With the UK government announcing in November 2020 its ban on the sale of new petrol and diesel cars by 2030 (brought forward from 2035), uptake in electric vehicles (EVs) across the UK continues to accelerate. The UK is one of the largest markets for EVs in Europe, with hybrid and plug-in EVs accounting for more than 10% of car registrations in the UK in 2020 (despite overall car registrations falling by almost 30% in the same year).
Innovation in the EV space continues to gain pace, with many commentators anticipating that the EV market is edging closer to a “tipping point”, where the purchase price of an EV will reach parity with internal combustion engine (ICE) vehicles. Fundamental to this shift are leaps forward in EV battery technology and home charging consumer offerings.
Key players in the EV battery market are developing next-generation battery technology, aimed at reducing range anxiety to deliver cheaper and faster charging with higher energy density to achieve greater range. In terms of home charging, a number of energy suppliers are now offering novel pricing tariffs (such as “time of use”) to allow EV owners to charge up when cheapest as well as offering home charging products.
The roll-out of effective public charging point infrastructure remains a key priority for the government and will be essential in enabling the EV transition. In November 2020, the Treasury published its Spending Review, which makes it clear that decarbonisation of transport will be key to the government’s “green industrial revolution”. The government committed an impressive £1.9bn of investment into charging infrastructure and consumer incentives, including £950m to support the rollout of rapid charging hubs at every service station on England’s motorways and major A-roads.
Key legal considerations
As the charging infrastructure market increases in maturity, we are continuing to see a number of investment opportunities and transactions in respect of charging point infrastructure providers.
Through our experience in advising key stakeholders in the EV sector, we view the following legal considerations as key to the roll-out of charging point infrastructure:
Charging point operators do not usually acquire freehold land interests, but rather seek a commercial arrangement with the landowner or developer. An advantage of installing a public charging point in a particular location is that it may increase the use of a site and footfall to local amenities. The landowner and charging point operator will have to agree whether the site is occupied under a licence or lease and whether this is on an exclusive basis. They will also have to determine the ownership of the charging point infrastructure and the operation and maintenance obligations.
Most installations will require electrical works to connect to the existing electricity network. If installing a high-power rapid charger, a grid connection upgrade may be required which can become a significant investment. These works are usually completed by an independent connection provider which will be adopted by a distribution network operator (DNO) or independent distribution network operator (IDNO). Such work requires specific forms of contracts and regulatory review.
The charging market is nascent but growing rapidly, making it likely that we will see increased scrutiny and regulation across the industry. For example, the Competition and Markets Authority launched a study to ensure that the EV industry is competitive while attracting private investment and that the market is working for UK consumers. The study is ongoing and has sought feedback from the industry and individuals.
Meanwhile, the UK’s Office for Zero Emissions Vehicles also recently opened a consultation on proposed regulations that would require contactless payment, sharing of charging data through a standard application programming interface (API) and mandating that charging point operators have 99% availability across their network and a 24/7 helpline. As the industry matures, industry participants will have to be alive to competition and regulatory developments.
A charging point may be:
- A destination charger (where a vehicle is left to charge for several hours, like at a car park).
- A rapid charger (quick charging at places such as a motorway service area or a garage forecourt).
- An on-street charger (similar to a destination charger on local authority or council streets).
- A fleet charger (fleet operators may negotiate access to exclusive private chargers or access to a public network).
For each type of charging point, the extent of its utilisation is crucial to revenue generation, and therefore its investment case. For example, a purely pay-as-you-go (PAYG) business model has inherent demand risk such as the risk of an on-street charger being under-utilised, which may make an investment in such a business model undesirable. It is for this reason that the roll-out of charging points in rural areas has been particularly slow.
Charging point operators are now introducing membership options and fleet agreements with fixed-fee elements to address this demand risk. A membership option that utilises a network effect of chargers is most likely to be less susceptible to utilisation peaks and troughs. However, regulation now requires all charging points to offer PAYG options and further proposals would require a PAYG payment without a mobile or fixed internet connection (payment technology could include a contactless card terminal or a text/phone solution).
There are also potential requirements for interoperable ‘roaming’ arrangements between charging point operators to allow customers to access their membership on any network. Such developments will improve customer experience but may prove a threat to membership payment models if PAYG becomes the de facto payment method.
Supported by ambitious commitments and funding, the UK is on course to be the fastest G7 country to decarbonise its cars and vans.
Despite rapid progress across the sector, concerns around the consumer experience remain, such as range anxiety, accessibility to public charging points as well as the higher costs associated with the purchase of a new EV (with the government recently cutting grants available to purchasers). However, the market is confident that as technological progress is made across these areas alongside customer expectations, these concerns will ease. Looking ahead, commentators expect significant capital to be deployed in EV R&D and public charging infrastructure, presenting exciting opportunities for investors.
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