The road to electric – How the private sector can help build the UK’s EV infrastructure
As governments around the world seek to move away from a reliance on fossil fuels, the conversation about electric vehicles (EV) and the role they can play is more pertinent than ever. In 2019, road transport consumed more than 40% of all oil demand around the world and has been responsible for over half of total oil demand growth since 2000.[1] In the UK, transport is now the largest emitting sector and 91% of those emissions come from road transport[2], making the sector a prime target for decarbonisation if the government is to reach its goal of net zero by 2050.
In the UK, according to government figures, there are around 750,000 plug-in vehicles in the country, with over half of this figure being pure battery electric.[3]Additionally, although overall global car sales fell during the pandemic electric car registrations still increased.[4] This is evidence of the growing trend towards electric vehicles that will only continue to gain in popularity, especially as people become more engaged with climate issues. There are currently over 29,000 public chargepoints in the UK and the government aims for this number to be at least 300,000 by 2030[5]. However in order to reach this target, a significant upgrade in infrastructure across the country is needed.
This is easier said than done. Connecting new chargepoints to the electricity grid can be expensive and slow, with electricity supply being an issue in many areas. Poor grid capacity in rural areas is a barrier to installation, meaning a long and expensive application to the Distribution Network Operator (DNO) is required. In many cases, connection to the grid would necessitate a complete end-to-end power system, from connection to the DNO right down to end user interaction. The costs stemming from this challenge can range from £60k to £2m to connect new fast charging stations – according to an estimate by a DNO.[6]
A massive investment is needed to create nationwide charging infrastructures, and in total, the government has committed to spending £1.3bn[7] to accelerate the rollout. Public funds and incentives are crucial to encourage investment, but – with all the other pressures on public capital – will not be enough to meet demand. Analysts acknowledge that private sector finance is needed to fund the rapid development of the EV charging infrastructure.[8]
As EV ownership increases, so too will the demand for the necessary infrastructure from consumers and private businesses. Drivers without access to a private driveway – estimated at anywhere between a third and a half of all drivers in the country[9] – would have to rely on their local authority having the appropriate infrastructure in place, in public car parks for example. Failing this, drivers would have to rely on destination charging for their vehicles, using facilities at private enterprises such as supermarkets, gyms, or pubs. With many leading supermarkets all offering chargepoints to customers,[10] it is becoming obvious that private businesses can increase their value proposition by catering to electric vehicles, yet as previously shown, a long and extensive application to a DNO can prove costly.
Recent research from Siemens Financial Services (SFS) estimates the ‘investment gap’ required over the next six years to rapidly deploy EV charging networks worldwide.[11] This ‘gap’ represents the difference between EV charging infrastructure already being financed, and that still being paid for out of capital expenditure (CAPEX). The global total amounts to nearly $150bn, and in Europe the current gap is $11.77bn but is estimated to grow to $27.23bn by 2026.
Clearly this is a gap that can’t be bridged through public funds alone, but what kind of finance from the private sector is needed to fund EV development?
Smart financing – offered by specialist financiers – enables the acquisition of technology and equipment for competitive advantage in a financially sustainable way and tailored to the organisation’s specific business and cash-flow needs. Specifically, smart finance makes investments possible and affordable by aligning costs with revenues – both for the organisation acquiring the charging infrastructure, and for vendors selling EV charging solutions.
Additionally, it offers three major advantages over generalist finance: technology expertise which understands real business outcomes; a breadth of financing solutions which can meet the organisation’s exact needs; and smooth, sophisticated processes which makes the use of smart finance seamless and easy.
| Case study: SWW Wunsiedel GmbH German Utility Company SWW Wunsiedel GmbH has a main strategy which links all aspects of energy generation and distribution for optimal operational efficiency. In its latest development phase, the company wanted to add the early phases of an e-charging infrastructure, but to finance it in a way that aligned with earnings from the charging points. A smart financing arrangement was needed to avoid tying up precious capital. To help the company realise its ambitions, Siemens Financial Services created a payment plan for the charging units which was designed to fit the projected cash flow from the chargers. E-chargers from Siemens for electric cars were installed. At the same time, payments were aligned to the projected income from charging units so that benefits are accrued at the same rate as payments. The cost to SWW Wunsiedel GmbH for implementing electric car charging units has been spread over time to minimize cash flow impact. |
Global attitudes towards fossil fuels are changing as countries begin to adopt stronger measures in order to achieve net zero targets. The move to electrified road transport is inevitable and the UK must ensure it has the infrastructure in place to facilitate this upgrade. Where government funding falls short, private finance will be expected to plug the gaps, and with the help of smart financing techniques, can do so in a sustainable way without risking large amounts of capital.
Toby Horne, Siemens Infrastructure Financing Partner, Siemens Financial Services UK
[1] BloombergNEF, Oil demand from road transport: COVID-19 and beyond, 11 June 2020
[2] Taking Charge: The electric vehicle infrastructure strategy – Gov.ukhttps://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1065576/taking-charge-the-electric-vehicle-infrastructure-strategy.pdf
[3] Taking Charge: The electric vehicle infrastructure strategy – Gov.uk
[4] The Guardian, Global sales of electric cars accelerate fast in 2020 despite covid pandemic, 19 Jan 2021
[5] Taking Charge: The electric vehicle infrastructure strategy – Gov.uk
[7] https://www.ft.com/content/ff93010b-07cc-4156-ac6a-5e21a36bd758
[8] Financial Times, Electric vehicle ‘ultra rapid’ charging points to triple at UK service stations, 24 May 2021
[9] https://www.ft.com/content/ff93010b-07cc-4156-ac6a-5e21a36bd758
[10] Taking Charge: The electric vehicle infrastructure strategy – Gov.uk
[11] SFS Insight Series, Financing decarbonization: eMobility – Accelerating the road to zero, 2021
