UK electric vehicles:  Charging ahead

Electric vehicles (EVs) are no longer a distant future technology but a present and rapidly developing element in the energy transition. EVs are challenging the existing energy mix and dynamics in the transport sector, while simultaneously spurring regulatory reforms, innovations in battery technology and placing demands on power generation infrastructure that will shape the future of the energy transition. It appears inevitable that the transition to EVs will happen, but a large degree of uncertainty still surrounds the scale and pace of that transition. In this article we consider the commercial and regulatory challenges associated with the deployment of EV charging in the UK.

Current state of the market

On UK roads, the number of EVs has risen from under 4,000 in 2013 to over 227,000 by the end of August 2019. While that growth is significant, the figure is still a small fraction of the 38.4 million vehicles on the road in the UK. In terms of charging points, according to official Government figures, as at 1 October 2019 there were 15,116 public electric vehicle charging devices available in the UK and of these, 2,495 were rapid devices, representing a growth of 312 per cent since 2015. However, this is still an average of 23 devices per 100,000 of population in the UK. If anything, the figures show that while the pace of change is accelerating, the transition to EVs is still at a very early stage. 

In July 2018, the UK Government published its "The Road to Zero" strategy, which set out the Government's mission "for all new cars and vans to be effectively zero emission by 2040". The Road to Zero Strategy also sets out the Government's aim to create "one of the best EV infrastructure networks in the world". The need to decarbonise the transport sector has become even more pressing since the UK Government adopted, in 2019, a legally binding new target of net carbon zero by 2050, under the Climate Change Act 2008. In what is therefore not an unexpected development, on 4 February 2020 the Prime Minister announced that the Government "will bring forward an end to the sale of new petrol and diesel cars and vans to 2035, or earlier if a faster transition is feasible, subject to consultation". The pressure on the Government to bring forward its plans to phase out conventional vehicles had been mounting.  A report published by the Electric Vehicle Energy Taskforce in January 2020 notes that the original targets "will have to be made more ambitious". The Committee on Climate Change, which has a statutory advisory role to the Government under the Climate Change Act 2008, noted in a report in May 2019 that "the need to switch the entire fleet of light-duty vehicles to ultra-low emission vehicles (ULEVs) by 2050 means that by 2035, at the very latest, all sales of new cars and vans will need to be ULEVs" and, therefore, "this means a rapid ramping up of the market share of EVs … during the 2020s".

EV charging market sectors and business models

In contrast to the refuelling of conventional vehicles, a major proportion of EV charging is done at EV users' homes/business premises, and that is likely to remain a dominant feature of the EV market in the future. This will lead to a dramatically different footprint for EV charging infrastructure when compared to that of conventional vehicle fuelling infrastructure. The EV charging sector is broadly divided into the four segments, the key features of which are summarised in Figure 1.

Figure 1

With these segments in mind, the commercial viability of any investment in EV charging infrastructure involves an interplay of factors including the level of CapEx needed, the potential to scale-up infrastructure and stack revenues and any associated regulatory challenges. A report published by PwC in association with industry body Energy UK in October 2018 (Powering ahead! Making sense of business models in electric vehicle charging) identifies the following main business models currently emerging in the UK context:

• the "portfolio" player: operating across different segments (home charging, destination charging, etc);
• the "specialist" player: focusing on one charging segment and leveraging on that specialist position;
• the "network optimiser" player: operating across different segments and also seeking to capture secondary revenue from, for example, using smart technology to "load shift" (to make the most of periods of low electricity demand); and
• the "energy supplier" player: traditional electricity suppliers looking to exploit opportunities presented by EV charging.

An example of "energy supplier" player is SSE, which is involved in the EV charging sector in a number of different ways. For instance, SSE has been working with Source London, a charging network, to install charging points in London and to supply electricity to those charge points. Pivot Power, on the other hand, exemplifies the "network optimiser" player model, with its plans to develop 45 sites across the UK with grid-scale batteries connected to the electricity transmission system, to release or absorb power in response to grid balancing requirements, co-located with EV charging points, to utilise the excess power available. EDF announced in November 2019 that it has agreed to acquire Pivot Power. Not surprisingly, the oil and gas companies that have traditionally dominated the petrol retail market, such as Shell and BP, are also active in the EV charging market.

EV uptake and charging points: a chicken and egg situation

It is generally acknowledged that not just in the UK, but elsewhere around the globe, there are currently various barriers to the mass uptake of EVs, including factors such as the higher cost of EVs (as compared to conventional vehicles), public concern about the longevity/reliability of current technologies being deployed, and, crucially, the availability of EV charging points. One of the difficulties associated with the roll-out of large numbers of charging points is that commercial operators are unlikely to want to commit the capital investment required unless they are guaranteed a level of usage by EV customers that will generate an acceptable rate of return. However, it is clear that a substantial level of charging infrastructure must be delivered before a much higher take-up of EVs will take place. An additional challenge in the roll-out of charging infrastructure is the fact that technological development is as much a feature of EV charging infrastructure as EVs themselves. For this reason, Government regulatory/policy intervention plays a key role in the roll-out of charging infrastructure. The UK Government has already taken some steps in this area, as discussed below, but arguably, more action may be required.

UK Government regulatory response

It is now nearly a decade since the then Coalition Government committed in 2010 to implement "a national recharging network for electric and plug-in hybrid vehicles". Numerous reports and policy statements later, the Government finally enacted the Automated and Electric Vehicles Act 2018 which gives the Government powers to make secondary legislation to deal with issues raised by electric vehicles (EV) and their impact on the electricity system. Among other things, the Act gives the Government powers to make regulations in relation to the following:

• specification of minimum standards to apply to charge point operators, relating to matters such as design functionality (to ensure physical interoperability for vehicles and charge points) and methods of payment;
• requirements for minimum provision of charge points at motorway service areas and large fuel retailers;
• requirements for operators to provide information to the public about their public charge points, including information about location and live information about availability; and
• requirements for EV infrastructure to have smart functionality.

However, while putting in place the primary legislation necessary for future regulation, the Government has also stated that "regulatory interventions at such an early stage of market development can risk stifling innovation, hampering competition and have unintended consequences". Nonetheless, the Government has already recognised that some intervention is appropriate. In July 2019, the Government launched a consultation on using its legislative powers to mandate EV "smart charging" for all charging points. "Smart charging" has been defined as "shifting the time of day when an EV charges, or modulating the rate of charge at different times, in response to signals (e.g. electricity tariff information). Significantly, at the same time the Government also launched a consultation on proposals to require new residential and non-residential buildings, as well as buildings undergoing a major renovation, to include EV charging points. 

Government funding schemes

Much of the charging infrastructure in place so far has been the result of various funding schemes implemented by the Office for Low Emission Vehicles (OLEV) which is part of the Department for Transport). In particular, since late 2016 the OLEV has been making funding available to local authorities to provide charging points in residential streets. While the size of that funding has been relatively modest (£4.5 million for 2018/19 and 2019/20), in July 2019 the Government announced £37 million of funding for twelve projects "to support the creation of innovations including wireless charging technologies". 

Moreover, in September 2019 the Government launched a £400 million Charging Infrastructure Investment Fund (CIIF) to provide a large injection of funding for charging infrastructure. The CIIF is intended to comprise a £200 million investment by the Government, to be matched by the private sector, and is managed by fund manager Zouk Capital. So far the CIIF has raised £70 million, with half of that provided by the Government and the other half by Masdar Clean Energy. A proportion of that initial funding has been awarded to InstaVolt, which is planning to roll out 3,000 new rapid charging points. 

Regulatory issues raised by EV charging

While the development of the EV charging industry is technologically driven, the associated legal landscape needs to evolve in a manner that supports its growth, and facilitates its design in a flexible manner that does not stifle innovation in the medium to longer term. It is important to remember that since EVs are new to the market landscape, the current regulatory framework that governs the energy sector has evolved over recent decades without EVs in mind.

The gas and electricity markets regulator Ofgem has recently issued informal guidance which is intended to clarify some of the current uncertainty associated with how the existing regime applies to EV charging. In particular, Ofgem has confirmed that:

• If EVs are charged at home or at business premises, the usual rules relating to the supply of electricity will apply. However, Ofgem notes that in the future it may be possible for two different suppliers to supply a single meter point, recognising that in the future there is likely to be growth in licensed electricity suppliers offering special tariffs aimed at EV charging.
• Charge point operators selling electricity directly to EV users using on-street charging points would not usually need a supply licence. This is on the basis that this would not constitute "supply" for the purposes of the Electricity Act 1989. However, Ofgem notes that there would be "supply" involved in getting the electricity to the charge point. What this means in practice is that a charge point operator needs to ensure that the entity they are contracting with to supply electricity to the charge point is a licensed electricity supplier or a supplier that benefits from an exemption from the requirement to hold an electricity supply licence. 
• Where a charge point is located at a "destination" – for example, a supermarket carpark, once again the sale of electricity by the charge point operator to the EV user will not constitute a "supply". In that scenario the supermarket will usually be supplying electricity to the charge point operator (with the supermarket having been originally being supplied with electricity by a licensed electricity supplier) and this will constitute a "supply" for the purposes of the Electricity Act 1989. However, the supermarket would be likely to be exempt from the requirement to hold an electricity supply licence on the basis that would be a resale for the purposes of the Electricity (Class Exemptions from the Requirement for a Licence) Order 2001.
• The same analysis would apply to a charge point located at a petrol station or dedicated EV charging forecourt – that is, supply to the charge point itself constitutes supply for the purposes of the regulatory regime, but not the sale to the EV user.

As a relatively new industry which brings together the transport and electricity sectors using new, rapidly evolving technologies, EV charging projects also raise a myriad of other legal issues, as outlined in Figure 2.

Impacts on the electricity system as a whole

Increased adoption of EVs happens to coincide with other trends in the energy transition that are placing higher demand on the national power grid. These trends include the development of distributed generation and the growing share of renewables in the energy mix in addition to demands for increased energy efficiency. The challenge is therefore to adequately anticipate future demand and load requirements on the existing infrastructure to avoid the need for costly grid reinforcements and upgrades in the future. This is an another area where there is a need for strategic planning by the Government. For instance, in a report published in January 2019, National Grid noted that 60 per cent of the strategic road network in England and Wales is within five kilometres of National Grid's existing electricity transmission network, and therefore it makes sense for rapid charging facilities to be located at existing "motorway service areas (MSAs)" along that road network. However, National Grid notes that it will take up to four years to put in place the necessary infrastructure, and therefore the Government should designate which MSAs will be utilised, so that the work can be carried out without further delay.

Electric Vehicle Energy Taskforce

At the time the Government published its "The Road to Zero" strategy, the Government also launched the Electric Vehicle Energy Taskforce, to engage with stakeholders to consider the challenges of achieving the Government's targets for EV. The work of the Electric Vehicle Energy Taskforce focused on two key challenges: "how can the impacts on the electricity system be managed efficiently; and how can consumers be provided with a good EV charging experience".

As noted earlier, the taskforce published a report of its findings (Energising Our Electric Vehicle Transition) in January 2020. The report sets out 21 proposals, covering a wide range of issues across a number of different themes. Three key priority areas have been identified by the Taskforce, as follows: 

• the delivery of smart charging capability in a way that ensures the security and resilience of the electricity system;
• the development of standards and codes of practice to enable interoperability and the sharing of data; and
• the need for effective local and national planning to enable efficient investment.

The need for planning is drawn out in one of the taskforce's proposals, which notes that "the Government and Ofgem, as a matter of urgency, need to facilitate effective forward planning and coordination of the rollout of EV and electricity network infrastructure at a national and local level".

Future outlook

The UK prime minister's Queen Speech of December 2019 has promised "electric vehicle infrastructure so that individuals are always within 30 miles of a chargepoint". Now that we have entered the 2020s, there is a growing imperative for the acceleration of EV charging infrastructure, and there will be growing pressure on the Government to deliver on its commitments. The Government is due to publish a Transport Decarbonisation Plan in early 2020 and it is hoped that in doing so the Government will pave the way for the framework necessary to drive the electrification of transport, drawing on the recommendations of the Electric Vehicle Energy Taskforce. 

Authors: Antony Skinner, Partner; Justyna Bremen, Senior Expertise Lawyer and Hani Zedan, Legal Manager