The Road to 2030
The UK is moving fast on zero carbon transport, with the sale of petrol cars banned from the end of this decade. But what is needed to make this huge transition to electric vehicles happen?
When the UK hosted the G7 meeting in Cornwall, organisers chartered a ‘zero-carbon’ coach to take visitors from London to Carbis Bay. What better way to highlight the benefits of green transport? It didn’t go as planned. The first charging point was not compatible with the coach, and the next was a battery-sapping 88 miles away. The return leg was worse. None of the five chargers tried in Cornwall worked, leaving the coach stranded at the Eden Project.
The regrettable tale illustrates the extent of the infrastructure challenge facing the UK as it targets zero emission motoring. And this goal is not merely a ‘nice to have’. It’s in the statute books — with a real deadline attached.
In November 2020, the UK Government announced a ban on sales of new petrol and diesel cars from 2030, followed by a ban on hybrid vehicle sales in 2035, putting the UK at the forefront of the race to decarbonise transport. Now it has to follow through.
The scale of this challenge should not be underestimated. As of July 2021, the UK had around 25,000 public charge points. Analysis by Frost and Sullivan says it will need 1.7 million by the end of the decade.
The Government is getting things moving, pledging £1.3 billion in grants in 2020 to install charging infrastructure, and a further £582 million to subsidise ultra-low emission vehicles. The recent announcement by the prime minister declaring new homes and buildings in England will be required by law to install electric vehicle charging points from next year, further strengthens the government’s commitment to zero carbon transport.
In need of innovation
The charge points in place today are spread unevenly. This is a ‘postcode lottery’ situation. For example, of the 5,700 on-street chargers, just 1,000 are outside London.
Further deficiencies were itemised in a study by the Competition and Markets Authority (CMA) in July 2021. It said the problems aren’t limited to the network, there is also a user experience issue. In short, motorists find charging to be difficult and frustrating. The CMA published four key recommendations:
1. Make it easy to find working charge points with open data on live availability and working status.
2. Make it simple and quick to pay (no sign-up needed and contactless payment available).
3. Make the cost of charging clear in a pence-per-kilowatt hour format.
4. Make charging interoperable — that is any charge point works with any car.
“EV charging could add between 3GW and 8GW to peak demand by 2030”
Have we got the power for this?
Needless to say, the move to electric motoring will put immense pressure on the supply of electricity as a whole. Estimates by Deloitte indicate that electric vehicle (EV) charging could add between 3GW and 8GW to peak demand by 2030, increasing to between 13GW and 20GW by 2040.
The National Grid is confident it can manage. Graeme Cooper, Transport Decarbonisation Director at National Grid, says: “The grid can cope easily. The growth in renewable energy means this is not static and smart metering will make this more efficient. The growth in wind power from the extra offshore wind farms [will add] an extra 100 terrawatt hours from our current 300 terrawatt hours consumed.”
That said, supply will come under pressure at certain times in the day. But this, too, could lead to investment opportunities — in companies that can find clever ways to balance supply and demand.
EV Technology, for example, is a start-up whose software records live data from fleets of EVs, including the status of the battery charge, miles per kilowatt hour, average range achieved and so on. The idea is that fleet managers can use the information to make better decisions about which vehicles to charge and when.
Alistair Clarke, CEO of EV Technology, believes this kind of ‘smart’ charging will become more important as the market grows. And he identifies another area of promise: bi-directional charging. Here, suppliers incentivise drivers with full batteries to sell some of it back to the grid when demand is high. In fact, one of Zouk Capital’s first investments in the EV space (separate from its work on CIIF) was in the Austrian company Mobility House, which is working on this idea.
“This is a really interesting area,” says Clarke. “For now, it’s only possible with DC chargers, so we need to move to AC chargers, which are much cheaper. But I think the tech will come. The bigger challenge might be behavioural. People are just nervous about reducing their charge, so you would have to find clever incentives to overcome that.”
Private sector innovation is expected to solve most of these pain points. And though the challenge is considerable — Deloitte says that up to £18 billion of investment will be needed in charging infrastructure alone — entrepreneurs and investors are already making progress.
Today, most public charge points are privately owned, and there has already been M&A activity in the space. For example, BP bought the UK’s biggest supplier, Chargemaster, in 2018, while EDF acquired Pod Point in 2020.
The circular car
Eliminating tailpipe emissions by transitioning to electric will be a huge step towards decarbonisation, but that is only part of the story as net zero targets affect the entire car.
“There are many other areas where sustainability comes into play,” says Alex Smout, Principal at InMotion Ventures, an early-stage investor backed by Jaguar Land Rover. “When you think about making sure the car is free of anything that is not easily recycled, not easily reused or has a really bad environmental performance in the way it has been produced, all of these things are in focus at the moment. There is a lot of investment going into advanced materials in order to find smarter substitutes.”
InMotion is focusing its efforts on creating a circular economy around electric vehicles and batteries in particular. “Once a battery has reached the end of its useful life you can’t simply dispose of it, that would be incredibly wasteful,” says Smout. “Recently we’ve seen a lot of interesting business models emerge to put batteries to second and third life use cases. That could be storing renewable energy, or creating mobile storage units for construction sites that replace diesel generators. It’s a really fast-growing segment of the industry, there are lots of regulatory trends that play in its favour.”
Smout also highlights battery recycling, a rapidly growing sector. “These companies are taking spent batteries, extracting the raw materials and feeding as much as possible back into the manufacturing process. They raise a lot of capital.”
InMotion has invested in one such company, Battery Resourcers, which Smout says takes the process one step further by creating cathode material as part of the recycling process. “Cathode material makes up about 45–50% of the cost of the total battery because it’s quite valuable material. Battery Resourcers has created recycled cathode material that is as performant as virgin material but about 35% cheaper and with a 50% lower carbon footprint. So you can see how batteries can start to be made to a substantial degree from recycled materials. The chemistry and science is constantly evolving.”
Everything from car paint to the materials used in seats will need to be reimagined for a net zero world. “All it requires you to do is start breaking with industry norms and take consumers along with you. The technology is advancing rapidly, but ensuring people take up those solutions is probably the hardest bit.”
Private capital leading the charge
But there is still plenty of growth to be had. To stimulate investment the UK Treasury set up the Charging Infrastructure Investment Fund (CIIF), and appointed PE and infrastructure fund manager Zouk Capital to run it.
Zouk’s initial task was to raise £200 million of private investment to match the £200 million pledged by government. In fact, it raised £422 million.
George Ridd, a Partner at Zouk, describes the investment opportunity as one for ‘patient capital’ that is prepared to wait for a return. “This is not something for hedge funds who want to get in and out in a year,” he says. “CIIF is a ten-year fund so our job is to prove the model, de-risk the asset class and then build out the EV charging networks. The fact that we have large investors such as The Church Commissioners, Willis Towers Watson, Morgan Stanley and Masdar in the fund shows there is institutional support for the model.”
So far, Zouk has announced three investments: Char.gy (public charging using existing electrical capacity in lampposts), InstaVolt (a rapid EV charge point operator and owner) and Liberty Charge (an enabler for on-street residential charging points). A fourth is imminent, and the final total should be six or seven investments.
Ridd says there are still underserved markets that offer high potential. “There’s an opportunity in the charging-point-as-destination concept that offers longer dwell times for drivers. Providing access for multiple dwelling units is another interesting area. Servicing blocks of flats with charge points will be necessary, but difficult for logistical reasons with shared garages etc — and because of all the layers of bureaucracy with freeholders, residents’ associations, managing agents and so on. That’s an opportunity for someone.”
Not everyone is so optimistic about the speed of growth of the EV market. Colin Herron is the Managing Director of EV consultancy Zero Carbon Futures. He points out a potential flaw in the UK Government’s rush to grow the charging point infrastructure; there aren’t enough cars being made to support the investment.
Herron says: “The government believes that the more charging points you put in, the more EVs you will get. It’s nonsense. There just aren’t enough batteries to meet demand. So you can put hundreds of thousands of charge points in, but where will the cars come from? I believe private/public investors will initially lose money in this market, because it is all based on over blown forecasts of EV uptake.”
Alistair Clarke, CEO of software start-up EV Technology, acknowledges the reality of these arguments. But he counters that future driving patterns might mitigate them. “Maybe the ownership model will change. Maybe we will move to transport on demand, where you call up a vehicle when you need one. If we look ahead 20 years, that’s how it might play out — and it will change the way we look at demand and supply.
“The way I see it, if we simply replace 10 million petrol cars with 10 million electric cars then we’ve failed.”
In a nutshell
• The UK’s charging infrastructure is inadequate in terms of both coverage and user experience.
• Private sector innovation is expected to solve these problems.
• Electric cars will ultimately become integrated into the grid as storage devices.
• Achieving net zero road travel will involve innovation throughout the entire car.
This article is from the BVCA Journal Autumn edition, published October 2021. BVCA members can access the full publication here.
In this autumn edition, we explore the role of PE in achieving net zero; the current momentum behind ESG initiatives across the VC space; the factors driving an ever-increasing number of firms to certify as B Corps; showcase a selection of BVCA members working on the most viable solutions to the many problems presented by climate change, and much more.