3 April 2018
Pablo Romero, Technology and Innovation Consultant, UK Power Networks Services
According to the United Nations, urbanisation is increasing at an average rate of 1.5% every year, which means an additional 2.5 billion people will live in cities by 2050. Densely populated urban areas will require transformations of infrastructure to create sustainable environments for their residents. Energy delivery and urban mobility are central to these challenges and they need early and coordinated intervention.
Electric vehicles (EVs) represent the most credible and cost effective zero-emission solution to mobility in the medium and long term. Whilst hybrid and plug-in hybrid vehicles (PHEVs) will help to the EV transition in the short term. Policies, cost effectiveness, technology improvement, business opportunities, social responsibility and people behaviours are driving the transition to EVs.
Most vehicle manufacturers have already adjusted their production strategies towards EVs and will be fully electrified in the next two decades. National Grid’s lowest growth scenario (Steady State scenario) sees EVs achieving 30% of all vehicle sales by 2050. Aurora Energy Research has concluded that purchase price parity of electric vehicles and internal combustion engine vehicles, considering the whole life cycle cost will happen in the 2020s due to lower maintenance costs of EVs. Based on the government and industry predictions, the question is no longer whether the EV revolution occurs, but when between 2025 and 2040 sales of internal combustion engine cars (ICE) will be effectively over.
On the other hand, there are still a number of barriers to overcome, including purchase price, driving range, vehicle availability, charging infrastructure, taxation (e.g. fuel duty revenue gap) and financing. These barriers can be seen from four different perspectives: EV customers, government / policy makers, EV vehicle manufacturers and EV infrastructure providers. The transition to EVs is dependent on how and when these barriers are tackled from these four different perspectives.
With regards to EV charging infrastructure, the key questions are:
- Where to build to avoid costly reinforcements to match demand
- Who should own and operate the infrastructure
- How to make charging a credible and sustainable business that benefits customers and the EV market.
The extensive list of stakeholders involved represents an extra layer of complexity that needs to be factored in when planning a new EV charging infrastructure system, and of course, the stakeholders are all expecting to take the opportunity to make it a sustainable and profitable business. There are several potential business models that could be implemented in the UK depending on the e-mobility challenge, for example, fleet electrification, rapid charging hubs, car parks and public charging. The business models remain fluid and can be reconfigured to suit different requirements.
The main revenue streams are:
Marked-up electricity sales
Perhaps the simplest business model for public charging infrastructure is to sell electricity with a sufficient mark-up to recover the cost of the infrastructure. This model would be suitable in places where the cost of fossil fuels (petrol/diesel) is relatively high compared with electricity costs like the UK (UK imports around 45% of its oil requirements). However, EV charging electricity with sufficient mark-up to recover costs could result in higher prices than charging at home, and this could have a negative impact on utilisation rates of public EV charging.
Increased retail sales
Another option is to base the business case on increased retail sales. By far the most common reason to use a service station is to use the toilets and very often we grab a drink or snack. Some supermarkets may want to re-consider installing the fastest chargers in their carparks so more sales are encouraged by extending customers dwell times. These purchases could be linked to loyalty and reward cards that encourage sales by offering deals to customers as well as gathering further valuable information on customer trends and behaviours.
The other obvious revenue stream can be collected from advertising. This would be appropriate for busy, high-traffic and high-visibility locations such as rapid charging hubs or supermarkets. These will be rarely sufficient to cover the initial investment but can help to justify the business case.
Ancillary services to the grid
Another revenue stream is from selling services to the electricity grid. As the amount of renewable energy in the UK increases, our electricity system will need energy storage and flexible demand – EVs could fulfil this role. However, the long-term reliability of these revenues is uncertain as the market is becoming relatively saturated resulting in lower reward rates for these services.
There is still another revenue stream – this is a contribution from external parties that benefit indirectly from the EV charging station (collateral benefits). When installing EV charging infrastructure, we are promoting EV sales, improving the infrastructure of a particular site and/or contributing to meet strategic sustainability targets for local councils and private organisations. Some potential contributors and partners are car manufacturers, depot owners, car park owners, local councils, supermarkets, etc. Although this may appear to be a little optimistic as these other parties have their own challenges to overcome in the e-mobility transition, the opportunities can be explored in each case.
The delivery of these business models will require new partnerships and alliances between the involved parties. Without these new partnerships and collaborations in place the e-mobility transition may struggle to reach its full potential. In short, a well-designed, flexible, strategically located EV charging facility with the optimum number and type of charging stations that is built upon strong alliances with solid and diversified revenue streams would be highly likely to succeed.
UK Power Networks Services is uniquely placed to support the development of your electric vehicle strategy or your transition from fossil-based technology towards the electrification of your entire fleet. We provide an end-to-end integrated solution, from initial feasibility studies through to design, build, and smart operation and maintenance on an ongoing basis. From electric vehicle charging infrastructure to software and hardware, we are technology agnostic, ensuring the equipment we use best meets your requirements. Should you require finance to turn your electric vehicle ambitions into reality, we can handle that too.