Navigant Research Blog

Shell’s Acquisition of First Utility Augurs a New Wave of Competition

— January 16, 2018

At the start of 2018, a warning shot was fired across the utility industry’s bow: competition is showing no sign of abating. If anything, competition is actually heating up. The nature of utility industry competition has changed dramatically since the start of the decade.

If we rewind 5 years, utilities’ biggest competitors were other utilities. Telcos and high street retailers posed a moderate threat, as some showed an interest in the addition of energy supply to existing, mass-market services such as mobile and fixed-line communications, broadband, pay-TV, and financial services.

Telcos Contemplating Market Entry

Over the past decade, I have advised numerous telcos on opportunities in energy, some of which have moved into the space. Most of the market movement has taken place in collaboration with utilities, which essentially whitelabel energy supply. However, the impact of telcos on the energy industry (and vice versa) has been underwhelming. Why? Because there has never been an imperative for telcos to sell energy, or utilities to sell telco services. It’s a nice-to-have add-on that may help reduce customer churn, but little else.

EV Growth a Clear and Present Danger to Oil Majors

The present day competitive environment has shifted significantly. Utilities face new threats from new entrants with a significantly greater reason to enter the world of energy services. Nothing underlines the shift in competitive pressure more than Shell’s acquisition of the UK’s First Utility, the first major energy supply business to be acquired by an oil major.

This acquisition should come as no surprise to anyone monitoring the energy landscape. My last blog of 2017 called on utilities to improve their peripheral vision and monitor competitive threats. It seems that many oil majors have a more mature peripheral vision, and are already acting to mitigate future potential risks to their core business.

The shift to EVs causes significant concern for oil majors. By Navigant Research’s reckoning, plug-in EV sales in 2017 exceeded 1 million for the first time; the significant investments in recharging infrastructure and increasing concerns regarding the pollution of internal-combustion engines will only accelerate the shift to EVs. Any oil major extrapolating EV adoption to an extreme scenario of ubiquitous EVs will recognize the potential disaster for service station businesses.

Oil Majors’ Competitive Response Covers the Entire Value Chain

However, EVs present an opportunity to oil majors. Most oil majors have renewable energy subsidiaries, and EVs present a new customer segment; existing service stations are perfectly placed to convert to EV charging points and 30-minute recharge times are an additional opportunity to attract customers into a retail store. But EVs are just one part of a wider energy service ecosystem which oil majors are targeting. Shell’s recent investments and acquisitions include a sizeable portfolio of grid-scale renewables generation; Sense, a smart home technology vendor; EV recharging points in the UK; and an energy supply business with 850,000 customers.

Oil majors, if certain scenarios play out, could suffer significant loss of value in the energy transition. This has helped create significant momentum behind oil majors’ activity in downstream energy, eclipsing any efforts from telcos over the past decade.

Shell and most other oil majors recognize there is significant value up for grabs in downstream energy. Their challenge is how to pull together their different acquisitions into a service that offers significant differentiation from utility industry incumbents. The challenge for these incumbents is a credible competitive response: utilities in competitive markets must first recognize value-at-risk from non-traditional competition, then develop products and services for the 21st century consumer.

 

India Gears Up for EVs

— January 9, 2018

In 2017, governing officials announced that India plans to sell only electric cars by 2030. The announcement was part of larger climate goals put in place by the country under the Paris Agreement—goals which the country is currently projected to meet despite being the third-largest polluting country on the planet and home to over 1.3 billion people. Some speculation of whether this market shift is possible in the allotted time period has surrounded the announcement, but banning the sale of conventional, gas, and diesel-fueled vehicles has become more popular in recent months, especially across Europe with France and the UK announcing bans by 2040. With some of the world’s most polluted cities, meeting its all-electric sales goal will help India reduce emissions and meet climate goals.

Steps to Promoting EVs

Since India’s announcement of EV-only sales by 2030, several steps to increase adoption have occurred throughout the country:

  • Partnerships will allow for collaboration on EV and mobility technology as follow:

Toyota and Suzuki announced in November 2017 that they will co-deploy EVs for the Indian market beginning 2020.

Mahindra and Renesas have partnered to place Renesas as the technology partner of the Mahindra Racing Formula E team. The technology will be used to produce electric road cars as well.

Ola will partner with Tata Motors to add EVs to Ola’s cab fleet in Delhi.

Uber has inked a collaboration with Mahindra to pilot EVs in Delhi and Hyderabad by March 2018. The two will also collaborate with other stakeholders to set up public charging stations in major cities around India.

Tata Motors announced a partnership with Jayem Auto to launch the Nano EV under the name Jayem Neo.

  • New market entrants will allow for increased adoption rates.

Hyundai Ioniq plug-in hybrid will be released in India in 2018.

Honda’s Indian subsidiary is in the process of adopting an EV strategy that allows for affordable vehicles suitable for Indian roads.

– Suzuki, with its partnership with Toyota discussed above, will produce EVs for the Indian market with technical support from Toyota.

  • Government policy announcements promoting adoption and awareness of EVs are now occurring routinely.

– The government introduced smart chargers for EVs in December, with a plan to install 150 of the charging stations in the next 12 to 18 months.

The Maharashtra government is finalizing purchasing EV incentives for manufacturers and consumers—additionally, the national government is reportedly in talks to release purchasing incentives.

– The national government approved standards for EV charging stations via suggestions from the Committee for Standardization of the Protocol for Charging Infrastructure.

– The national government approved use of digital payments for charging of EVs.

Challenges Remain

The actions put forth to increase adoption and awareness of EVs in the Indian market are encouraging, but challenges remain for such a large market, leading to more doubts that the country will be able to reach its 2030 goal. Since charging infrastructure is crucial to adoption, the country will need to rapidly continue expansion of charging station installation, particularly in densely packed cities. Over 90% of EVs sold in India in 2016 were two-wheel vehicles, meaning OEMs will need to tailor model availability to this more popular market segment in India, in addition to four-wheel EVs. Finally, purchase incentives from differing levels of government could spur adoption by making vehicles more affordable in a country which ranked 150th globally in gross national income per capita in 2015.

 

Costa Rica Plans for Sustainable EV Future

— January 4, 2018

Up until now, plug-in EVs (PEVs) have been about as popular as snowshoes in Latin America due to the higher cost of the vehicles and lack of governmental focus on reducing transportation carbon emissions. However, in Costa Rica, government agencies are developing policies and infrastructure to lure automakers to send PEVs and to get consumers excited about the technology.

A Small but Ambitious Market

Costa Rica may not seem like the ideal location to grow a PEV market. The country has a gross national income per capita of just over $10,000 per year (as of 2015, per World Bank statistics), whereas most PEVs cost north of $40,000 and would be out of realistic reach for most consumers. The vehicle market is also small (just 154,000 vehicles sold annually), so it is not a top priority market for automakers to support PEV sales.

Nevertheless, with tourism to its sandy beaches and internationally renowned rain forest contributing 5% of Costa Rica’s gross domestic product, the government wants the country to project an eco-friendly image and participate in global efforts to combat climate change.

The country has set a goal of getting 37,000 PEVs on the road by 2022. On December 15, 2017, Costa Rica passed its first incentives for EV purchases, which include exemptions on the sales, consumption, and customs import taxes. According to a report from Nacion.com, this would reduce the final cost of a PEV by about 24%.

Growing Support for PEVs

Federal organizations in Costa Rica are also planning support for PEVs. The state-run utility led by Grupo ICE and Costa Rica’s integrated ministry of energy and environment (MINAE) both shared steps they are taking to promote EVs at the Third Annual Latin America Clean Transport Forum, which was held in San Jose, Costa Rica on September 20, 2017.

ICE said that with 76.6% of its power generation coming from renewables, the carbon savings of switching transportation from liquid fuels to electricity can be significant. Since 92% of residents live in private homes, pervasive access to home EV charging should smooth the introduction to PEVs. Also, the mild climate (an average temperature of 25°C) would enable PEV batteries to provide greater range and durability than in places with harsher weather. The utility is now investigating the barriers to PEV adoption and infrastructure requirements (such as charging levels and standards for collecting data) to prepare for their introduction.

EV Policy Development and Logistical Challenges

MINAE is developing a national policy for transportation electrification that will be released as part of the annual Oficializado Plan Nacional de Energía, which was due at the end of 2017 but does not appear to have been published yet. The national EV policy will set achievable goals for reducing emissions in transportation, including light and commercial vehicles as well as mass transit. These goals will align with the country’s overall climate change targets.

Despite these efforts, getting automakers’ attention to prioritize Costa Rica and other Latin American nations as PEV markets will be a challenge. With no local manufacturing plants, PEVs currently have to be imported into Latin America, and the higher cost of shipping the vehicles will need to be offset by local incentives. Consumer education in places where PEVs are rarely seen will require concerted effort from both the public and private sectors. Importing used PEVs, which have low resale values and could be used in fleets, is an effective method of introducing target customers to the capabilities of PEVs and building buzz around the technology.

 

Finding Value in Public EV Charging Infrastructure

— December 19, 2017

Although the chicken/egg debate still looms over EVs and public charging infrastructure, the market is now moving forward under the assumption that mass adoption of EVs will require a sufficient network of public charging infrastructure. Public fast charging infrastructure along highways enables regional travel, and fast chargers in and around metro areas can support drivers who don’t have a home charger. Navigant Research expects EV supply equipment sales to grow from around 875,000 in 2017 to over 6 million in 2026 to meet the needs of the growing EV market.

Public Charging Availability Bolsters the EV Market

Public chargers represent a relatively small percentage of this total growth, but well-established and reliable public charging networks are considered an important factor for prospective EV owners. Publicly available charging networks give consumers the confidence that an EV will serve their driving needs, even if they are likely to do the vast majority of their charging in-home.

The business case for public charging remains difficult. For the private sector, high installation costs and low utilization rates can make it difficult for any profit-driven business model, particularly for a business model that only uses pay-to-use as its source of revenue. In addition, any profit-driven business model for the buildout of EV charging infrastructure encounters challenges of providing sufficient and equitable charging networks throughout entire communities.

Examining Business Drivers

What are the business models that will drive the rollout of public infrastructure that Navigant Research’s forecasts project?

  • Automaker investments: These are a key driver to fast charging networks, with OEMs looking to replicate the Tesla Supercharger network model—but not necessarily as a free-to-use option.
  • Retail partnerships: Retail businesses have been popular targets for EV charging networks, with charging typically provided for free and seen as a tool to attract customers and increase sales. If the rollout of fast chargers in metro areas takes off, retail outlets would also be good locations because they would provide the driver something to occupy their time during a 15-minute charging session. There are also hypothetical business models that would use revenue-sharing strategies to offset costs of public chargers while still capturing the increased sales revenue from EV customers.
  • Electricity demand and grid services: Many utilities are interested in the value that EVs can provide. A utility-provided charging network may provide a utility with increased electricity sales in the long run. It could also provide the ability to utilize EVs for grid services through the utility’s provided chargers, which could offset costs in the long term.
  • Equitability: Public sector stakeholders that see equitable charging access as a priority may be able to justify the use of public funds for the increased equitability of the charging network. For some public agencies, decarbonization goals will also drive investment.

Visibility Is Crucial

If EVs are to continue to penetrate the market at an increasing rate, prospective buyers will need to see charging networks that support their use and enable them to travel without range anxiety. Identifying value will be critical for the rollout of publicly available charging infrastructure, which in turn has an impact on EV sales growth.

 

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