230 - The Future Pricing Episode

Gary C: Hi, I'm Gary and this is EV Musings, a podcast about renewables, electric vehicles, and things that are interesting to electric vehicle owners. On the show today, we'll be looking at possible future public charging pricing scenarios. Before we start, I wanted to thank you for the feedback I'm getting on some of the episodes released this season.

I also wanted to ask you a quick question. The episodes over the last two seasons, especially the interview episodes, have gone from being about an hour long, where I tend to include pretty much the full interview, down to about half that where I include selected extracts. So what's your preference?

Would you rather hear the full interviews, of an hour or so? Or are you more comfortable with the shorter, more concise episodes? Let me know please, info at evmusings.

com. Our main topic of discussion today is future public charger pricing. Obviously, this is an important topic for many EV drivers, and I've covered a number of different aspects of this on the podcast before.

To start with, I want to read something that came in as a response to episode 186, the charger pricing episode. This came from Rich Wilcox, who's the head of EV at Calibrate, who are a business intelligence platform. Quote, looking back at how fuel pricing has evolved, there's a clear progression path from basic cost plus pricing, to traditional competitive pricing, through to highly volatile, where fuel retailers can change their price up to 25 times a day, with both positive and negative impacts to the consumer.

I'm confident that we will see a similar progression path for EV pricing, as what drives this for fuel is access to data, and with EV, that's going to be greater than it's ever been for fuel. In your latest EV pricing podcast, you also talk about how CPOs can charge such different prices to one another. My working theory is that this won't last.

If you analyse the socio-demographic characteristics of your first-to-market EV driver, they're typically much less price-sensitive than your average person, and will charge based on location convenience. As EVs become more widely adopted, we'll see drivers become increasingly more price-sensitive, making smarter, informed decisions about where to charge. More competition in the market and more price-sensitive consumers will lead to more competitive pricing and more volatility that will pass savings on to consumers.

End quote. There's some excellent thoughts there, and so today I want to have a bit of a philosophical discussion about where charger pricing is going. But let's start with where we are at the moment.

Almost without exception, everyone thinks that the price of public charging is too high. We've spoken several times on the show about the fact that there are any number of reasons behind this – excessive costs for electricity over and above the wholesale price, capacity costs, high standing charges, etc. – coupled with the desire of customers for bigger, faster charge stops with more facilities that have a high capital expense that needs to be factored into the unique price.

What's certain is that, despite the high charging tariffs being charged, CPOs are not price-gouging. Yes, they sell each kWh of electricity for more than it costs them. No, we don't know what the difference is – it might be a penny, it might be 5 pence, it might be 10 pence a kWh.

What's clear is that different charge point operators have different contribution levels from each kWh of electricity. And of course, on top of all that, there's VAT, which is four times the level of domestic electricity and all that is leading into the pricing being as it is at the moment. But where can we go from here?

Well, it's a good question – let's talk about what we do know. We know that the high installation costs of charging sites will continue as more and more are put into the ground. GridServe have originally committed, for example, to 100 electric forecourts across the country.

So far, they're at three installed and I think three in progress. But if they do manage to go the distance with that, each one of them will be amongst the most expensive piece of charging real estate in the country. That will all need to be paid for.

Other charge point operators are not necessarily skimping on the cost of these sites either. Ian Johnston from Osprey Charging told us on this podcast that at their Croydon site, they spent £250,000 just in cable routing groundworks. How many kilowatt hours of electricity do you have to dispense to recoup that cost alone?

Plus each piece of hardware will have a known lifespan after which it will be removed and replaced with a newer unit. And this regular replacement is a large cost too, but lower than the initial install cost. We also know that these sites will need maintenance and 24x7 customer support.

While the overall cost of these might decrease over time, it will not disappear and it will need to be accommodated in charging tariffs. That may or may not reduce to match the domestic rate. If it does, that's good.

If it doesn't, it will need to be factored into the charging tariff. But what we also know is that the ultimate aim of all of these CPOs is to be profitable. And they will only achieve this through mass market adoption.

GridServe are currently at around 200,000 customers per month across their network. Now I presume this is because they're on the motorway network and will be the first choice for most people charging on longer journeys. Figures are not readily available for other chargepoint operators, but I have to believe that the likes of Osprey Charging, Fastned and Instavolt are getting some reasonably good customers at their chargers, although this will vary by location.

I've been to Osprey sites where most of the chargers are regularly in use and I've been to Osprey sites where I'm normally the only one there. But even though there is a perception in the UK that the chargers are overused, this isn't the case. Figures from last year indicate that chargers are used on average about 8% of the time only.

The rest of the time they're sitting unused. Now while this is great for you if you pull up a charger looking for a charge, it's not great for the charge point operators. Remember, each kilowatt hour of electricity they dispense will count towards paying off the money they owe for the install slash maintenance and support etc.

You don't have to be a genius to work out that if a charger is sitting idle for 92% of the time on average, it's going to take longer for that money to be repaid. Which is why the figure all charge point operators look at more than any other is utilisation. In an ideal world a charger would never sit unused.

When one person is finished with it, they'll move on and the next person in line will pull in and use it. In some situations, this is what happens if you've ever been at a popular charging site during the very busy times such as bank holidays, you'll see that the chargers are pretty constantly used with only a few moments of downtime as the next customer manoeuvres their car, plugs in and initiates the charge. But there are also chargers which sit unused for a large chunk of time, hence the average utilisation figure I've quoted.

Just as a side note, ZapMap and the Green Finance Institute recently released an updated paper using utilisation data from their ZapMap live feeds. There's a link to this in the show notes and it covers the fact that utilisation is a complex issue and has numerous aspects that all need to be considered. Now if you do the maths on this, it means that the company will take longer to repay the installation costs etc. on a lesser used charger than it will on a heavier used charger. So let's take a theoretical example. A large European-wide charge point operator has just opened a charging hub close to where I live.

It's not particularly posh, there's no canopy, no specific facilities, although it does sit near a restaurant, hotel and coffee chain. It took several months to install and it's got 10 high-power chargers, some landscaping and obviously a substation. Naturally, nobody will give us the price of the install, but let's assume a cost of £30,000 per unit and another £5,000 per unit to cover the groundworks.

On top of that, there's another £50,000 for the substation. That gives a baseline cost of £400,000. Now let's assume that each kWh of electricity that is dispensed from these chargers contributes 10p towards repaying the capital costs associated with the install.

That means that the units have to dispense 400,000kWh each just to break even on a capital basis. If we assume that the average charge at one of these chargers is around 40kWh, that means that each charger will need to be used 10,000 times just to break even. If we further assume that 40kWh takes around 20 minutes on average, that's 3,636 hours of continuous use, but the charger is only used 8% of the time.

This means that it will take 43,362 hours for that charger to cover the costs of the install. That's a little over 9 years. And that's only covering the cost of the installs.

This isn't covering anything like support, maintenance, company overheads and it's assuming no profit to the company itself. But if we can increase the utilisation of each of these chargers from an average of 8% to an average of 25%, it means that each install can be paid back in a little under a quarter of the time I just calculated, or around 2 and a bit years. At that point, the capital expenditure has been paid off, the tariff that is being levied for a charge can then be lowered.

Except of course it can't, because this is the point at which the depreciation of the units comes into play and the charge point operator has to account for replacement charges. Of course replacement units are not as expensive as new sites, the groundworks are fixed, the substation is fixed, etc. It's just the charge units themselves that need to be replaced.

But over time, as average utilisation increases, the contribution made towards earnings will increase and at that point the charge point operators become profitable. When a CPO becomes profitable, that's when things become interesting, because that's when competition starts to come in. And competition is something which is not particularly widespread in the charge point operator business, at least not as far as the end-user EV driver is concerned.

As an example, let's take Solstice Park on the A303 in Wiltshire. At that site there are four different charge point operators with five separate charger installs. Gridserve have a bank of chargers, Tesla have a bank of chargers, Instavolt have twin chargers at two different outlets, a coffee shop and a fast food chain, and BP Pulse have a unit at the back of the Holiday Inn.

Let's assume you're not driving a Tesla, so you have the option of Gridserve, Instavolt or BP Pulse. All things being equal, you will choose the cheapest provider, which is Gridserve. But if you're Instavolt and you've increased your utilisation to such an extent that those units are now profitable, you can then start to reduce your price per kWh compared to Instavolt chargers at other locations and compared with both Gridserve and BP Pulse chargers.

So let's take a look at Motor Reading Services, Westbound. At that site there are Gridserve chargers, both high power and medium power, alongside a bank of the new V4 Tesla superchargers open to all CCS equipped EVs. The Gridserve price is 75 pence a kWh and the Tesla price is as low as 43 pence a kWh with a subscription.

In an ideal world, which one are you going to use? Well, that does of course all depend on what your use case is. Some people will stick with Tesla purely because of the pricing.

Others will use Gridserve because they might have issues with using the Tesla hardware. Anecdotally, the MG4 has been known to be a little flaky when it comes to using the V4 units apparently. Others will be a little scared of the Tesla hardware itself because it's the new white V4 units, there's no screen and you have to use an app and stick with what they know, Gridserve.

Strictly speaking, there is a screen and you don't have to use the app but if you're new to the units you might not know that or see it so you'll default to the Tesla app. But over time... As more and more EVs come onto the site in a given day, there will be the possibility of location-based pricing where GridServe may, and I say may, I have no inside knowledge of whether they're even considering this or not, they may elect to lower their prices at that location to entice the non-Tesla vehicle Tesla users to use the GridServe units instead.

But, let me play devil's advocate here, what's the benefit to either of the companies to do that? Well, to answer that question, let's look at what happens in situations where there are competing petrol stations on opposite sides of the street. In most cases, they will match their prices, increasing or decreasing in unison.

Occasionally, one may lower their prices for a short period of time to attract price-sensitive drivers, but that's generally a one-off and very short-lived. It's in everybody's best interest to ensure there is no price war between the two petrol stations otherwise one will win and the other will lose and ultimately one will go out of business or, in the case of charging locations, withdraw potentially. And the key difference at the moment is that there is price disparity between GridServe and Tesla.

Now, will that remain? Who knows? Let's try another location, Gretna Green.

Now according to ZapMap, there are four different charge point operators at the Gretna Green motorway service area, Ionity, Apple Green, GridServe and Tesla. In this case, the Tesla units are for Tesla vehicles only, so let's discount them and ignore them just now. Apple Green currently charges 77 pence a kilowatt hour, GridServe currently charges 79 pence a kilowatt hour, Ionity currently charges 74 pence a kilowatt hour.

In an ideal cost-driven world, everyone would charge at Ionity, however, there are only four connectors there compared with the twelve Apple Green ones and the two GridServe ones. So Apple Green will obviously be used more frequently at this location, all things being equal. Can we see a charge point operator matching the price of another at a given site?

Remember in this scenario we're assuming the payback of the initial install has completed and the site is running at a net profit. I think we can. It'll be interesting to see.

But there are other things that can happen with charger pricing. Let's look at bulk discounts as a pricing incentive. Long time listeners to the show will know I speak very highly of companies such as Clevely EV Mobile and the Lakes Electric Delivery Service.

These are two companies that have high-mileage electric vehicles. Both of them cover around 50,000 miles per vehicle per year and with both of these companies, home charging forms a bulk of the electricity usage and the low costs associated with that.

But if you're covering: 1000

Do we see the incentives for charge point operators to offer a bulk discount for operators such as this? There would be many ways of doing it. As an example, a fleet charging card such as the offering by Power would be able to track the charging by charge point operator and pass this information to individual charge point operators for a retroactive discount, perhaps on a monthly basis charged back to the Power card.

If Niall Riddel from PAUA is listening to this, you can have that idea for nothing, mate. Or we could have large fleets such as the Post Office, Amazon Delivery or BT Openreach who could also track their charging and get retrospective discounts as a result of that. There's a potential for some sort of competition here.

Imagine being the charge point operator that gets the majority of the Amazon delivery service charging business merely by offering a 2 pence a kilowatt hour reduction. If you're Amazon and you're putting through a huge amount of public charging every year, every little helps. Oh, every little helps.

That brings us nicely on to our supermarkets. We heard recently from Smart Charge, the Sainsbury's charger offering, and to quote Patrick Dunne, the head of Smart Charge, he said, quote, I think we're priced quite competitive, end quote. At 75 pence a kilowatt hour, at the time of writing, I would say that's reasonably competitive given that there are operators charging 80 pence a kilowatt hour plus.

But there are also competitors charging quite a bit lower than that. So you have to bear that in mind. But what Sainsbury's do is that they extend their Nectar offering to Smart Charging.

If you charge on the Smart Charge Kenpower unit and link that charge to your Nectar card, you can earn Nectar points. At the 75 pence price, you get three pence back in Nectar points, which effectively reduces the price to 72 pence a kilowatt hour. Still not the cheapest, but if you're doing 50,000 miles per year, that three pence a kilowatt hour can save you the best part of 500 pounds on your charging.

Obviously, this is great if you do all your shopping at Sainsbury's or the other companies linked to the Nectar offering. If not, well, you know. Or we've done a whole episode on subscriptions, monthly charges levied to access cheap discounts.

Ionity are very good at this and a typical subscription rate there can reduce their tariffs down from 74 pence a kilowatt hour to as little as 43 pence a kilowatt hour. That's not a bad rate, all things being considered. I can see the subscription market becoming more and more exciting as drivers jostle to work out what's the most cost efficient way for them to charge when in public.

I can see subscriptions becoming more of a thing for many people. At the moment, there are only a few CPOs that offer subscriptions, but that might come into consideration in situations such as the one I mentioned earlier with multiple charge point operators at one location. Will you use the one with whom you have a subscription?

Quite possibly so. And we've done all this discussion and we haven't even mentioned the government yet. Now I wrote a blog post a couple of years ago, which basically forecast higher charging prices over time.

We'll see whether that bears out or not. But the one thing I did add in there was a potential solution to help recoup lost fuel duty. My thought was that the government may consider adding a duty to public charging.

It may not be much, a penny a kilowatt hour or so, but if this was levied on every charger that was powered via a charge point operator rather than a private home charger, the amount that could be raised each year would not. insignificant. Let's do some maths.

According to Charge UK we consume enough electricity each day through the charging network to permit half a billion miles of motoring. Now it's notoriously difficult to get any meaningful statistics from the charge point operators about how well they're doing but given that 90% of charging takes place at home we can assume that of the half a billion miles 50 million miles comes from public charging. At an average of three and a half miles per kilowatt hour that equates to around 14.

2 million kilowatt hours of energy per day dispensed from public chargers. If each of these kilowatt hours had a 1p levy attached to it that would raise a total of 51 million pounds per year. Now that might not seem like a lot but remember that's for public charging only and it covers a fleet of a little over two percent of the total vehicles on the road.

If that fleet was 31 million vehicles rather than 1. 2 million vehicles this could scale up to around 1. 6 billion pounds a year and obviously if they doubled that from a penny a kilowatt hour to two pence a kilowatt hour that would double the income to the government.

Now let's be quite clear this is not something the government has mooted or announced but if I was working in the treasury certainly something I would have on the back burner for future discussion. Also just to be clear at the moment it seems the more likely method of covering the shortfall in fuel duty is to merge fuel duty and vehicle excise duty and replace them both with road pricing. This will try to cover the 26 billion pounds raised each year in duty currently.

Now road pricing is a whole different topic and not one I want to discuss here today although I will say I'm more in favour of that than I am of adding a duty to public charging. If you want to know why come and find me in person at a show or a conference and I'll tell you. So we're not yet in a situation where the charge point operators can look at altering their prices dramatically.

We know from episode 186 that the underlying price of wholesale electricity only accounts for a fraction of the cost of a charge and that's not likely to change in the near future. The government could look at decoupling the price of electricity generation from the price of gas and that would certainly help but it's not going to drop public charging prices down to the point at which they're equal to home charging. There will always be a differential as indeed there should be.

If you bought a house with off-street parking and install the charger you've laid out an amount of capital which should entitle you to lower rates on your charging than someone who lives in a flat and charges at a grid serve electric forecourt for example. But I can see over time that the pricing model will expand to include a number of different aspects. We have the lower pricing attached to having paid off the capital cost of install coupled with increased utilisation.

We have the lower tariffs linked to subscriptions and incentives such as nectar points and we have the lower tariffs associated with high volume discounts but we could also have higher tariffs as a result of government taxation. Now all of this is just me thinking out loud. So which of the things I've talked about do you think will be used after all?

Let me know info@evmusings. com

Now this season we're looking at raising the awareness of carbon literacy with our listeners and one way we're doing that is with the carbon fact as read by carbon literacy trainer Anson Snelson.

Anne s: If you're wanting to save emissions in your home just think about all the things that heat up. Showers, heaters, cookers, kettles and tumble dryers all use significant amounts of energy. Reduce your use of these and you'll be saving kilowatt hours.

Gary C: It's time for a cool EV or renewable thing to share with your listeners.

h plans for commercial use by: 2028

Big fans of electric aviation here on the podcast so it was great to hear about this. Yeah it's a hybrid so it's not perfect but we can't let perfect be the enemy of the good. Now I've seen the video and it looks great so hopefully it works in practice.

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