How to boost incentives for investments in the charging infrastructure

The demand for charging stations for EV’s is skyrocketing and there will be a global need for approximately 5.5 million new stations by 2028. 

In brief

• The average payback period for investments in public charging infrastructure is over 10 years. 
• Investment incentives for infrastructure must be strengthened to support the anticipated growth in the EV market. 

From 2020, the EU began to phase in stringent CO2 emission requirements for automotive manufacturers. During the past three years, the number of EVs has increased by 100% in the EU, while the number of public charging points has increased by only 58%.² To ensure there is sufficient charging station coverage, automotive manufacturers have made substantial investments in rapid charging, such as via the Ionity partnership. When automotive manufacturers participate in such investments themselves, it underpins the increasing need for charging infrastructure.

Even though Norway is ahead of the rest of the world in the percentage of EVs sales among new cars, and has over 3,100 charging stations in total, we experience similar trends here as in the EU.³ During 2018–20, the number of public charging points in Norway increased by 59%, while the number of EVs increased by 73%.

In Norway, there is a growing demand for rapid charging along the roads. Consumers want destination chargers at hotels and shopping centers, in addition to more power and lower prices.⁵

Barriers to profitable investing

Poor cash flow and returns are important barriers that slow down investments in the public charging infrastructure. A global survey shows that a first-generation charging station with two normal (6.6 kW) and two rapid (50 kW) chargers has to be in operation for five years before it generates a positive cash flow. Thus, the payback period for investments in charging infrastructure is longer than 10 years.⁶

Stakeholders in Norway are dependent on support schemes to make investments profitable. From a political perspective, it is important that over time, the business model of the charge point operators is not based on governmental support, but that investments in charging infrastructure become profitable on a market basis. The EV technology is still immature, which also adds to the uncertainty. Better technology results in improved range, which introduces a risk that the infrastructure is built without an actual long-term need, or that the infrastructure must be upgraded only after a short period of time in order to accommodate the change in demand.⁷

In the Norwegian market, the location of charging stations has been a critical factor for their profitability. Their proximity to the distribution grid is a decisive factor because interconnection to the grid is a major cost driver.⁸ In some areas, the distribution grid must be expanded to reach the charging station or upgraded to accommodate the required power. As the country is sparsely populated in many regions, the number of users at each station will vary. When charge point operators pay demand tariffs to the power companies, the charging pattern becomes central to profitability.⁹

Measures for improving revenue and cost reduction.

In Norway, charging stations are built in locations where the demand is high and where there is good access to the distribution grid. It is, however, difficult to stimulate development in rural areas to make EVs an attractive alternative for more people. Enova, a Norwegian financial aid enterprise had previously stepped in when the market failed, by announcing comprehensive support schemes for the construction of rapid chargers.¹⁰ Unfortunately, few stakeholders opt to bid for such tender competitions, which probably indicates that the incentives are still insufficient.¹¹

To make investment in charging infrastructure more attractive, additional measures need to be in place to improve profitability. This can be done through improving revenue and reducing costs.

Improving revenue:

• Further develop current collaboration with restaurants, shops or shopping centers to create business models that provide added value for the parties involved
• Offer services within smart charging for user flexibility and thus enter an “Aggregator role” that serves both the user and the distribution system operator (DSO)
• Adapt the business model for opportunities within advertising
• Open the charging network for customers across memberships and agreements (“network roaming”)

Reducing costs:

• Collaborate with local government agencies who can play a part in sharing the investment cost in exchange for necessary infrastructure upgrades 
• Collaborate with private investors or, for example, landowners who can share the investment cost in exchange for a share of future revenue streams
• Utilize digital tools for providing insight into the technical and commercial status as well as predicting future events
• Both development of the infrastructure and day-to-day operations (asset management) require cost-effective processes and effective organization, in addition to the utilization of both new and existing technology. With focus on these areas, stakeholders can ensure an effective operation.

What is needed to succeed in establishing a cost-effective business model?

It is important to have a sound understanding of the market dynamics to know which measures that should be evaluated to improve costs or revenue. Norway has an ambition to make new car sales 100% emission-free by 2025, and therefore it is important to prepare for the increased volume. In addition to the charging infrastructure, app and customer relationship, charge point operators are dependent on location partners to be able to offer the service. We see a consolidated market where more stakeholders want to expand geographically, both regionally and beyond international borders. In order to successfully establish a cost-effective business model for charging infrastructure development, the strategy must consider the most important revenue and cost drivers.

EY has widespread experience in the eMobility industry, both in Norway and internationally. We have assisted stakeholders from an early- stage assessment phase, to project realization. We can assist with strategic assessments to find a scalable and robust business model, in addition to evaluating potential partnerships. Our analyses help by addressing questions such as who the customers are, how the product is differentiated and what the competition looks like within different segments. With data analytics and artificial intelligence, we can, for instance, assist with finding favorable locations for development, identifying possible partners and ensuring that the project achieves the predetermined goals. We are also experienced in effective development and the day-to-day operation of infrastructure (asset management), and we support actors by finding a suitable operating model.