Company Insights: electric vehicle tariffs

By Jamie Hailstone

Introduction

When it comes to publicity stunts, they don’t come much bigger than sending an electric car into space. But when tech giant Tesla launched one of its electric vehicles (EVs) into the cosmos in February, it was not just a sure-fire way of guaranteeing front-page coverage all over the world, it was also a statement of intent: EVs are here to stay and they are going to change the world.

Here in the UK, there can be no doubt that the EV market is growing.

There are around 137,000 electric or electric-hybrid vehicles currently registered in the UK and the latest figures from the Society of Motor Manufacturers and Traders show 8,413 cars eligible for the plug-in car grant were registered in March 2018, compared to 7,459 in the same month last year – an increase of 12.8 per cent.

This brings the total number of plug-In car grant vehicles registered since the beginning of the year to 12,825, compared to 11,298 in the first three months of 2017. Currently, the most popular brands of EV in the UK are the Mitsubishi Outlander PHEV (35,000) and the Nissan Leaf (20,000).

While the numbers are still relatively small, the growth trajectory is impressive, especially given broader economic uncertainty. And while there’s still some way to go before EVs become mainstream, industry commentators agree that a tipping point for mass-market uptake of EVs is not far around the corner.

“The modern EV market really kicked off in 2010 with the launch of the original Nissan Leaf,” explains the Renewable Energy Association’s head of EVs, Matthew Trevaskis. “We saw a few years of very low sales of very expensive pure electric vehicles, and then came the plug-in hybrid market.”

Following a precedent set in Holland, which has a relatively mature EV market, Trevaskis says plug-in hybrids are currently outselling the pure electric market. “But that’s a temporary phenomenon that will change by the mid 2020s, when the full electric model will dominate as range improves and charging infrastructure improves too.”

This latter element is critical in defining EV growth rates – something the UK government, which has strongly backed an EV dominated future via its commitment to ban new sales of petrol and diesel vehicles from 2040, is keenly aware of.

According to figures from the Department for Transport, there are now more than 12,000 public charge points and 1,000 workplace charge points across the country. And, government has been helping to move private charging infrastructure along too, funding the installation of more than 85,000 domestic charge points.

At a local government level, recent research by the London Councils group shows local authorities are set to build more than 2,600 charging points in the capital over the next 12 months. Though some are undoubtedly more proactive than others.

The London borough of Kensington and Chelsea, for example, is notable for its partnership with Ovo Energy and ubitricity to create a network of charging points in streetlamps in its jurisdiction, reinforcing its status as a pioneering borough for EV uptake. Kensington and Chelsea already boasts the largest network of EV charge points in London. If popular, its streetlight scheme could provide a model for other councils to follow and shake-up assumptions about access to charge points as a barrier to EV uptake in areas where off-street parking is limited.

Meanwhile, in September last year, Milton Keynes’ local council backed the opening of the nation’s first multi-brand electric vehicle showroom.

The 4,000 square foot facility is designed to play a key role in meeting its ambition to see almost a quarter (23 per cent) of all new cars registered locally be electric by 2021.

With so much happening on the EV scene, it has become a question of when, not if, mass uptake of these vehicles will happen.

“I think five years from now, for most people choosing an electric car will be the obvious choice,” says Ecotricity founder, Dale Vince.

“Once that happens and it becomes the obvious economic choice, then there will be a stampede. The days of the petrol and diesel car are well and truly numbered.”

Opportunities for suppliers

For Britain’s energy supply sector, which is grappling with the prospect of a government-enforced price cap, the thought of millions of households needing to charge their EVs at home is very good news indeed.

Although a report last year by the Renewable Energy Association warned 40 per cent of car owners will not have home charging, that still leaves a very lucrative market for suppliers to plug into.

Ovo Energy’s director of EVs Tom Pakenham, tells Utility Week he believes the home charging market could be worth up to £15 billion, which is around the current value of the current domestic supply market here in the UK.

“Essentially, the market will double in size,” he tells Utility Week. “It will be a shift from the petrol pump to the electric plug. In high level terms, we consume 125 million litres of road fuel every day in Britain. There will be an enormous energy transfer from the calorific value of those litres of petrol to the energy system.”

Furthermore, the environmental credentials of zero-emission EVs are good news for the growing number of renewable energy suppliers in the UK, who will be keen to market themselves as the logical choice to power these new clean, green cars.

“If you are using an electricity supplier at home to power your EV up and it’s from a dirty fuel source, then your car will not be as clean as you might like it to be,” says co-founder of small clean energy retailer Pure Planet, Steven Day. “I think it will be a burgeoning market and renewable-only suppliers will have a significant advantage,” he says.

But it’s not just EV tariffs that offer a new-look revenue opportunity for energy suppliers.

EV growth is also bringing with it a surging market for associated hardware, such as home batteries and (smart) charging points. Then too, there’s the opportunity to link up with car manufacturers to mutually benefit from the launch of new EV models with integrated energy deals.

While suppliers seem to have stepped back from this kind of partnership after an initial flurry of energy company-car maker tie-ups, the REA’s Trevaskis predicts market developments may soon see partnership announcements pick up again.

“Going back to the early days, vehicle brands partnered with energy utilities to provide home charging points,” says Trevaskis, “because it was assumed that customers would switch their utility supplier to said brand. In fact many consumers took the charging point and did not switch. So many utilities pulled back, because there was nothing for them.

“I think what we may well see now is the more eager utilities – and I think new utilities are proving this more than the established ones – are innovating more quickly, not just in EVs, but in more responsive tariffs that more engaged consumer will take notice of.”

In October, Nissan announced it was joining forces with OVO Energy to offer home batteries to Leaf drivers and a vehicle-to-grid service. And in February, Good Energy revealed it was working with Honda, Upside Energy and Salford University to test how EV batteries and other energy storage will impact home efficiency.

Further fleshing out the size of the prize from integrated EV energy services, a report into EV uptake published by Aurora Energy Research in January predicted “new business opportunities” for utilities with potential revenues of more than £1.5 billion per year by 2035.

There’s an upside for customers too, with Aurora claiming time of use tariffs and optimised charging systems could help EV drivers save up to £170 a year by charging up off-peak.

Meanwhile, growth in EV tariffs and technology bundles will also play a critical role in unlocking the potential of smart charging as a means to overcoming the significant system challenges that EV growth represents for power grid operators (see box).

At present, there are only a handful of suppliers with EV tariffs on the market, but with millions of these vehicles predicted on the road within the next decade, it won’t be long before they become a standard part of any supplier’s product portfolio.

 EVs and the grid

With the accession of EVs as the dominant form of private transport seemingly inevitable, the question of how they will impact the UK’s power grid has risen to become one of the hottest topics in the energy sector.

The REA’s Trevaskis observes there has been growing “panic” about how mass market uptake of EVs will impact the grid, with concerns gravitating around the impact of so called “clustering”, developments in fast charging, the implied need for new generation to meet inflated power demand and the interaction between EVs and the growing volume of intermittent renewable generation on the system.

However, Trevaskis, and other market commentators remain optimistic that these challenges can be overcome – in large part via the rollout of smart charging technologies and vehicle to grid response mechanisms.

Speaking in March in front of the department for business, energy and industrial strategy’s (BEIS) select committee, National Grid’s project director for EVs, Graeme Cooper certainly indicated that getting smart charging up and running in the UK will be critical to protecting system stability and mitigate the need for vast investment in new generation to meet inflated EV demand.

National Grid expects 9 million EVs on British roads by 2030, said Cooper. “That will drive a need for roughly 8GW of new power generation by 2030 – that is if you do not do any smart charging. You can cut that by nearly three-quarters by managing when charge happens.”

Trevaskis agrees that smart charging is key to enabling an EV-driven low carbon future because it will help adjust instinctive, but not necessarily rational, consumer behaviours.

“If you look at the statistics about when people plug in and charge, people are often doing it at five or six o’clock in the evening – peak demand time for the grid. But in fact they do not use the car for another 14 hours,” he explains. “They do not need to take the energy in the peak time, but there’s currently nothing that tells them not to.”

The absence of helpful stimuli for helpful EV charging behaviours is a vacuum suppliers can help to fill, says Trevaskis, via well designed EV time of use tariffs and bundling of tariffs with smart charging technology and batteries.

Ecotricity’s famously gregarious founder Dale Vince agrees, saying: “I think there’s plenty of capacity on the grid and we just need to be a little more intelligent about how we charge EVs and when.”

He adds: “We did a little bit of research a number of years ago and 70 per cent of Britain’s homes have access to off-street parking, which means they can charge overnight. Overnight is off-peak for the grid, so EVs could provide 10-12 per cent additional demand on the grid, but at a time of day that could improve the load factor of the grid by filling in some of the overnight troughs. So, it could be a good thing. It will need managing with smart technology, but I can’t see why it can’t be done.”

Vince is also enthusiastic about the scope for energy suppliers to catalyse the emergence of vehicle-to-grid demand response mechanisms which could further assist grip operators.

He dismisses the idea of vehicle-to-grid being used at motorway service stations as “bonkers”, but believes the idea has merit for home chargers.

“There will be people who drive 10 or 15 miles a day, and they will be sat with a 30/40KWh battery, which could be used as a distributor to the grid scale battery.

“If you look at the power rating in kilowatts of all the cars on the roads today in Britain, it is greater than the power rating of all our power stations,” he adds.

“If you replace those engines with batteries, you have potentially a very big, flexible source of power. It could also work for workplace charging as well, where people park up for six or seven hours a day. Smart tech will make it happen.”

Ovo Energy has placed big bets on vehicle-to-grid mechanisms playing an essential role in the future energy system, and in the competitive differentiation of EV services from suppliers.

In 2017, it made a range of EV technology acquisitions which will enable it to play in this space. And on the back of market research the supplier claims vehicle-to-grid chargers could help the 20,000 people who own Nissan Leafs in the UK to contribute more than 114MW to the grid. This equates to the energy needed to power 300,000 homes.

Although the same research also found only 13 per cent of people are aware of vehicle-to-grid chargers and only 19 per cent are familiar with home batteries, Ovo’s Pakenham remains upbeat.

“People are clearly keen to start their green journey, but a lack of knowledge means many are unaware of the full benefits of harnessing renewable technology. To inspire people to be a part of this solution, they’ll need convincing that this new technology would be a practical addition to their lives, as well as safeguarding our environmental future.

“From home batteries to vehicle-to-grid chargers, at Ovo Energy we are working hard to join the dots for customers and show that there are practical, cost-effective ways to go green for the long-term.”

Key insights

At present, there are just four GB energy suppliers with dedicated EV tariffs and all launched in 2017.

With all current providers promising further tariff launches in the near future however, and other suppliers eyeing market appetite, a surge in EV tariffs seems likely before the end of the decade.

To gain insight into the strategies of early movers in the EV tariff space, Utility Week talked to Ecotricity, Eon, Good Energy and Ovo Energy about their existing EV products.

During these interviews, a number of common factors came to the fore, including a conviction among smaller suppliers in particular that EV offers will provide a critical route to enhanced customer engagement.

These suppliers also showed a strong will to sell EV products on a value-add basis and avoid a “race to the bottom” on EV tariff price that could send the market in the same direction as conventional energy retail.

This said, all suppliers with EV tariffs recognised the need to develop affordable pricing models if EV-related products are to reach their full market potential, especially since EV ownership comes hand in hand with a substantial rise in any household’s electricity consumption.

Executive Summary

  1. At present, four energy suppliers in GB have dedicated tariffs for EVs and hybrid vehicles – Ecotricity, Eon, Good Energy and Ovo Energy.
  2. The tariffs vary from a reduced night rate for overnight charging (Eon) to offering 2,251 miles of free electricity (Good Energy).
  3. In the case of Ecotricity, Good Energy and Ovo Energy, their EV tariffs come with access to a national charging network, as well as charging at home, which highlights the need for a joined-up charging approach for EV drivers out on the road.
  4. The green electricity angle appears to be a key factor, with all four tariffs offering renewable-only energy to customers.
  5. EV tariffs could be a key source of growth for suppliers. Ecotricity founder Dale Vince says his firm’s EV bundle has “grown in popularity every month” and his Electric Highway charging network now has 40,000 registered users.

Company insights

Ecotricity

Tariff: Fully Charged Bundle (launched November 2017)

Main features:

As one of Britain’s very first renewable energy suppliers, you would expect Ecotricity to be leading the charge for EV tariffs.

And as the company’s founder, Dale Vince points out to Utility Week, it has been pushing EVs since 2010 and even built its own EV – Nemesis – which broke the UK electric land speed record in September 2012, after reaching an average speed of 151 miles per hour.

“We’ve been big on electric cars since before electric cars were available to buy, so it’s natural for us to offer our customers the chance to charge up at home, more cheaply,” says Vince.

“The idea behind the special EV tariff is that somebody with an EV uses much more than the average amount of electricity. They are replacing their oil consumption with electricity, so we are able to lower the tariff to reflect the greater volume of use.”

Vince sees price as one of the key selling points of Ecotricity’s EV bundle.

“It’s much cheaper to run an electric car on that tariff than on a normal household tariff,” he tells Utility Week. “Plus there’s an offer of a home charging unit at a very low price from our partners, Rolec, and cheaper access to the Electric Highway. It’s those three things – cheaper energy to top your car up, and of course, it’s green, low-priced hardware and lower-priced charging on the road.”

The company founder adds the EV bundle has “grown in popularity every month” and Ecotricity also now has 40,000 registered users for its Electric Highway network.

“The idea of Electric Highway is just to enable people to drive the length and breadth of the country in an EV, and to take away the range anxiety issue that is almost gone now with manufacturers bringing to the market cars with a 250-mile range. Range anxiety is a thing of the past.”

And Vince sees the green energy angle as key for many EV drivers.

“An electric car run on renewable energy can be zero emissions and that’s the perfect outcome,” says Vince. “Some people buy electric cars for the environmental benefits, and some people buy them for the economic benefits. If you are into EVs for the environment, then you will want to run it on renewable energy. It makes the most sense.

“In 10 years’ time, most manufacturers will no longer make petrol or diesel cars,” he adds. “Volvo have announced by 2020 they will only make electric or hybrid and that’s just two years away.

“I think it will be the norm within 10 years not to make a conventional car. Within 10 or 15 years, you will be hard pressed to buy a conventional car new, so EVs will take over and dominate. So in 10 or 15 years, I think EVs will have a big impact on the grid.”

Vince adds that because there are still “relatively few” EVs around, the number of people who can currently benefit from a dedicated tariff is limited.

“It’s not quite a ‘chicken and egg’ situation,” he added. “But as more people buy these cars, they will be looking for more of these tariffs and that demand will grow, and more companies will offer them.”

Eon

Tariff: Eon Fixed 1-Year Electric Vehicle (launched October 2017)

Main features:

Launched in October 2017, Eon’s Fixed 1-Year Electric Vehicle tariff was “designed to complement the increasing number” of EV and hybrid car owners who are now charging their vehicles at home.

When it was launched, Eon claimed the new tariff offered savings of around 5p a mile for full EVs compared with petrol-powered cars.

The tariff is available customers who own an electric or hybrid vehicle. An Economy 7 programmed smart meter is also required to access the tariff, which Eon fits free of charge.

Speaking in October, the supplier’s managing director of residential, Chris Lovatt, said: “For many electric or hybrid car owners, choosing the right energy tariff may be the last piece of the jigsaw in helping them lower fuel emissions and energy costs.

“At Eon we’re focused on providing sustainable solutions for our customers’ homes and with the increase of electric cars on our roads we’re pleased to be able to offer a tariff which gives our customers the flexibility to access cheaper electricity rates backed by renewable sources to charge their vehicles, while helping them save on costs.”

No one was available from Eon for an interview for this article, but in a statement, the company told Utility Week: “We’ve listened to what our customers have told us and are looking at launching a new tariff for EV drivers in the future.”

Good Energy

Tariff: Electric Vehicle Tariff (launched August 2017)

Main features:

Good Energy’s senior business propositions and insights manager, Kate Farrell says there are “massive opportunities” for the EV tariff market to grow.

“Good Energy stands for creating a cleaner, greener future,” she adds. “So, everything we do looks at how we can help domestic customers find their way through a complex market to find green technology.”

Farrell adds the supplier has a lot of early EV adopters in its customer base and the renewable energy firm is keen to support households in finding new technologies, which will have a “big impact on decarbonising the UK”.

A key selling point for the Good Energy EV tariff is its cost-saving potential, according to Farrell.

She explains: “The tariff provides 2,251 miles of free renewable electricity per year. It’s based on a Nissan Leaf, because that tends to be what most of our customers drive and it’s the most popular vehicle .

“And when customers buy power from us, we source all our power from a community of 1,500 renewable generators around the UK. So, they are supporting farmers, who have put up wind turbines on their land.

“It’s all creating additional demand for renewable energy in the UK, so there’s a positive, virtuous circle and the EV drivers obviously get their power a little bit cheaper, which encourages them to drive their EVs more than their petrol cars.”

Farrell adds that launching an EV tariff has provided an excellent platform for enhanced engagement with an important segment of Good Energy’s customer base.

“We are running a survey with our EV customers at the moment,” she reveals. “When you send out an email, you expect 25 per cent open rates, but this survey has seen 85 per cent open rates. Customers want to engage with EVs as a technology, and they are interested in what is coming next, and that’s a really good signal.”

Just under 400 customers have taken up the tariff since it was launched, but Farrell says that the tariff itself is “just the start”. A new partnership with smart charging company New Motion will provide the “next step” in EV-related services.

“We see smart being a step change, because as an EV driver, you obviously want to park your car, plug it in and for it to be charged the next time you come back to it,” says Farrell.

“With smart, we can deliver more of that value back to the customer, so we are looking to help EV drivers. It will be a development area and we will be listening to our customers and responding to their needs.”

Like others in the sector, Farrell admits that uptake for this tariff is dependent on the EV market itself. “We’ve seen steady growth since we’ve launched,” she tells Utility Week. “We won’t stick with one proposition, because one size will not fit all. We’ll be responding to consumer demand.

“At the moment, EVs are a market we are all hearing a lot about,” she adds. “But not all suppliers are at the forefront of the renewable space and probably their consumers are not demanding it as much.

“As EVs become more mainstream and we see car manufacturers swapping over and making a commitment to EVs, we will definitely see that change. We want to stay ahead of the game and make sure we are meeting the needs of our customers.”

Ovo Energy

Tariff: EV Everywhere (launched August 2017)

Main features:

Ovo Energy’s director of EVs, Tom Pakenham believes the energy supply sector is on the verge of a “cusp moment”.

“The general hypothesis is we will hit one million EVs in the UK somewhere between 2020 and 2022,” he tells Utility Week. “That will mostly depend on vehicle supply. What we are seeing in the customers’ mind is that a lot of the reasons why people were not traditionally purchasing EVs are now falling away.”

Pakenham says this is mostly due to the falling cost of EVs and positive experience people have when they test drive one.

“OVO Energy is the largest by customer number independent energy technology company in the UK,” he adds. “We have diversified energy services, so the thinking is we don’t just retail plain KWhs, but we have a range of different services and that will only become more comprehensive, touching on people’s entire relationship with their energy consumption. EVs are obviously a really key part of that.”

In terms of Ovo Energy’s EV Everywhere bundle, Pakenham says there has been a “pleasing” number of sign ups, both from new customers and existing Ovo customers, who “have been waiting for us to bring out a product like this”.

“An electric vehicle represents two thirds to three quarters of the electricity consumption for a household each year,” he adds. “So, the average household will see a doubling in electricity consumption.”

This necessitates a change in the way consumers think about their energy use and their choice of tariff, says Pakenham, and as more customers realise this, Ovo wants to be ready with established products to help them manage.

“One of things behind the timing of releasing this bundle is that we recognise this is quite new and still a small market, but seeing how customers interact with their EV and what they want from their energy company will help devise future products,” he says. “You won’t really know that without unless you have your own product in the market. We think it’s the top product out there and it allows customers real security over rates anxiety, which a lot of people cite as a reason not to buy a car.”

Pakenham adds that Ovo’s tie-up with the Polar Plus charging network gives the tariff a strong competitive advantage. “It has the greatest number of rapid charges,” he says. “More than 300 in the UK and it allows people to cover long distances. And as the network grows, the Everywhere tariff will become more attractive.”

For Ovo, Pakenham says the its future EV tariffs and bundles will continue to latch onto value-add positives like membership of charging networks. However, he does admit there is a risk the EV tariff market could be driven in the same direction as the current price-focussed energy retail market.

“The energy supply industry is interesting at the moment because of the rise in switching and the energy price cap,” he comments. “Everyone is very price focused and there’s a danger that these things will go in the same direction as retail and there will be a race to the bottom in terms of price.

“Some of the retail focus on EVs will purely be around the on the KWh rate. Others will focus on the customer service or the technology, or add-ons like the Polar Plus membership.

“What OVO will do is keep the diversify into electricity technology products and bring value to customers through more than just selling KWh to them, but also through hardware propositions.”

Pakenham is enthusiastic about the range of services which could be delivered “to make the customer experience for their electric vehicle better and reward them for their charging behaviour,” – a key factor for Ovo which is highly motivated by a desire to be part of the solution to flexible power system challenges.

“While it’s a little bit fanciful to expect people to real time charge their EV, as long as its filled by a certain time of day, most people will accept a varied charging rate in return for some kind of upside.”

Pakenham concludes: “We think the EV Everywhere tariff represents good value for money, great added value and is 100 per cent renewable, which is something early adopting EV drivers expect as a given. It sells itself, essentially.”

Conclusion

With around 140,000 electric and hybrid vehicles currently on the road in the UK, there is no denying the market for dedicated tariffs and support products is on the niche side today.

But as the price of EVs falls, more manufacturers come on board with models designed for the mass market and policy decisions back low carbon transport developments, it is a question of when, not if, the public will switch en masse from the petrol pump to the plug-in socket.

Opinions about when the critical tipping point for EV uptake will happen remain divided, but the majority now agree that the number of EVs on UK roads will increase substantially within the coming decade.

With this surge in EV driving in sights, companies like Ecotricity, Eon, Good Energy and Ovo Energy have already manoeuvred for first-mover advantage in the provision of targeted EV tariffs and support services.

Their early offerings show a common ambition to link EV products with clean energy interests among consumers and to broaden their scope for customer engagement. Having launched in the early days of EV market development however, they have also built good platforms for continued fine tuning of EV-related offers as customer preferences and desires in this space become better understood.

Some suppliers, notably Ovo Energy, have also tied their EV tariff strategies to higher ambitions in a flexible energy future and have invested in hardware development to support EVs as well as services.

Ovo, for example, has pioneered the first widely available vehicle to grid charging technology in world, according to the firm’s marketing rhetoric. With very few EV models currently able to support “bi-directional” charging, opportunities to develop consumer demand side response products for EVs are even more nascent than for more general EV charging tariffs. But the supplier’s determination to develop proprietary technology in this arena, as well as other smart charging and home energy storage products, demonstrates the high value it sees in being a leading provider of hardware to EV drivers.

However, history has proven time and again, across markets, that first mover advantage is not always sustainable, and the market still has plenty to offer for fast followers who are keen to access the estimated £15 billion UK EV charging market which will soon emerge.

According to figures from the AA, the average car driver spends around £1,440 a year on fuel. If they redistribute this spend onto electricity for the EVs in a big way, a rush to capture a new source of revenue in what is now a crowded and margin-poor energy retail market is to be expected.

When this happens, the affordability of EV tariffs is likely to become an increasingly hot topic for regulators and consumer groups – though contributors to this report have sent out early signals that driving EV tariff costs down could simply lead to a “race to the bottom” on cost at the expense of customer and wider system value.

Questions remain unanswered as to how the grid will support mass market uptake of EVs and when widespread infrastructure will reflect an electric dominated future for transport.

Regardless of these hurdles, the direction of travel is unmistakable and carries a substantial prize for energy suppliers which can understand what EV customers need from related tariffs, smart charging offers and demand side market participation.