to a risk of stranded investment. Our USP in this space is that we are able to create scenarios on which investors can confidently base robust strategies."

Grid interplay

Revenues derived from electricity sales are potentially only part of the story for infrastructure providers. As most will now know, there is huge promise in the ability to aggregate plugged-in EVs to offer a variety of services to energy systems, particularly those that are experiencing leaps in the installed capacity of renewable sources of power.

This can provide operators with the ability to plug in to the wholesale electricity market, as well as to provide a host of system services, with the latter aided by an evolving regulatory regime, at least in the UK.

"In the GB market there's a good opportunity coming up, both in terms of the new incentive regime being put in place for the ESO in 2021 [National Grid electricity system operator unbundled from its controlling group] and the increasing role of the DSO [distribution system operators] in balancing the local networks. These changes will open up the possibility to new types of system service products offered," says Cox.

"So there's definitely opportunity for EV chargers to start lobbying for more targeted system service product from the ESO and DSO. We would expect such products to provide better incentives than those that exist at the moment."

One of the options available to charge point operators is to operate as a reserve, which could be attractive as the level of capex would be low in a scenario where vehicles and their batteries are bought and provided by a consumer.

There is also great promise in corralling fleets of EVs into providing balancing services, a phenomenon which is already being heavily explored and deployed in places like California.

"One of the organisations [charging operators] gives an owner of an EV a free charger for their home with the caveat that they need to use their phone app to give up some of the flexibility in their charging regime to the system operator – who may decide to reduce the charge for your car," explains Unger.

These types of revenues can only be materialised if EVs can actually make a positive contribution towards balancing the system. The current situation is very different. Government statistics show that in 2017, EV users tend to plug in and charge their EVs at the most inopportune times from an electricity system perspective: on weekday evenings, when demand is already high. This is represented in the chart below, published by the Department for Transport in 2018.

Number of charging events by plug in start and end time, UK 2017

Source: Department for Transport, 2018

Risks

While a number of revenue streams can be stacked to help make an investment case in EV charging infrastructure, much like any proposition there are of course a swathe of risks of which to be aware, including the aforementioned stranded assets, technological and regulatory risks, as well as the threat of disruption from other forthcoming technologies, such as hydrogen.

Despite these considerations being undoubtedly at the forefront of the thinking of those actively weighing up business plans in this area, there is nevertheless considerable extra value in any first-mover advantage achieved by the vanguard of companies already making moves into the sector, according to Pöyry.

"If the EV supply chain companies are able to get their technology in place, as I think they are doing, they are many steps ahead of hydrogen and other alternatives, and it is more likely that regulations will evolve to meet their requirements," says Cox.

Nevertheless, while the market for EVs is continually growing, some concerns could still emerge in countries where robust incentives regimes are lacking. One only needs to look at the current leading EV jurisdictions to witness the hugely positive effects of such frameworks. Where this is absent, it is more likely to impact the lower, mass-market end of EV retail, according to Unger.

"It's the cool thing now to own an EV, if you can do it. It might be slightly more expensive than driving an internal combustion engine car but it's seen as a status symbol. But if you can't afford even a smaller model then you need to be incentivised.

"It's a political consideration whether or not governments want to do that, but in the Netherlands and Norway where you have those schemes, the best-selling new cars are EVs."

As Unger points out, however, EVs are on the path to becoming the cheapest option for vehicle buyers. According to research, including a recent study by Deloitte, electric vehicles could reach cost parity with combustion engine vehicles as early as 2024/2025. At that point, other obstacles, such as charging, mileage range, and seemingly simple factors such as education of both drivers and sales personnel, could play a larger role than cost.

Book one of the last remaining tickets for inspiratia's New Energy Infrastructure Conference now.

Jonathan McNair

Originally publised at inspiratia

Contact information

David Cox
Senior Consultant
Benedikt Unger
Senior Consultant