As the transition away from petrol-powered cars to electric vehicles accelerates, demand for charging points is rising. We explore the implications for investors in real assets.
Read this article to understand:
- Why the uptake of EVs depends on the availability of charging points
- Models for investing in EV infrastructure
- How incorporating EV charging into real estate portfolios can confer a competitive advantage
Wander around the centre of Oslo and it may take some time to pinpoint what makes the experience different from visits to other cities. It’s not the majestic churches, nor the shimmering new Opera House on the waterfront – it’s the absence of traffic noise. The cacophony of revving engines that usually dominates the urban soundscape has been replaced by the smooth purr of electric vehicles (EVs).
Oslo is the world capital of EVs, which now outnumber internal combustion-engine (ICE) cars on the city’s roads. In 2022, EVs accounted for 80 per cent of all new cars sold in Norway, compared with 17 per cent in the UK and just two per cent in the US.1
The transition to EVs has been achieved through government policies including monetary incentives for purchases and an ambitious target to phase out the sale of new ICE-powered vehicles by 2025.
But Norway’s success is also attributable to its vast network of charging infrastructure, which allows EV drivers to set off on a journey in the knowledge they will be able to park, plug in and power up whenever they need to. There are over 24,000 charging points in Norway, and 1,000 in Oslo alone, or more than five per sq.km – the highest ratio in the world.2
As countries try to reduce carbon emissions to meet their climate targets, Norway looks to represent a vision of the future.
Global transport is a major contributor to climate change, with cars and other ICE vehicles responsible for over 70 per cent of transport-related emissions. In this context, EVs are a powerful tool for mitigation: although manufacture of EVs and their batteries has a significant carbon footprint, the overall emissions savings over the lifecycle of the vehicle can be dramatic, especially in places where a sizable proportion of the electricity grid is run on renewables (see Figure 1).
Figure 1: Lifecycle emissions of EVs versus ICEs
Source: Aviva Investors, International Energy Agency, 20213
While many governments are targeting a gradual phase-out of ICEs in favour of EVs, the former still account for most of the vehicle fleet in most countries. Following Norway’s lead, policymakers are now focusing on the provision of charging infrastructure to ease prospective EV drivers’ “range anxiety” – the concern they may find themselves with a dwindling battery and nowhere to replenish it. In a recent consumer survey of 2,000 car owners, 40 per cent said the main reason they are not considering switching to an EV is a perceived lack of charging points.4
The infrastructure has to come first to enable the wider rollout of EVs
“Polling suggests a lack of access to charging facilities is a major disincentive, so in a sense the infrastructure has to come first to enable the wider roll-out of EVs,” says Adam Irwin, investment director and infrastructure equity portfolio manager on the Aviva Investors Climate Transition Real Assets strategy.
“We are some way behind where we need to be. In the UK, for example, our forecasts suggest the current figure of c.100,000 public charging sockets needs to increase to around 900,000 by the end of the decade if the government is to reach its target of phasing out new ICEs by 2030,” Irwin adds.
Research from McKinsey & Co. indicates similar growth is required in Europe. Even under conservative projections, the European Union will need 3.4 million operational public charging points (each with multiple sockets) by 2030 to meet demand, up from 375,000 in 2021.5 And the roll out of additional infrastructure will have to be accompanied by electricity grid upgrades and more renewable power if the system is to accommodate the increased load and significantly reduce emissions.
Models for growth
There are two basic models for public charging infrastructure. The first is on-street charging – this seeks to replicate the traditional model for home charging, whereby a vehicle is left to charge for between four and eight hours overnight. The second is rapid and ultra-rapid charging at an integrated hub, where EVs can be up to 80 per cent charged in anywhere between 20 minutes and an hour.
Additional speed comes at a cost. On-street charging points tend to connect to existing alternating current (AC) cables when installed – a relatively straightforward and inexpensive process. By contrast, ultra-rapid direct-current (DC) hub chargers often require the construction of new substations to manage the harmonic currents caused from the conversion of three-phase AC to DC, which can cost between £50,000 and £100,000, resulting in higher fees for end users. In addition, not all EV batteries can accommodate ultra-rapid charging, and it places significant strain on a vehicle’s battery, with repeated use reducing battery life.
For these reasons, Irwin says on-street charging is likely to become the dominant model in the UK: “Because on-street charging is more affordable than rapid charging, it means the infrastructure can be rolled out more widely and accessibly, so we expect it to represent the bulk of the growth in the network, alongside ‘graze’ charging options like destination and some workplace charging facilities”
In a 2021 survey of over 2,000 UK drivers considering EVs, most respondents said they were likely to do their main or regular charging at or near their homes (50 per cent) or workplaces (36 per cent), while only 20 per cent would regularly drive to a rapid-charging site.6
Irwin points out these questions are geographically specific. The UK is densely populated, which makes on-street charging the most practical model; in more sparsely populated countries such as France, Spain or the US, with greater distances between cities, there is likely to be more demand for ultra-fast charging hubs in places like motorway service stations. (Norway combines the two approaches: of its 24,000 charging points, around 9,000 are rapid-charging hubs.)7
Figure 2: Global fast public chargers and slow public chargers, 2015-2022 (thousand)
Source: International Energy Agency, 20238
Investing in infrastructure
The total outlay required for hardware and installation of charging infrastructure will be significant – costs could reach $35 billion in the US and €240 billion in Europe by 2030 – with financing likely to come from a mixture of public and private sources.9
EV manufacturer Tesla has built its own charging network for owners of its vehicles (it recently agreed to make some of these facilities interoperable with other EV models).10 The US government has announced $7.5 billion in funding for public charging facilities as part of the Bipartisan Infrastructure Law, targeting 500,000 new charging points.11 In 2022, the UK announced a £1.6 billion package of support through its EV Infrastructure Strategy, with £500 million made available for local authorities to disburse (see Figure 3).12
This combination of climate targets, fiscal support and consumer demand is creating opportunities
This combination of climate targets, fiscal support and consumer demand is creating opportunities for companies specialising in the technical aspects of charging infrastructure, including charge-point operators (CPOs), firms that install, own and manage charging points. In 2022, Aviva Investors announced it will invest up to £110 million in a UK-based CPO, Connected Kerb, which aims to deliver 190,000 on-street EV chargers across the country by 2030.13
“Connected Kerb’s business model is based partly on creating new charging points through a design, build, finance and operate model, usually through 20-25-year concession agreements with local authorities,” says Irwin, who also serves on the board of the firm. “Because it specialises in on-street charging, it should be well positioned as the UK switches to EVs.”
Because of the way it generates revenues, Connected Kerb is exposed to utilisation risk: it could be vulnerable in the unlikely event the British government abruptly withdraws its support for EVs and pivots back to ICEs, or if EV uptake fails to keep up with current projections.
There is also a possibility a model other than on-street charging wins out, such as rapid DC charging or even “contactless charging”, which involves converting stretches of road into wireless “docks” – a state-of-the-art technology that has been trialled in Sweden and South Korea.14 But Irwin believes this option is unlikely to become the norm in the UK for the same reason Concorde, a faster way of flying long haul, never replaced the jumbo jet: for most customers, the convenience failed to compensate for the additional expense.
“No-one can state they know the ultimate solution to public EV charging, or which technology will prevail. However it seems likely that no single solution will be the answer. EV users may have their main charging point, either at their home or on-street near their home, and then rely on ‘graze’ or top-up charges opportunistically when they are out and about, for instance at shopping hubs,” Irwin adds.
Figure 3: Policy support for charging infrastructure, 2021
Note: Funding shown reflects financing for all types of publicly available zero-emission vehicle charging infrastructure that is currently available in select countries up to an announcement date of May 2022. Total funding amounts are based on total annual charging infrastructure budget announcements and programmes which is then divided by the number of years the funding or programme is active. Annualised funding is then divided by the total LDV stock in 2021
Source: International Energy Agency, 202215
EV charging and real estate
This suggests the rise of EVs has implications for real estate as well as infrastructure. EV owners ideally need access to charging not just at home or on the street, but anywhere they park and these locations will need to be adapted accordingly.
“EV-charging provision is becoming increasingly important for real estate investors,” says Ben Sanderson, managing director for real estate at Aviva Investors. “The performance of a real estate portfolio depends on tenants and customers being willing and able to be spend time at those assets, and EV drivers need to be accommodated.
“Regulators are mandating EV-charging points must be installed, and tenants are demanding them too. We think the presence of charging facilities at our assets will ultimately lead to better investment performance, better retention of tenants and better rental growth,” he adds.
Regulation in the UK specifies every new residential building with a car-parking space needs a charging point, as does every new non-residential building with at least ten parking spaces (the requirement also applies to older buildings undergoing significant renovation).16 The EU’s Energy Performance of Buildings Directive, currently progressing through the European Parliament, contains similar provisions.17
Momentum is being driven by tenants, as their employees and customers increasingly use EVs
Momentum is also being driven by tenants, as their employees and customers increasingly use EVs. A lack of charging facilities is already proving a competitive disadvantage for some assets, particularly in the retail sector. As Sanderson points out, an out-of-town retail park with no charging points will already be losing business if a nearby equivalent is properly equipped for EVs.
When charging infrastructure is installed, some long-lease office tenants opt to acquire it themselves, in the same way they might be responsible for the fit-out of the building’s interior. But in most cases, installation is arranged by the asset owner as part of the lease, such as through a contract with a CPO, with the tenant paying for usage.
As well as its equity investment, Aviva Investors has appointed Connected Kerb to install charging points across its real estate portfolio, including residential, office and retail assets. The partnership will also provide valuable data about how chargers are being used and when they might need to be replaced, information that can feed back into the structure of tenancy agreements and inform broader investment strategies.
“Working with a CPO can provide essential information on how the wider charging roll-out is progressing, development of the underlying technology, the ideal blend of charging points for different types of assets and how often the chargers will need to be maintained and repaired. Knowing how long chargers will last before they need replacing is the kind of data that can be incorporated into the pricing of a lease, for example,” Sanderson adds.
Commercial factors are intertwined with the environmental implications of the EV roll-out. The provision of EV-charging infrastructure is a key component of the energy transition and will factor into companies’ carbon calculations (at least in cases where Scope 3 emissions – those associated with the broader value chain – are factored in).
But there are also social dimensions. If EV-charging infrastructure is expensive to use or requires ownership of a house with a private drive, only the most affluent are going to be able to fully participate in the transition. There is evidence the cost-of-living crisis is slowing the rate at which people replace ICE cars with EVs, even though the latter are still cheaper to run (notwithstanding the rise in electricity prices over the past 12 months).18
We aim to support the provision of a vital social infrastructure for the low-carbon future
Such pressures make truly accessible EV charging all the more important. This means ensuring it is available in lower-income or otherwise underserved neighbourhoods with more multi-unit housing (as these areas often suffer from lower air quality, supporting the switch to EVs could also bring wider health benefits). It also means ensuring the chargers are easy to use, including by people with physical or cognitive impairments.19
“Investment in accessible EV-charging infrastructure is both a commercial proposition and forms part of our broader social value obligations,” says Irwin. “By adding charging points to our real estate assets and facilitating the roll-out of on-street charging, we aim to support the provision of a vital social infrastructure for the low-carbon future.”