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- Earth Day– E-mobility solutions
Global economic activity has become unsustainable in many ways; too much intensive agriculture, urbanisation, mobility, waste production and raw material consumption. And once again – for the 53rd time – the upcoming Earth Day on April 22nd is here to remind society that a course correction is urgently needed to protect the environment and ultimately humanity.
Transportation currently has the highest reliance on fossil fuels of any sector and accounted for 37% of CO2 emissions from end-use sectors in 2021.
At the same time the findings of the Sixth Assessment Report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC)[10] are clear – the pace and scale of action needed to address climate change is currently not enough. Alongside continued investment into renewable energy, investments across all economic sectors, in particular for transportation will be needed. Transportation currently has the highest reliance on fossil fuels of any sector and accounted for 37% of CO2 emissions from end-use sectors in 2021.[11] The Sixth Assessment Report notes that we have the technologies to meet the challenge, but we need to roll them out faster. Electric vehicles (EV) are a prime example of this – uptake is slow, and infrastructure is not in place. Thankfully, Europe is a leader on both fronts, but the region still needs to address major shortcomings in terms of EV manufacturing, supply chains and charging point installation.
Europe accounts for a third of the global EV car fleet and is home to a fifth of the charging stations globally. In the third quarter of 2022, European EV car sales represented 11.9% of total EU car sales[3], compared to just 2.4% three years ago[4]. Industry estimates[5] suggest this share will rise to 29.9% by 2025, reach 70.7% by 2030 and achieve the EU’s ultimate goal of all new cars sales being zero emission by 2035. However, this expansion in the European EV car fleet marks a significant divergence of EV car sales and EV charging point infrastructure across the continent. While it may be true that most EV charging today takes place at residences and workplaces, the increasing number of EV cars will require even greater numbers of public EV charging points.
Industry estimates European EV car sales share will rise to 29.9% by 2025, reach 70.7% by 2030 and achieve the EU’s ultimate goal of all new cars sales being zero emission by 2035.
In our perspective the following points need to be considered:
- Too many EV cars are on the road per charging station – Within the EU, most countries have a high number of EV cars per publicly available EV charging stations. The 2014 Alternative Fuel Infrastructure Directive (AFID) regulates the deployment of public electric vehicle supply equipment which recommended that EU member states reach 10 electric Light Duty Vehicles (LDVs) per public charger by 2020[12]. With the exception of the Netherlands, Italy and Greece, all major EU countries still fall short of this metric.
- Build with an eye to future demand – Despite accounting for less than a tenth of the total EV stock within the EU, the Netherlands account for almost a third of the charging point infrastructure[7]. Here charging point infrastructure is being built anticipating growth in EV car usage.
- The benefits of fast charging points –Spain and Portugal have managed to push their average KW per EV materially higher than the EU average by ensuring a higher mix of fast charging stations[8], which can serve a higher number of EVs compared to slow chargers. Poland also scores well on this metric.
To have any chance of meeting the greenhouse gas emission reduction targets for the EU transportation sector by the end of this decade, it will mean firstly that an estimated 42.8 million EVs need to be on the road across the EU by 2030[9]. And secondly, that the weekly installation rate of public EV charging points across the EU needs to rise from around 1,000 in 2021 to over 20,000 charging points by 2030. This would imply an average installation, ranging between 5,600 to 14,000 charging points per week between 2021 and 2030. As things stand currently, the weekly installation rate of charging points is about one sixth slower than even the conservative ACEA scenario of charging points by 2030.
To meet these goals, the required infrastructure investments will need to be spread across charging infrastructure, upgrades to power distribution systems and transformers for e-mobility purposes and increased renewable power generating capacity. While investment models have matured and government support has been forthcoming for the latter two areas, funding for charging infrastructure itself has failed to keep pace.
EV Infrastructure closed transactions, value & volume (LHC) and EV infrastructure live transaction pipeline, by European geography, % total Pipeline
Source: Infralogic, February 2023. * 2023 includes live transactions as of February 2023. Others in the pie chart includes Ireland (5%), Netherlands (5%), Estonia (3%), Finland (3%) and Sweden (3%)
There is a shortfall of private capital to meet the significant need for charging point requirements. This is due to the lack of government support to guide investors, with the industry somewhat of a ‘wild west’ with players of all shapes, sizes and jurisdictions pursuing different strategies and the fact that few charging points exhibit the infrastructure characteristics that investors deem attractive from an infrastructure portfolio allocation perspective, namely securing long-term, low volatility, defensive returns. There is, therefore, a requirement to address these mismatches in expectations between the necessary investments and investor appetite.
In order for infrastructure investors to provide capital to EV charging businesses, the below areas of risk need to be sufficiently addressed:
- Revenue risk: Investors need to seek businesses that have identified demand pools and captive markets to ensure robust and enduring revenue generation.
- Barriers to entry: A key characteristic of infrastructure assets is that they are not subject to levels of competition seen in other sectors due to high capital costs and limited physical assets in operation, thus charging points need to be installed in locations where competitors cannot easily operate.
- Technology risk: business models which account for charge point renewal and flexibility from a software perspective should be sought to limit technology risk.
- Greenfield risk: Installation costs for charging points, particularly without a guaranteed demand stream once operational, will need to be managed given the large liability these are for investors to take on.
- Counterparty risk: working with experienced and financially sound counterparties will shield EV charging operators from assets not performing as expected.
