Can the Market Alone deliver EV charge points?

Can the Market Alone deliver EV charge points?

Claire Thornhill – Frontier Economics Ltd
Shira Lappin – UK Power Networks
Dorota Misiurewicz – Frontier Economics Ltd
Dan Roberts – Frontier Economics Ltd
Lucy Grigoriadi – Frontier Economics Ltd

This paper focusses on identifying the market failures associated with electric vehicle charge point investment, and developing a methodology that helps identify locations where these market failures may pose particular barriers to investors in charge points. It presents analysis that has been carried out as part of the Charge Collective Network Innovation Allowance project.

There is broad consensus that a switch to low-carbon vehicles will be a critical part of the strategy to tackle climate change and to meet the Government’s Net Zero target. Sales of new petrol and diesel cars will be phased out by 2030. A major effort therefore needs to be made this decade to accelerate the transition from conventionally fuelled vehicles.

Low provision of public charging infrastructure in the UK is widely seen as one of the main barriers to growth of the domestic EV market. Drivers are understandably concerned about battery capacity and the availability of conveniently located charging points. More than one-third of households in England do not have access to off-street parking and so will need to rely on public chargers.

The market failures directly associated with replacing petrol and diesel vehicles with EVs are well understood (including positive externalities from reductions in greenhouse gases and emissions affecting air quality). But there is also a series of market and policy failures specifically associated with the charge points themselves.

Investing in charge points can often involve high capital costs, including network reinforcement costs, sole-use connection assets and the charging infrastructure itself. Most of these costs are sunk. In this context, our analysis suggests there are three sets of barriers preventing the market alone from achieving a level of investment in chargers that is optimal for society:

• Market failures – network externalities. At low levels of charge point coverage and EV penetration, early investors in chargers have a first mover disadvantage compared to those who enter later. While their investment will tend to increase EV take-up and hence future charge point demand, these first movers cannot fully monetise that demand since the new EV users may decide to use other charge points once the market matures.
• Policy uncertainty. There is some uncertainty over the speed at which transport should be electrified in the 2020s. A delay of a few years in EV take-up could make a substantial difference to the business case for investing in chargers. There is also uncertainty on the extent to which the roll-out may be subsidised by central government. This uncertainty may in turn affect investment decisions.
• Regulatory issues. To the extent that network tariffs both signal forward looking costs and recover existing costs they may lead to investment at lower than optimal levels.

In this paper, we describe these barriers and set out a methodology that can be used to help identify potential “cold spots” for investment. Cold spots are locations where the social benefits to charge point investments may be high, but the market failures pose barriers to investors.