Toby Horne, Siemens Infrastructure Financing Partner, Siemens Financial Services UK looks at infrastructure financing.
In October 2022, the European Parliament approved the proposed ban on the sale of new diesel and petrol cars by 2035.
This target will be hard to achieve and yet it trails the UK’s commitment, announced in 2020, to phase-out the sale of new petrol and diesel cars and vans by 2030. This ban forms part of the UK’s wider strategy to achieve net zero by 2050 and given transport (particularly road transport) is the country’s largest emitting sector, it’s a ripe area for decarbonisation.
The shift to electric vehicles (EVs) also necessitates significant investment in charging infrastructure. The government reported a total of 32,011 public EV charging devices available in the UK in July 2022, a 31% increase on the same period last year. Nevertheless public appetite for cleaner technology and the looming ban on petrol and diesel vehicles have driven sales of EVs meaning a much more expansive infrastructure is required to meet rising demand. While the government has planned for 300,000 public charging points by 2030,it is likely that private sector investment will be required to accelerate deployment of the necessary EV charging network.
Recent research from Siemens Financial Services (SFS) estimates the ‘investment gap’ required over the next six years to rapidly deploy EV charging networks worldwide. This ‘gap’ represents the difference between EV charging infrastructure already being financed, and that still being paid for out of capital expenditure (CAPEX). The global total amounts to nearly $150bn, and in Europe the current gap is $11.77bn but is estimated to grow to $27.23bn by 2026.
Clearly this is a gap that can’t be bridged through public funds alone, but what kind of finance from the private sector is needed to fund EV development?
Smart financing – offered by specialist financiers – enables the acquisition of technology and equipment for competitive advantage in a financially sustainable way and tailored to the organisation’s specific business and cash-flow needs. Specifically, smart finance makes investments possible and affordable by aligning costs with revenues – both for the organisation acquiring the charging infrastructure, and for vendors selling EV charging solutions.
Additionally, it offers three major advantages over generalist finance: technology expertise which understands real business outcomes; a breadth of financing solutions which can meet the organisation’s exact needs; and smooth, sophisticated processes which makes the use of smart finance seamless and easy.
Case study: SWW Wunsiedel GmbH
German Utility Company SWW Wunsiedel GmbH has a main strategy which links all aspects of energy generation and distribution for optimal operational efficiency. In its latest development phase, the company wanted to add the early phases of an e-charging infrastructure, but to finance it in a way that aligned with earnings from the charging points. A smart financing arrangement was needed to avoid tying up precious capital.
To help the company realise its ambitions, Siemens Financial Services created a payment plan for the charging units which was designed to fit the projected cash flow from the chargers. E-chargers from Siemens for electric cars were installed. At the same time, payments were aligned to the projected income from charging units so that benefits are accrued at the same rate as payments. The cost to SWW Wunsiedel GmbH for implementing electric car charging units has been spread over time to minimize cash flow impact.
Predicted rapid growth in electric vehicles – a major contributor to meeting climate change and sustainability targets – will not happen if the electric charging infrastructure does not expand at a similar rate. Meeting the expected demand for EV charging in the UK will therefore require urgent and significant investment. Given the scale of the task, many businesses are turning to specialist private sector finance to facilitate accelerated deployment of charging points. Not only can these financiers help meet targets to create a cleaner, green infrastructure, through their sector expertise and range of smart finance solutions, they can make investment affordable.