5 minute read 7 Dec 2020
Electric car charging station on London street

How to make EV charging pay

Authors
Thierry Mortier

EY Netherlands Partner Advisory

Creative. Inquisitive. Innovative. He believes in technology’s power to create a better, more beautiful world.

Marc Coltelli

EY Americas eMobility Energy Leader

Innovative, focused energy professional with more than 25 years’ experience. Passionate about turning strategy into reality.

5 minute read 7 Dec 2020

As demand for 5.5 million1 public EV chargers heats up, the business case for US$13b of investment needs to be rewritten.

In brief
  • On average, the payback period for investment in public charging infrastructure is 10+ years. The business case needs rethinking to support predicted EV growth.
  • There are significant commercial, structural and operational levers to reduce latency, enhance revenues and cut costs.
  • Remodeling the business case boosts the investment’s risk profile, gives it greater appeal to mainstream debt financiers and enables infrastructure to scale.

No one wants to set off on a long road trip without the certainty of refueling. But that decision could face drivers if anticipated growth in electric vehicles (EVs) – predicted to increase 18-fold between 2020 and 2030– isn’t matched with a swift and very significant uptick in public charging stations. 

Homes and workplaces are expected to account for more than 90% of global EV charging facilities, with a further US$41b likely to be spent on residential installations by 2028.A total of 5.5 million public chargers are needed by 2028 to meet anticipated growth in EVs, overcome drivers’ range anxiety and cut carbon emissions from transport. This comes with an investment price tag of US$13b.

But here’s the rub: public charging infrastructure just isn’t enticing mainstream investment.

The business case struggles to justify investment

Poor cashflow and returns are jeopardizing the case for investment in public charging infrastructure.

EY research finds that a typical charging station, with two slow (6.6kW) and two fast (50kW) chargers, will take five years to yield positive cashflow. Our analysis shows that the payback periods for charging infrastructure investments are longer than 10 years. 

Yearly cash flows for a typical charging station Infographic

As an investment case, the numbers are not persuasive.

On top of that, the asset life of the technologies is unproven. Lithium batteries and chargers are, as yet, untested over 10 to 12 years. Regulation, standardization and interoperability have not been ironed out either. Though different business models are being trialed, they still come up short for would-be investors.

The need for investment is irrefutable. But the uncertainties combine to make public charging infrastructure risky and an unattractive investment. In fact, proving the point, more than three-quarters (76%) of total capital inflows into EV charging companies in 2019 is equity, grants or venture capital-backed.5 To achieve scale, debt financing is critical too.

Simply put, the business case needs to improve.

Rewriting the investment story

To build a better business case and attract mainstream investment, we looked at different levers for revenue enhancement and cost reduction. Each has positive fiscal implications. It’s all about deciding which levers to pull.

Revenue enhancement and cost reduction levers Infographic

For example, in the US, a leading charge point operator (CPO) has been generating extra revenues by participating in the California Independent System Operator (CAISO) day-ahead and real-time markets for years, where they get paid by CAISO for providing demand response services using smart EV charging. And in the UK, city boroughs in London are acting as neutral hosts for CPOs. With the help of funding received from a local government body, boroughs are funding capital costs of EV chargers while CPOs are installing, operating and managing on-street charging points in return for a major portion of revenues.

Impact of levers infographic

Creating a better ending

It’s critical to understand the levers that can increase revenues and reduce costs to make the business case more appealing to mainstream debt investors. But how do you go about creating a better investment outcome?

Make a plan – understand how your particular scenario and geography can impact revenue enhancement and cost-reduction opportunities:

  • Undertake market, regulatory and geospatial analysis to identify the right locations for your charging stations; consider real estate, demographics and commercial activity in the vicinity, as well as electricity grid constraints
  • Go deeper with a second-level market analysis to select and plan the optimal combination of levers relevant to the location

Understand the indirect value – recognize the indirect value that investment in charging infrastructure can add to the existing business:

  • Factor intangible benefits from charging infrastructure investments into your business case (it might indirectly enhance your brand appeal, community value, customer satisfaction, etc.)
  • Consider the opportunity to provide additional services, such as EV or battery leasing, fleet management or vehicle-to-grid services for customers using your charging stations

Evaluate financing options – identify innovative financing opportunities to raise additional capital:

  • Explore ways to structure your project by separating out more predictable revenue streams against which you can raise more mainstream debt 
  • Leverage government incentives and stimulus packages (e.g., European Green Deal and post-COVID-19 crisis recovery programs) to accelerate rollout

Deploy the right technology – leverage technology to help solve challenges associated with the operation and ownership structure of your business:

  • Consider using emerging technologies (e.g., distributed ledger) to manage fractional ownership of assets 
  • Invest in a technology platform to translate data from vehicles and chargers into informed decisions for planning and operations

It’s critical to understand the levers that can increase revenues and reduce costs to make the business case more appealing to mainstream debt investors.

Hurdle? What hurdle?

Too often, infrastructure is cited as the hurdle to accelerated EV rollout. However, probing the scarcity of debt financing for public infrastructure investment and implementing work-around solutions can lower risk and make the business case work for mainstream investors.

Changing the business case will change the outcome. Only then will US$13b of funding be forthcoming, accelerating the scale-up in public charging infrastructure, giving drivers confidence in EV range and, ultimately, contributing to a reduction in carbon emissions from transport.

  • Show article references#Hide article references

    1. Electric Vehicle Charging Infrastructure: Market Forecast (2019–2028), Northeast Group, LLC, March 2019.
    2. EY analysis.
    3. Electric Vehicle Charging Infrastructure: Market Forecast (2019–2028), Northeast Group, LLC, March 2019.
    4. EY analysis. A typical charging station is assumed to have two public slow (L2) chargers (6.6 kW each) and two high-powered DC fast (L3) chargers (50 kW each). For this analysis, only revenues from EV charging are included. Capex includes costs for installation, host site identification, screening and design, and billing systems. Opex includes land rent, electricity, software, maintenance, warranty and selling, general and administrative expenses.
    5. EY analysis.
    6. EY analysis.
    7. Revenue enhancement accounts for the incremental revenue each lever adds in the 10th year. Cost reduction takes into account the capex reduction achieved under these levers. Smart charging services considers IRR improvement when compared with the base case.

Summary

It’s not a “chicken and egg” situation anymore. Most people acknowledge that without proper charging infrastructure, EVs won’t take off in the way they need to. The challenge is that the business case for investment does not stack up. It takes too long to achieve a return, and the risks are considered too high. Understanding how to reposition the business case, and which levers to pull, can unlock investment channels to accelerate infrastructure rollout. And that’s a trigger in the global journey toward decarbonization.

About this article

Authors
Thierry Mortier

EY Netherlands Partner Advisory

Creative. Inquisitive. Innovative. He believes in technology’s power to create a better, more beautiful world.

Marc Coltelli

EY Americas eMobility Energy Leader

Innovative, focused energy professional with more than 25 years’ experience. Passionate about turning strategy into reality.