Transcript - Episode 5: Powering ahead! Making sense of business models in electric vehicle charging

Steve Jennings
Hello and welcome to the fifth episode of our ‘innovation in energy’ podcast series.

My name is Steve Jennings and I lead PwC’s Energy and Utilities Practice in the UK.

Today, we are going to build on a podcast we’ve hosted back in April last year on electric vehicles, or commonly known as EVs, but this time, we are going to move on to look at the challenges facing charging for EVs in the UK, and particularly to examine the emerging business models. The market is moving fast and much has happened since our last podcast on the subject.

You can go on to our website to catch upon our previous podcast. If you missed it and weren’t you there, you can find our report powering ahead, published in partnership with Energy UK, which we will be discussing today.

To help us explore emerging business models in EV charging, I am delighted to be joined today by Sam Hollister, Director of Economics and Corporate Services at Energy UK; and Adrian Del Maestro, Director of Research in PwC Strategy&.

So, Adrian, if I may start with you, I am going to ask you to kick off if that’s okay. Could you describe or provide an overview of what is a very nascent market?

Adrian Del Maestro
In our recent report, ‘powering ahead,’ we basically identified four types of charging that are beginning to emerge in the market, essentially they are home charging; rapid charging; destination charging, which is like charging at supermarkets or leisure centres; and workplace charging. I think, it is fair to say each of these charging types have pros and cons. Essentially home charging is likely to be the dominant way of charging early on in the market, but there is still about a third of the population that don’t have access to off-street parking, so that may prove challenging.

Workplace charging depends where you live. If you live outside of the big cities, you are more likely to drive into work, so you could see demand there. If you live in big cities, you are less likely to drive in to work, so again a mixed outlook.

Destination charging, one of the really interesting ones that are growing, and you’ve seen, for example, the alliance between Pod Point, Tesco, and Volkswagen. A popular way of charging by getting the right dwell time, how long you stay parked, depending on how long you are going to be shopping, there is an element there. Rapid charging, again a very important part of the charging makes in terms of when you do those long journey, have this safety in mind that you can charge your car, but it’s quite an expensive way of charging, regulatory complexity, etc. Maybe the one parting thought, and we will probably touch upon this later, all these charging methods are market driven. There is probably a debate about how much the market drives this change and whether government has a role to help trigger and catalyse this evolution.

Steve
It is good point Adrian, and we touched on it on our previous podcast, I seem to remember.

Sam, your organisation clearly is very active. You have members of Energy UK representing all of the major participants in the industry. What’s Energy UK’s views on this subject?

Sam Hollister
Thank you Steve. I think, at the moment Adrian raised some really interesting points. There are many different options that we think people are going to be using to charge their vehicle. As Adrian said, quite a few are out, and at the moment, we don’t know which one is going to be the winner, or which one is going to be the looser, or which one customers are going to ultimately decide to choose. I think that’s quite an interesting fact at the moment, as we are trying to trial, and innovate, and bring up new ideas.

Adrian has also touched on how the infrastructure is actually going to be funded. We expect many of that to be funded by our members, and actually we deliver for a private market, whether that’s through home or through work, but actually there are going to be some areas, where actually strategic roll out, which is overseen by government, presents you with some funding, is going to be needed to overcome some of the issues, such as range anxiety, or to make sure that customers are actually close enough to the charge point to make sure there is adequate national coverage.

Adrian
Maybe just a quick point, just to build on Sam’s point. The role of the government, suddenly there has been a lot of subsidy support in the past. It caught the market a little bit by surprise towards the end of last year, when the government lifted the subsidies for hybrids and reduced some of them for battery electric vehicles.

There are couple of key points emerging from that. One is, the market needs regulatory clarity and transparency. It would be helpful if the government indicates what the milestones are, for how long this subsidy support continues, and it might be a timeline, it might be a percentage of the car fleet that becomes electric vehicle that might be the target.

The other thing with regards to that is, when those subsidies get lifted in terms of supporting car purchases and having your home charging point installed, what happens then, and maybe that’s an opportunity there, for example, the automotive retailers to offer more incentives for people to buy these cars, because one of the issue now is, there is not a lot of choice in the market, and it will be quite pricy buying particularly the high-end electric vehicles.

Steve
There has been a lot of debate around subsidies, an area where my sense is, there is an increasing amount of debate around impact on government’s tax revenue, the tax take for the treasury and that’s probably got lost recently, because we’ve been at the fairly early stage in the development at the market, and no doubt, that will be a topic that were discussed in far more detail.

In terms of the development of the market, where do you think we are? How would you describe, where we are in the stage of the development of the EV market?

Adrian
Early stages, and Steve and Sam, we’ve talked a lot about this. It’s a very young, immature market, but evolving rapidly. In terms of stats, there is something like 200,000 electric vehicles plugin hybrids in the market, about a 19,000 public accessible rapid and fast charges. The vehicle fleet is growing, doubling pretty much year on year. Charging is growing at about 45%, a slower rate, but still pretty fast. You see a lot of charge point operators. So, those companies that are installing the charge points is about at least 60 in the market. Some of them big integrated players, some of them very small specialist players, so really fragmented market in that sense.

Utility players beginning to pile in now, which I think is really interesting. They’ve been playing a little bit of wait and see approach for the last couple of years, but literally in the last few months, all the big six have announced measures in terms of providing packages to EV drivers, etc.

EVF Energy has come out publicly saying that they want to own 30% of the EV charging markets across Europe, particularly in a few target market such as the UK. Some consolidation in the market, BP buying Chargemaster, so enormous amounts of change as market beginning to gain momentum there. Maybe one parting thought as well, one of the triggers for EV adoption will be the growth of the B to B, the car fleet, because I think when that market takes off, you begin to get scaled across the UK, and I think is also one of the generators of a second hand car market, which will tie into that point about having greater choice for EV drivers to purchase more affordable cars.

Steve
Lots happening, very fluid situation. People exiting, people buying, consolidation potentially taking place, new players coming in to the market.

Adrian
Exactly.

Steve
Given the uncertainty, therefore, in predicting who will be successful, what do you see as the characteristics of a winning business model, how are people going to win in this market?

Adrian
As we highlighted in our report ‘powering ahead,’ I think, there are few elements there. One is revenue diversification, so your ability to generate alternative revenue streams as a charge point operator. It’s not just about setting the charge point or getting a tariff on that charge point, what other revenue streams are you thinking about, such as advertising or data analytics on energy efficiency consumption, for example, scale is always a key thing. As I mentioned earlier, there are lots of players in the market. Some of them from a geographic perspective, quite parochial. The view from the interviews that we had is that the market will consolidate and you have a handful of may be that four or five big players with national coverage. The last element is still this topic around experienced anxiety, and there is different dimensions to it.

One of the CEOs that we interviewed summarised it nicely. When we talked about experiencing anxiety, he was talking about, ‘do you feel comfortable with charging your car in a deserted car park late at night, it’s raining, there is no shelter there, you got a nice new suit on, you are touching a dirty cable, is not a great customer experience.’ There is also an angle there around range anxiety. I think, as car batteries improve their technology, the range gets better. Range anxiety as a practical issue is being diluted; however, I do think, and we have a hypothesis about this that there are many EV drivers out there, who still worry about charging their car for their infrequent long journey. Therefore, it does raise the issue about whether you need a strategic network of fast charges, a little bit like the National Grid proposition to lay those potential concerns from EV drivers.

Steve
Good challenges. I know some, Energy UK has been very active in this area. You’ve had an initiative with your members around low carbon mobility generally, what does your organisation think? What’s your view on what more needs to be done to address some of the uncertainties that Adrian identified to help accelerate the market and what role do you think government could potentially playing in facilitating that?

Sam
One thing that we’ve got to remember is, one of the reasons why government is actually pushing forward electrification transport is actually the broader scale of decarbonisation targets and the benefits to the environment, and also the air quality problems that we have particularly in London and the rest of the country that actually can be solved through electric transport.

Actually there is great deal of interest from both the public and the private sector. One of the things that governments set out and done really well to establish this market is by setting out its ambitions and its clear trajectory by banning the sale of internal combustion engines by 2040.

Energy UK has already written to government and said that actually that should be bought forward to at least 2035, because actually that means that you’ve got a bit more time to deliver your ultimate 2050 decarbonisation targets. Actually, there is lots of evidence that says that can be done a lot earlier than that, and whether that’s 2030 or 2032. By government setting out that ambition and that framework, actually it means members of ours and other players in the market have got a clear trajectory and know what they are trying to achieve and by when it can actually stimulate a market.

Following on from what Adrian was saying about the various ranges and who is going to win and who is going to lose, what solution can be bought forward to overcome those customer concerns, and who can best deliver the customer proposition. Whether that’s home charging or rapid charging, I think we agree, we have agents comments there around the need for strategic locations, overcoming that range anxiety, whether that’s chicken or egg situation of, we’ve got less than 200,000 vehicles on the road at the moment, but we are expecting that to grow and potentially quite rapidly through the 2020s, as cost comparisons comes to close parity, I think between electric vehicles and internal combustion vehicles.

Steve
Sam, clearly Energy UK has and will continue to play a critical role in establishing common ground amongst these multiple participants and investors in this market. What do you see moving forward, as the overarching and critical themes to gain agreement across this mix of participants?

Sam
You are right there is lots of work going on, and we are working very closely with government through the EV energy taskforce. One of the areas that we are looking at in particular is the customer experience, and in particular interoperability. So, whether that’s putting up to a charge point, and knowing that you can use it, or knowing that is in use, making sure that actually you can still continue to switch energy provider, where you are locked into a long term contract, things like that.

The customers are going to want some safety nets around and to ensure that there is a simple solution. One of the things that agents touched on before is the support schemes that are in place, and actually knowing that upfront, I think government is doing the right thing to drive this market forward through financial support.

But we know in the energy sector, actually that’s not going to be a long-term viable solution, so we need to find a way to ensure actually customers and private markets are investing and the cost is going to come down that actually we can continue to roll out electric transport in order to maintain those benefits that we’ve said, whether that’s through climate change, air pollution, also, just the benefits that electric transport can have on customers. We know, for instance, there are solutions coming forward, where people are powering electric vehicles with solar rooftop PV or other renewable tariffs in order to actually take advantage of many of the innovations that are happening in the energy space.

Steve
As I said in my introduction, and what’s become evident in this discussion, a huge amount has happened since our podcast near 18 months ago, but I do sense, we are at a tipping point in the developments of this market. The uncertainty still exists around exactly how the market will evolve, but it is clear that all stake holders, whether they be charge point operators, government, EV manufactures, or many of the members utility companies need to be represented to make sure that the market develops in the most efficient way for the UK.

How stakeholders meet these challenges is one of the topics that’s explored in our report.

I hope you enjoyed this podcast. For more information and analysis on the topic, please read our report ‘powering ahead,’ which you can access on our website. If you would like further details on what Energy UK or PwC are doing in this area, please do get in touch.

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Steve Jennings

Steve Jennings

Leader of Industry - Energy, Utilities & Resources, PwC United Kingdom

Tel: +44 (0)7704 564513

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