Written evidence from Octopus Electric Vehicle (ELV0087) 

 

Octopus Energy’s response to the Science and Technology Committee’s Inquiry into Electric Vehicles (EVs)

 

Octopus Energy welcomes the opportunity to respond to this important Inquiry.

 

We are a global energy tech pioneer, launched in 2016 to unlock a customer-focused and affordable green energy revolution. Our domestic energy retail arm serves 5 million households and 60,000 small businesses with green energy and award-winning service in GB.

 

Octopus Electric Vehicles makes it easy and affordable for drivers to switch to EVs - offering the car & finance; energy tariffs designed for EV drivers; smart charging to make it easy to fill up when it’s cheap & green; and access to over 500,000 public chargers in Europe on a single card & app. We also have EV experts available to help at every step of the way.

 

In Octopus Electric Vehicles, we serve over 3,600 business clients with more than 750,000 employees combined - supporting them to offer EVs as a benefit to their staff. We also offer leases direct to consumers and have globally leading innovation projects in smart charging such as our Vehicle-to-Grid project, Powerloop. By September 2023, Octopus Electric Vehicles had more than 10,000 EVs in its fleet.

 

Our key points are as follows:

        Whilst demand for EVs and build of charging infrastructure is increasing rapidly, the key blocker is a low supply of EVs in the UK. The ZEV mandate, whilst welcome and essential to bolster GB supply, must align with the Climate Change Committee’s recommendations in order to meet ICE phase-out dates and GB’s 2050 net zero target.

        Government’s continued support for the Benefit in Kind Tax for electric vehicles democratises electric driving for low earners (60% of drivers across the market are in the 20% tax bracket), and its continuation is essential to ensure EV uptake increases at the rates needed to meet GB decarbonisation targets.

        Pairing EVs with smart tariffs is absolutely necessary to reduce peak electricity demand and defer the need to upgrade our networks. Focus is needed on the short-term enablers to increase both uptake of smart tariffs and V2G technology. This will maximise the value that can be generated and shared with customers from wider participation in flexibility markets.

 

 

 

 

 

 

Government approaches

 

1. What are the main obstacles to the achievement of the Government’s 2030 and 2035 phase-out dates? Are the phase-out dates realistic and achievable? If not, what steps should the Government take to make the phase-out dates achievable?

 

The 2030 and 2035 phase out dates are realistic and achievable if an ambitious ZEV mandate is implemented in January 2024. Uptake of EVs is increasing rapidly, with 190,000 sold in the UK in 2022, making up 11.65% of the new car market - so demand for EVs is increasing rapidly. Public charging infrastructure is also rolling out at pace, whereas of March 2023 there were 62,332 public charging connectors at 22,355 locations (up 200% since 2018). Therefore, if these trends in EV uptake and roll out of charging infrastructure continue then both these factors will not be blockers to the achievability of the 2030 and 2035 targets. These positive trends are a direct result of the clarity of the ICE phase out date which have been extremely effective in attracting private investment in the UK’s charging infrastructure. Instability or dilution of this policy would risk continued investment, thousands of green jobs and the UK achieving its net zero target.

 

The biggest obstacle for Octopus, which puts strain on determining how realistic achievement of the 2030 and 2035 dates are, is a lack of supply of EVs, with limited allocation for the UK.  At present, the demand for EVs is hugely outstripping supply. At the time of writing, supply chain pressures are gradually improving; there is an average lead time of 9 months for new factory ordered EVs, with waits of up to 2 years for some models. Therefore, without Government focus to bolster the UK market for EVs, the supply market could be a factor which limits progress towards meeting these phases out dates. That being said, recent announcements of investor confidence in the UK have been most welcome. Tata’s £4bn gigafactory in Somerset and BMW’s investment in its Oxford plant to manufacture the electric Mini are signs of the billions of investments and thousands of green jobs strong public policy is driving into the UK while accelerating the UK’s decarbonisation.

 

2. Do the 2030 and 2035 phase-out dates serve their purpose to incentivise the development of an EV market in the UK? To what extent are car makers focusing on one date or the other? What are the impacts of the deadlines on the ability of the UK supply chain to benefit and how could the Government seek to further support the development of the UK EV industry? Would the introduction of a plan with key dates and timescales support the development of the EV industry in the UK?

 

Unless Government upholds ambitious goals through the ZEV mandate, we won’t see the shift in manufacturing, production and innovation that is required to meet net zero. The current proposals for the ZEV mandate are not ambitious enough and must at least meet the Climate Change Committee’s trajectory if our net zero targets are to be met. The mandate needs to stimulate growth from the start, as not only will it have the largest impact on our carbon savings, but it will also open up the EV market by providing more choice, reducing costs, stimulating the second-hand market and bringing even better cars to market for all types of consumers.

 

3. What specific national policies, regulations or initiatives have been successful, or have hindered, EV adoption to date? Are these policies or initiatives fit for purpose?

 

The Benefit in Kind (BiK) Tax scheme for electric vehicles is effective in delivering on the policy aims to increase EV adoption towards decarbonising UK transport and achieving UK net zero by 2050. Confirmation in the 2022 Autumn Statement the 2% BiK tax rate is fixed until April 2025 after which it will increase by 1% each year is extremely welcome in giving both consumers and business the certainty to continue scaling EV adoption.

 

Since launching a leasing company in 2021, Octopus Electric Vehicles has delivered more than 10,000 EVs, saving 17,500 tonnes of CO2 each year or the same as saving CO2 from over 10,000 people flying from London to New York and back.

 

The policy set by the ZEV mandate recognises that if we want strong infrastructure, we also need to build demand. The ICE phase out date has driven investor confidence the chargers that are installed will be used, underpinning the investment case to secure the private capital needed to deliver the UK’s charging network.

 

EV Market and Acquiring an EV

 

8. What are the main routes for acquiring an EV? Which aspects of these routes are working well, and which aspects could be improved?

 

Purchase/access options, as a consumer or as a business are:

-         Buy outright.

-         Lease (contract hire)

-         Including salary sacrifice benefit schemes.

-         Finance (contract purchase / hire purchase)

-         Subscription

-         Rental

 

Salary sacrifice (followed by company cars/fleet) are the largest driver of EV uptake in the UK today, thanks to lower Benefit-in-Kind rates. Employer benefit schemes ensure that:

-         A wider range of customers can access EVs whilst these remain more expensive than their ICE counterparts, due to the tax savings, ensuring a fairer introduction of new EV sales (60% of salary sacrifice drivers are 20% taxpayers)

-         Businesses reduce their carbon emissions.

-         It’s a hassle-free solution that makes it simpler to make the switch, as these schemes tend to include not only the car, but also insurance, maintenance and in our case, a charging and energy package.

 

General purchasing routes vary:

-         Via a physical dealership

-         Via the OEM (digitally)

-         Via leasing companies

-         Via rental companies

-         Via online retailers (especially with the growth of the second-hand market)

 

Due to the EV premium vs ICE - ensuring that we tackle the upfront price of EVs and educating about total cost of ownership and the reduced running costs of an EV vs ICE are imperative.

 

-         Salary sacrifice is great at facilitating both of these, due to the tax savings and bundled monthly payment nature of the product.

-         However - it is only accessible if you have an employer that wants to / is able to implement a scheme.

-         Ensuring fairness so that the mass population can access an EV over the next few years is critical. We should consider:

-         Scrappage schemes (to get the most polluting cars off the road and help that segment of the population to make the switch)

-         VAT exemptions (like Norway)

-         Reducing the cost of public charging (through reduced VAT on electricity for charge point operators))

-         Creating a strong second and third hand market - with the right incentives to help those make the switch too (e.g., home charge grant)

 

9. What are the main consumer barriers to acquiring an EV, either through purchasing, leasing, or other routes?

The three main barriers customers have in their minds are:

-         the upfront cost vs ICE,

-         how to/where to charge.

-         the battery vehicle range

 

However, countries where price parity has been created (e.g., Norway) prove that charging and range anxiety are actually a perception, not a barrier (as we have better infrastructure and the same vehicles available). These two points are down to education, and the reality is that if customers could access an EV for the price of an equivalent ICE, the majority of drivers would make the switch.

 

Educating about total cost of ownership tackles some of this, but we still need to do more to tackle the upfront cost of an EV. Incentivising manufacturers to create more affordable vehicles, as well as stimulating a home-grown supply chain, will help this. Furthermore, encouraging competitive products to enter our market from markets with more affordable EVs (such as China or India) should drive the competition within Europe to also focus on bringing EV costs down. 

 

11. Do you think the range of EVs on offer in the UK is sufficient to meet market needs? Which segments are under-served and why? Why is the UK market not seeing low cost EVs, particularly in comparison to China?

 

We consider there to be a good range of consumer choice in electric cars with over 100 models from 40 manufacturers available in the UK market today compared with just a handful as recently as 2018. With growing range, we have seen increasing affordability of electric vehicles, for example the entrance of Chinese BYD Auto (the largest electric car manufacturer in the world as of June 2022) into the UK market earlier this year has been successful in bringing cheaper models to the UK.

 

 

Experience of using an EV

 

18. What are the main challenges that UK consumers face in their use of EVs?

 

In order to maximise the running savings of an EV (and even potentially generate revenue), we need to be able to provide them with smart tariffs and maximise the battery in the vehicle (smart charging & vehicle to grid). The Government has made it very clear that the smart operation of low carbon assets is imperative to achieving the smart, flexible electricity system we know is necessary to enable us to meet net zero affordably.

 

Unfortunately, the current state of metering regulation is a hindrance to achieving this outcome. Inconsistent standards (e.g., accuracy requirements in the Measuring Instruments Regulations((MIR)) and the Smart Charge Points Regulations) and outdated requirements (e.g., for digital displays required by MIR) mean hardware manufacturers struggle to produce equipment ‘factory-ready’ for smart flexible operation. This prevents market participants bidding these assets into flexibility markets and introducing novel customer propositions (e.g., sub-meter billing). Retrofitting compliant metering is always prohibitively expensive so in order to achieve smart flexible demand flexibility from EVs, Government should prioritise coordinating the various offices (OZEV, DESNZ, OPSS) needed to create appropriate asset metering standards.

 

Continued focus from Government, flexibility providers and market operators is needed to unlock greater flexibility from EVs, which underpins the provision of cheaper tariffs and should encourage greater uptake.

 

Furthermore, ensuring that not only customers who can charge at home, but those that rely on charging at work or on the road, are able to access widespread smart, simple, reliable, and affordable EV charging is equally as important. Historically this has been a challenge, but with the rise of interoperability, smart charging regulations and continued investment in public charging infrastructure, this is rapidly being solved. We need to ensure that this continues, and in time, it may need oversight and regulation.

 

Lastly, we need to ensure that the servicing, maintenance & repair supply chain of EVs continues to be invested in, and that we create a market that facilitates the appropriate import of parts, as well as investment into jobs and specialist training.

 

19. What are the main benefits that UK consumers could realise from using an EV? See response to Q25, below.

 

25. Is there a financial benefit to the consumer of choosing an EV over an ICE vehicle? Are there further benefits, aside from financial, that a consumer may gain from EV use?

 

There are a vast array of benefits that UK consumers could realise from using an EV. Firstly, it is cheaper to run an EV than an ICE however you charge, but the savings can be amplified if EV users choose a smart tariff which optimises charging on a customer’s behalf. Our Intelligent Octopus tariff provides customers with six hours of guaranteed super cheap energy every night, and we optimise this charging at the cheapest and greenest times within this window. On Intelligent Octopus, charging at home costs just £49 per month compared to £65 for fuelling an ICE vehicle. Even if customers use a mix of on-street and home charging the trend still stands.

 

Source: Octopus Energy schematic, from our blog: How EVs are the affordable answer to greener driving: even in an energy crisis

 

In addition to optimising charging to reduce costs for customers, there is potential for Vehicle to Grid (V2G) to allow drivers to make extra use of their EV battery - where it can be discharged to power the home or to sell back to the grid when the system is short. Whilst this technology is still not widely available yet, our globally-leading Vehicle-to-Grid innovation project, Powerloop, proved the technical, commercial, and practical viability of V2G technology at a domestic level - and customers in the trial saved up to £180 on top of savings from smart charging. Beyond financial savings that can be realised from V2G technology, this provides customers with a way to strengthen their personal energy security - where the average EV battery has the capability to store more than three days’ worth of electricity. Therefore, the scale of benefits and savings consumers can realise from purchasing a V2G enabled EV and charge point could allow consumers to save even more than current smart charging tariffs, as well as bolstering domestic energy security - highlighting that there is continued innovation and a growing wealth of consumer benefits. However, the cost of V2G hardware still remains prohibitively expensive and a lack of connection standards are barriers to this becoming a reality.

 

National and regional issues

 

29. What are the challenges or concerns around grid capacity in relation to significantly increased EV adoption?

 

Electricity demand is forecast to increase by approximately 50% by 2036 and to more than double by 2040, and EV demand is expected to be a significant driver of this. If EV charging is not managed smartly then peak demand will be much higher in the future. The measure of peak demand is important as this is what drives investment in new network capacity. However, with smart charging EV demand has the potential to have the opposite effect, and is forecast to reduce total peak demand by between 15-65% in 2030 and 30-61% by 2050 across all 2023 FES scenarios. Analysis undertaken by Ofgem and BEIS in 2022 shows that if households reduce peak demand by 15GW by 2050, system costs could be cut by up to £40-50bn across 2021-2050. Therefore, the uptake of smart tariffs in line with uptake of EVs is essential in order to make best use of existing grid infrastructure and to keep system costs lowest, inclusive of but not limited to grid costs. Right now, there are a number of barriers preventing wider uptake of smart tariffs, which span from short term, fairly minor changes to much more radical market reform.

 

The vast majority of EVs will be charged at people’s homes and therefore will be connected to the low-voltage part of the distribution network. Whilst many DNOs have committed to a ‘flex first’ approach across the RIIO-ED2 price control period to enable them to make best use of existing network infrastructure and to defer investment where possible, the growth in EV adoption is exponential - 20% of all cars sold in January 2023 were battery-electric or plug-in hybrid - and therefore the pressure on DNOs to meet new connection requests will only rise over the coming years. Whilst there is still considerable headroom (estimated at 60%) across all distribution network assets currently in GB, the Government’s central model forecasts that on average the networks will run out of headroom around 2035. Alongside traditional reinforcement, flexibility can be utilised to defer traditional reinforcement and EVs can be utilised to provide these services. Therefore, whilst EVs have the potential to cause problems for networks if not managed smartly, on the other hand they can be part of the solution and optimised to reduce peak demand, and defer the need for reinforcement - buying DNOs valuable optionality and freeing up capacity for other demand or generation assets to connect. Therefore, incentivising EV users to adopt smart tariffs is a high priority both to provide customers with value, and to enable their assets to be managed to delay the need to reinforce on top of provisions of other system balancing services.