innogy Consulting US

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The EV Boom is Coming, and Your Investors Don’t Want You to Wait Any Longer.

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You’ve heard it before, we know. Utilities have spent the past several years being told that the electric vehicle boom is coming. EV demand is growing and exceeding expectations and will only continue to do so as states and cities work to include ambitious EV targets into their equally ambitious renewable energy commitments.

As demand grows, over and over again utilities in the US are asked: “Are you ready?”

We have even posed the question ourselves.

And yet, many utilities have been reactive at best in both preparing themselves for and capitalizing on the acceleration of electrical vehicle adoption, waiting for the boom to arrive before diving in, much to some stakeholders’ dismay.

But what happens once the boom arrives, and utilities are nowhere near prepared to act?

They get left behind by both the investors that are key to keeping them uniquely competitive and the customers that will help them thrive in the dynamic, growing opportunity market presented by electric vehicle demand.

Ultimately, investor capital will move just as fast as the customers buying new electric vehicles, shifting practically overnight to the utilities that are active players in the EV market and away from those that failed to proactively prepare for the boom.

Lessons Learned

Getting left behind at a time when customer values and expectations shift constantly and when investor capital moves as quickly as the number of new electric vehicles hitting the market, ready and waiting for customers to purchase, is as close to a business death sentence as it gets.

This is exactly what happened when German utilities we have consulted with sat out on the opportunity to become an active player in the solar boom in 2010. Instead of an enthusiastic commitment, there was hesitation at the high costs of the new solar technology and reluctance to fully dive into a rapidly growing market.

The result? For RWE, one such utility, share prices plummeted year over year as cumulative installed renewablessolar capacity in particulargrew almost nine times over 10 years.

Investors will simply not accept a utility’s failure to move fast enough, especially given that these very same investors have been providing significant cash flow for many of the progressive utilities in Texas, California and Europe that have more mature EV programs already in place.

Identify Opportunities for Success

A utility seeking to get in on the EV boom should prioritize the opportunities that make the most financial sense. These should be opportunities that offer the least risk in the short term and allow the greatest potential for short and long-term profitability and attractiveness to investors.

Right now, the biggest opportunity from this perspective is fleet electrification. The function and requirements of fleet vehicles lend themselves well to current EV product offerings. Recognizing the easy business case that fleet electrification makes, many companies​such as UPS and Amazon—have already begun integrating electrification into their fleet maintenance and modernization plans.  Speaking of which, as fleet vehicles are often used for short trips, have a regular renewal cycle and fall under operational expenses, the business case for transitioning to electric—significant cost savings, low maintenance requirements, carbon footprint reduction, and less fuel reliance—practically speaks for itself.

From there, utilities will simply need to decide just how big of a role they want to play in facilitating fleet vehicle transitions. Whether that role is funding the initial assessment required to begin the transition to electric; supplying the infrastructure necessary to keep fleet vehicles running; supplying the vehicles themselves or offering services that span the entire spectrum of adoption, participation here conveys to investors the utility’s willingness to participate in the EV boom at a deeper, longer-term level than where it currently resides. This reduces the risk of the utility getting left behind by investors in favor of more active players in the EV market.

Beyond fleet electrification, there are several other ways to assess the maturity of your EV program in a way that engages your investors: Are you offering special rates and infrastructure support to help encourage EV adoption for commercial customers? Do you already have a commercial incentive program for EV charging stations?

Graham Dickson's picture

Thank Graham for the Post!

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innogy Consulting US
We are a management consulting firm working with industry leaders to create the sustainable, innovative, people-centric energy world of the future.

Discussions

Matt Chester's picture
Matt Chester on Oct 8, 2019 1:22 pm GMT

How much do you think educational initiatives must play into the EV boom? Everyone knows about EVs, but when I talk to people outside of the industry there still seems to be a lot of misinformation and worries about range/infrastructure/charging/maintenance that technology has long solved. 

Graham Dickson's picture
Graham Dickson on Oct 17, 2019 1:33 pm GMT

Hi Matt,

Honestly, I think the day where a customer walks into their local car dealership and the EV is both cheaper to buy and cheaper to run than its gas cousin, isn’t so far away. Just take a look at the new crop of VW’s coming out over the next few years. The VW ID3 is a car with a range, cost and build quality that is fairly similar to the gas equivalent. The education will come from the test drive ultimately – cars are still an emotional purchase, but when you strip away the cost and the range, suddenly it is a slightly easier conversation to be had.

Matt Chester's picture
Matt Chester on Oct 17, 2019 1:44 pm GMT

 but when you strip away the cost and the range

This is definitely the factor. I agree that the car purchase is an emotional experience, but when I talk to people about having bought one myself I find that it actually isn't the cost that comes up-- it's the range. I think there's an emotional attachment to the process of being able to 'fill up' wherever whenever and the charging process is what spooks people. That's where my thought of the education comes in, because I've found there's plenty that people don't yet realize in terms of how easy (and getting easier) that charging process is so you don't feel range restricted. 

Gary Hilberg's picture
Gary Hilberg on Oct 17, 2019 6:45 pm GMT

Matt having moved from a G1 Leaf (at 95,000 actual range was only 60 miles) to an extend range Telsa Model 3 - I used to worry about range, but now these concerns are gone.  Having the Telsa charging network shown on the map system and having confidence in gaining access to that network is a small part of it.  I just saw that Ford is offering access to a large charging network for their upcoming electric cards using a network supported by Shell so I think that the manufacturers are looking to solve this directly. VW is doing the same thing.    

Gary Hilberg's picture
Gary Hilberg on Oct 15, 2019 3:04 pm GMT

Graham - the challenge with regulated utilities is their socialization of costs for some infrastructure.  Since a small percentage of the population will be using EV's in the next decade, these costs need to stay out of the rate base in the near term.  I agree that the utilities are positioned well to support the growth of EV's but they need to users of EV's to pay for these services in a difficult environment.  The lack of a gasoline tax to pay for a portion of the roads could become an issue for EV penetration so additional subsidies must be evaluted carefully.  The value of the EV's in taking off peak power and potential storage should be leveraged to pay for these initiatives, but as a company investment in my opinion.

 

Graham Dickson's picture
Graham Dickson on Oct 17, 2019 1:35 pm GMT

Hi Gary,

Already we are seeing the vast majority of EV owners are charging their vehicles at home, rather than at rapid chargers. The cost of these at-home chargers sits with the owner. However, you are very right to call out the loss of tax raised for road maintenance in the US. One option (of many I’m sure)… tax by the mile driven, proportional to the type of vehicle and the fuel used?

Gary Hilberg's picture
Gary Hilberg on Oct 17, 2019 6:41 pm GMT

Graham - you are right, now the charging is being done at home, but that must change if we want the entire population to consider EV's.  The current owners of EV's are not the average population in terms of wealth.  We need the EV to be the low cost solution for all commuters to get the total miles driven to grow rapidly.  

Taxation is tough, here in Texas, EV's also save $$ by not needing an emissions test so we pay a very small inspection fee.  The state should just raise this inspection fee to the same price as the test to collect extra dollars, but this would not be adequate to match the gas tax on equivalent usage.  The challenge is that the state does not have any insight into how much an EV is charged at home so it cannot tax at that level.  There is the potential to tax at public charging stations that but that would then put the burden on those who cannot afford or do not have access to home charging - difficult.  

Vijay Sarathy's picture
Vijay Sarathy on Oct 16, 2019 2:43 am GMT

I'am trying to factor in the next recession fears. If the renewables industry has to pick up, we are going to need a lot of restucturing of the banks when consumers take a bad hit with their finances, so much that it can affect EV sales. In theory, the price of borrowing should go up during slowdowns & a recession but with QE measures introduced, I expect interest rates going lower like in the past. But I doubt if consumers have the appetite to spend money changing to EV so soon.

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