Impressive statistics on the rollout of electric vehicles (EVs) are the result of regulation, technological improvements, and greater investment in EV supply chains. But accessible, efficient, and low-cost charging infrastructure remains a prerequisite for widespread EV adoption; deploying this infrastructure efficiently and achieving target return rates will be more complex than immediately apparent.
Highlighting the magnitude of the transformation required to manage climate change, the UK has adopted – and other EU countries are discussing – a commitment to cut net carbon emissions to zero by 2050. Zero-carbon transport is just one of the requirements for achieving this goal. Immense changes to power generation, heating, agriculture, and manufacturing will also be required.
Charging points are a vital aspect of the overall shift towards the electrification of transport. Various forecasts put the number of EVs on UK roads at between two and six million by 2030. EV drivers will seek to have residential chargers installed in their homes wherever that is an option: around 57% of UK households currently park on a driveway or in a domestic garage.
But having millions of EVs on the roads will also require public charging points to tackle ‘range anxiety’ – the fear that an EV’s battery will run out mid-trip – and to facilitate EV adoption for households without a driveway or a garage who currently park their vehicles on the street.
Technical guidance from the EU recommends one public charger per 10 electric vehicles. This means hundreds of thousands of public chargers will be needed to enable the expected deployment of EVs, an exponential rise from the current level of roughly 20,000.
Competition to install the charging points is already intensifying as early entrants seek to gain advantage and capture market share. Car makers increasingly see the provision of ancillary services as paving the way for vehicle sales growth. Energy companies are increasingly looking to diversify their fossil-fuel exposure too, while utilities see synergies with their traditional energy-supply businesses. Finally, independent specialists have emerged who are seeking to capture market share and provide solutions for corporate clients such as shopping malls, supermarkets, fleet operators, and large employers.
The residential charging market is attractive to EV installers due to its large size and growth prospects. It is becoming increasingly commoditised, though, with low barriers to entry enabling increased competition and pressuring margins. Achieving economies of scale will be the key challenge for developers in this market segment.
On the other hand, public charging networks – particularly rapid charging – feature higher barriers to entry and potentially more stable revenues in the future. Location is crucial for this: some places, such as motorway service stations, have a more stable base of captive users than others like carparks or retail and leisure locations. Low utilisation is the main challenge for these assets, as preliminary data suggest around 80-90% of charging is conducted at home. Rapid chargers are seldom used even in markets such as Norway, where the EV transition is well under way. Furthermore, fast public charging can require significant upfront investment, not least in power network upgrades.
The good news for investors is that EV adoption is intensifying and creating a large market for the build out of ancillary infrastructure. Clarity on user behaviour and competitive dynamics will develop over the next five to 10 years. In the meantime, investors in charging infrastructure will need the patience to develop an in-depth understanding of consumer behaviour, the interaction between location and utilisation, and a tolerance for risk!