Political and regulatory pressures to increase sales of electric vehicles (EVs) in order to help reduce carbon emissions, together with technological advances making EVs attractive to consumers, are turning investors’ attention to publicly accessible charging point infrastructure as a potentially attractive new asset class. However, when plugging into investment opportunities in this area, it will be important not only to have a clear understanding of market opportunities but also to understand how the legal and regulatory framework is developing.
In an economy badly shaken by Covid-19, EV sales are gaining real momentum. While UK car sales recently plummeted to their lowest September level this century, demand for electric-powered vehicles has increased significantly. Sales of battery-powered vehicles in the UK since the start of the year exceed forty thousand – three times the total for the same period in 2019. This is not only a result of stricter environmental legislation and the green aspirations of government, but also the growing range of EV models available on the market. At the same time, through advances in battery technology, manufacturers are beginning to address issues such as range anxiety, which have been a concern to consumers. Whilst the purchase price of EVs remains high relative to petrol and diesel vehicles, the whole of life cost of an EV is becoming ever-more competitive, as demonstrated by a recent Leaseplan report.
Industry forecasts expect growing demand for EVs, together with the electrification of domestic heating, to have a major impact on the electricity supply industry and its associated infrastructure. The growth in electricity demand will require new low-carbon generating capacity, which in turn will require significant investment in reinforcing transmission and distribution networks in order to deliver the power to the consumer. Specifically for EVs, there is also a need for more publicly-accessible EV charging infrastructure; without this there is a risk that the take-up of EVs will be held back.
Investors are developing business models for public charging infrastructure. Gridserve’s soon to be completed Electric Forecourt project near Braintree, Essex reimagines the traditional petrol station using a destination charging model, encouraging customers to spend money at on-site amenities such as shops, cinemas and cafes while charging their vehicles. Others are seeking to create strategic partnerships between charging point operators and organisations. Some examples include supermarkets wanting to attract EV owners to shop with them or advertisers wishing to attach multimedia screens to charging points to reach a captive audience.
Flexibility services are becoming increasingly important in the management of electricity networks; they can represent a cost-effective alternative to expensive investment in new network capacity where there are constraints. Whilst EV charging is expected to contribute to network constraints, EV charging point operators can help alleviate the effect by providing flexibility services. Shifting charging from system peaks can mitigate the need for network reinforcement. There is further potential to provide flexibility through vehicle-to-grid exports. The evolving market for flexibility services provides charging point operators with the potential for revenue stacking to underpin investment in charging infrastructure.
EV charging is currently subject to limited regulation but this is evolving on several fronts. For example, the Automated and Electric Vehicles Act 2018 made provision for the development of regulations governing the installation and operation of EV charging points. This included powers to require the provision of EV charging points at motorway service stations and large petrol stations, access to public charging points and interoperability of charging point connectors. The detailed regulations have yet to be developed however and investors will need to watch out for the relevant consultations.
The government is due to launch a consultation on its preferred option for roaming before the end of the year. Roaming would allow an EV owner to charge through a single account using the charging stations of multiple charging point operators. Again, investors will need to be aware of the proposals to assess their impact on their business models.
The regulation of electricity supplied for EV charging is likely to change. Under present arrangements, electricity supplied to an EV owner at a public charging point is likely to be covered by an exemption, although the supply to the public charging point itself will require a licence. By contrast, a supply to an EV owner at a private charging point does require a supply licence under the Electricity Act. In its response to a consultation by the National Infrastructure Commission, Ofgem said that there is a need for a “coherent regulatory framework” in order to encourage investment as well as to promote competition between charging, supply and flexibility services. It also identified a need to ensure appropriate protection to EV owners. Accordingly, investors should expect to see significant regulatory change in this area.
EVs are set to play an important role in making the UK’s net-zero carbon future a reality. That suggests real opportunities for investors in EV charging infrastructure but the regulatory framework has yet to fully evolve and any investor will be wise to keep a ‘weather eye’ on the regulatory landscape.