Market Failure:
As the UK continues to transition to EVs, a challenge that drivers and financiers regularly highlight is that charging infrastructure won’t be installed unless there are EV drivers to use it; and drivers won’t switch to an EV unless they are confident there are chargepoints they can use. In addition, investors and installers have identified uncertainty of short to medium term utilisation rates, driven by lack of historic and forecasted data, as being a key barrier to installation in areas where traffic flows are less predictable.
Traditional financing structures that have been used to date in the EV infrastructure roll out have often resulted in installations of chargepoints following short term commercial returns in areas of high EV density, where demand already exists. This is driving a disparity in the speed of installation, leading to gaps in infrastructure. Key areas that risk being left behind are those that do not currently have high EV density, but need the infrastructure in order to transition. This includes rural areas and locations subject to seasonal fluctuations in visitor numbers.
To increase EV adoption, we need to build infrastructure just ahead of demand, in places where it is not yet commercially attractive due to limited EV drivers, but where it is required to give consumers confidence in switching – this will significantly accelerate the UK’s transition to electrified transport, and enable a just transition.
Solution:
Utilisation Linked Finance (ULF) is an innovative financial solution that can de-risk investment in charging infrastructure in these identified areas, either through a loan or through asset finance. ULF can be structured so that payments are linked to the usage of the chargepoint. Therefore payment only commences once the chargepoints are revenue generating. In some cases there could be a pre-agreed utilisation threshold to reach before payments commence. As the payments scale with utilisation, this can give installers a greater level of comfort when deploying infrastructure, encouraging them to build now in areas where short-term demand is less certain.
Illustrative Comparative Graphic:
First two-year repayment profiles under the different structures
Benefits:
- A UK-wide charging network: encourage deployment of charging infrastructure in areas where utilisation profile may be more uncertain, such as in rural and seasonal areas.
- Increase installer confidence: mitigate the concerns around short-medium term utilisation, by providing access to more flexible finance in areas where charging infrastructure has yet to be deployed but will be required as demand increases.
- Just transition: infrastructure exists where there have been early adopters of EVs, usually in higher socio-economic areas. ULF can help bridge the disparities in charging infrastructure across the country by making finance more accessible for organisations struggling with their capital costs, to deliver a just and equitable transition.
If you would like to work with us to scale utilisation linked finance, please get in touch with CDRT@gfi.green.