Written evidence from Energy UK (ELV00103) 

 

Environment & Climate Change Committee inquiry: Electric Vehicles

Energy UK response

15 September 2023

 

About Energy UK

 

Energy UK is the trade association for the energy industry with over 100 members - from established FTSE 100 companies right through to new, growing suppliers, generators and service providers across energy, transport, heat and technology. Our members deliver nearly 80% of the UK’s power generation and over 95% of the energy supply for 28 million UK homes as well as businesses. 

The sector invests £13bn annually and delivers nearly £30bn in gross value - on top of the nearly £100bn in economic activity through its supply chain and interaction with other sectors. The energy industry is key to delivering growth and plans to invest £100bn over the course of this decade in new energy sources. Our members are highly active in the electric vehicle (EV) space, offering EV tariffs, smart charging and vehicle to grid, leasing and selling EVs either directly or in partnership with companies, and installing and operating chargepoints in homes, businesses and in the public domain.

 

Introduction

 

Government’s commitment to ban the sale of new petrol and diesel cars and vans from 2030 positions the UK as likely to be one of the fastest G7 countries to decarbonise passenger road transport. Since the public announcement of the phase out date in November 2020, the scale of progress and delivery by the transport and energy sectors across all parameters needed to meet this target has exceeded expectations, despite the date not currently being legislated for. 

 

However, as other leading economies have advanced in their transition to ZEVs, regulatory certainty is critical to attract investment into UK so that we can maintain our international role and further develop supply chains that will allow us to capitalise on rapidly increasing international demand for EVs. Energy UK therefore highlight the necessity for Government to press ahead with implementing a clear and ambitious ZEV mandate from January 2024. The mandate will enshrine the 2030 and 2035 phase out dates into legislation and provide the vital regulatory certainty needed for businesses and investors.

 

In this response, we address the critical role of a UK ZEV mandate in bringing forward benefits of the transition to EVs as well as other policy recommendations which will ensure that the transition is fair for consumers. We also note the insurmountable value of uptake in EVs in delivering the future Net Zero energy system at lowest cost to the consumer. Finally, we highlight the necessity for Government and the regulator to work collaboratively with industry to deliver changes in the network connections process which will underpin rollout of charging infrastructure needed to address consumer confidence in the transition.

 

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? 

 

At their core, the achievability of the 2030 and 2035 phase out dates depends on three key parameters, uptake in battery electric vehicles (BEVs) and plug-in hybrids (PHEVs), rollout of charging infrastructure and stability in UK manufacturing. Since announcement of the dates in November 2020, growth in each parameter has catalysed significantly and even exceeded expectations. The 2030 and 2035 dates are therefore both realistic and achievable.  

 

Cumulative EV registrations have increased from 184,000 in November 2020 to 804,000 by July 2023. In July this year, demand surged such that a new BEV was registered every sixty seconds in the month. This is expected to accelerate to up to one in every 40 seconds by the end of 2024. More significantly, in the same period, diesel car sales have plummeted almost entirely, and petrol sales have decreased by 50% since 2019.  

 

Similarly, rollout of public EV charging infrastructure has increased from 20,963 in 2020 to 45,737 charge points in 2023. There has also been a 25% increase in new ultra-rapid chargers since the beginning of 2023 and an increase of 79% since April last year, with these chargers capable of fully charging vehicles in as little as 20 minutes. The Government has set a target of delivering at least 300,000 public charge points by 2030 and with the number of charge points growing at an impressive 35% per year, this target will be hit in early 2029.  

 

Finally, significant investment has materialised in onshoring EV manufacturing capacity with the Tata Group recently confirming a £4bn investment in new battery manufacturing in Somerset. Likewise, after announcing that production of the electric-Mini would relocate from the UK to China in 2022, BMW is due to announce hundreds of millions in investment to produce new electric-Mini models back in Cowley from 2026. Increased supply of vehicles being made in the UK will further decrease already falling upfront costs of purchase, and with growth in the second-hand market, the 2030 and 2035 phase out dates are not only realistic and achievable but are becoming more and more fair.

 

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? 

 

Clear policy signals from Government will be necessary to incentivise the pace of development required in the UK EV market. Commitment to the 2030 and 2035 phase out dates is therefore a vital step in cementing delivery and in ensuring that the UK is not left behind in the global transition to zero emission vehicles (ZEVs).  

 

However, with 21 other countries having proposed bans or implementing 100% ZEV sales before or by 2035, and a total of 32 countries doing so by 2040 under the Accelerating to Zero Coalition, policies designed to drive delivery to meet these targets will be needed to help maximise the advantage to the UK from the transition to EVs. .  

 

To bring forward benefits to the UK automotive industry, consumers and the energy system, and to help ensure that the UK gains a competitive advantage in this global transition, Government should press ahead with implementing a clear and ambitious ZEV Mandate from January 2024. The primary objective of the ZEV mandate is to provide regulatory certainty and build confidence in the pace of the transition to EVs, allowing businesses and investors to plan and allocate capital, accordingly, including for the wider energy system and required charging infrastructure.  

 

The mandate sets clear dates between 2024-2030 to support development of the EV industry in the UK by requiring car and van manufacturers to sell a rising proportion of ZEVs within their overall fleet each year until phase out.

 

Government’s current proposals in the mandate include various flexibilities which allow actual delivery of ZEVs to fall widely below Government’s own trajectory. The extent of these flexibilities reduces certainty for investors, businesses, consumers, and the energy system. Energy UK and Charge UK have both written to policymakers, warning that any further watering down of the ZEV mandate will risk the billions of pounds of investment that is necessary to ensure that the UK benefit from a thriving EV market.   

 

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 Government’s plug-in car grant has been the most impactful subsidy in catalysing early adoption of ZEVs by equalising the cost of purchasing EVs with petrol and diesel counterparts. Running from January 2011, Government notes the grant had supported purchase of nearly 500,000 cars until its removal in 2022. While the phasing out of support makes sense as costs come down over time, we consider that, providing greater notice and visibility of future changes to support levels will help support investor confidence in the sector. Likewise, benefit-in-kind (BIK) rates for BEVs and PHEVs have been incredibly successful in incentivising uptake, with nearly 60% of EVs on UK roads being company registered. We therefore welcomed the extension of low BIK rates in the Chancellor’s Autumn 2022 Statement.  

 

However, given that the majority of UK households own a used vehicle, policies to stimulate the second-hand car and van markets should be implemented to guarantee fair access to EVs for consumers. Through ensuring accelerated supply of EVs, a strong and ambitious ZEV mandate is a primary means to stimulate the second-hand market. We therefore urge Government to implement this critical policy tool from 1 January 2024 as proposed.  

 

5. What is your view on the accuracy of the information in the public domain relating to EVs and their usage? 

 

2023 has seen a flood of media attention on EVs and their usage as this necessary technology has become increasingly politicised . The majority of articles placed in national outlets have been negative and often misleading, with many having needed to then be debunked with corrections. Whilst more accurate articles relating to EVs and their usage do exist, they have not been placed in national outlets with the same level of readership.  

 

6. What are the overall environmental benefits that would result from achieving the 2030 and 2035 targets? 

 

Transport is the largest emitting sector of greenhouse gas emissions in the UK, with road vehicles accounting for 91% of domestic transport emissions. Cars, taxis, and vans are the biggest contributor within this, accounting for 68% of these emissions. Displacing petrol and diesel cars and vans with EVs that are zero emission at the tailpipe therefore delivers enormous environmental benefit via reduction of both carbon emissions and to air pollution.   

 

However, there remains a need to accelerate displacement of petrol and diesel vehicles before the 2030 and 2035 phase out dates. As such vehicles have a lifespan of between 11-14 years, those sold just prior to phase out in 2030 will continue to emit into the 2040s. By mandating manufacturers to sell an increasing proportion of ZEVs as a percentage of their overall sales each year until phase out, a strong and ambitious ZEV mandate must be implemented from January 2024 to ensure that phase out accelerates leading up to the deadlines.  

 

We note that the ZEV mandate is the single policy tool which if implemented correctly will deliver the highest carbon savings through the Government’s Carbon Budget Delivery Plan. It is paramount that the mandate is therefore implemented from January as proposed without further watering down of the mandate’s mechanisms.

 

Energy UK also urge Government to clarify their definition of what ‘significant zero emission capability’ includes as soon as possible to increase manufacturer certainty on the types of hybrid vehicles that can be sold between 2030 and 2035. This is especially important to clarify as studies suggest that PHEVs emit CO2 emissions at much higher levels than commercially suggested.  

 

10. How is the Government helping to ensure that EVs are affordable and accessible for consumers, and are these approaches fit for purpose? 

 

Though the UK’s second-hand EV market is showing impressive progress, it is vital that it develops much further prior to the 2030 and 2035 phase out dates to ensure the transition to EVs is affordable and accessible for consumers.  

 

The Green Alliance report, Locked Out, notes that low-middle income (LMI) households are far more likely to purchase used vehicles, spending twice as much purchasing or leasing used cars than new models. To ensure that LMI households, who represent 30% of the adult population, are not locked out of the transition by having to purchase more expensive to run and polluting cars, Government must better stimulate the used car market in the UK. Implementation of a strong and ambitious ZEV Mandate from January 2024 will help achieve this.

 

24. In terms of charging infrastructure, are there unique barriers facing consumers in areas of low affluence and/or multi-occupancy buildings, such as shared housing or high-rise flats? Do you consider public EV charging points to be accessible and equitable compared to home-charging points? What can be done to improve accessibility and equitability? 

 

Just under a quarter of UK households do not have access to off-street parking and will therefore need to rely on more costly public charging infrastructure to charge their EVs. This disparity is further exacerbated for those in multi-occupancy buildings and along income lines, with high-income households being 50% more likely to have a garage or off-street parking than lower income household. Energy UK therefore urge Government to equalise the disparity in VAT rates for a fair transition, as also recommended in the Rt. Hon Chris Skidmore’s Net Zero Review and by the campaign group FairCharge which is backed by cross-party support across Parliament. The 20% VAT rate on electricity use at public chargepoints should be decreased to the 5% rate for private chargepoints.  

 

Several local authority schemes from the Department for Transport are helping councils to deliver public charging infrastructure across communities. In particular, the launch of the Local Electric Vehicle Infrastructure (LEVI) Fund this year, building on the On-Street Residential Charging Scheme, will provide welcome funding to local authorities across England to plan and deliver on street charging infrastructure. We consider that, building on the progress made through these schemes, there may be a benefit to targeting further support towards areas where there is less of a natural commercial incentive to install charging infrastructure, and where the transition to EVs may progress more slowly.

 

Finally, we recommend that Government adapt the Renewable Transport Fuels Obligation to include all forms of renewable energy, including renewable electricity use in transport, alongside biofuels and hydrogen. Under such an energy obligation, the generation of credits for electricity forms a market-based mechanism which improves the investment case for charge points with a sustainable revenue stream landing directly with chargepoint operators (CPOs) themselves. With improved business cases for CPOs, Government can leave the market to deliver charging infrastructure in areas where support is not needed, and instead concentrate funding in areas which are not seeing profitable levels of infrastructure or where support is needed for the cost of connections.

 

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

 

Both National Grid and the Electricity System Operator (ESO) have frequently noted that the grid will be able to manage the significant uptake in EVs expected.

 

EVs carry enormous capacity to assist the electricity grid in load balancing. Since the Electric Vehicle (Smart Charge Points) Regulations 2021 came into force in June last year, all new private EV chargepoints that have been sold since implementation have the required smart functionality to provide such a service, known as demand side response (DSR). DSR allows consumers to use electricity at a lower cost, whilst enabling energy to be more efficiently distributed on the system. This will help flatten peaks in demand when used collectively, reducing the need for carbon-intensive generation, managing costs for the electricity network and ultimately lowering bills for all consumers.   

 

Likewise, Government and industry have invested millions into programmes that will remove barriers to enabling bi-directional charging which will allow EVs to offload energy stored in the car’s battery back into the grid. Whilst the market for bi-directional charging capability is fast evolving with promising trials, smart EV charging is already proving to save customers money and assist the grid in shifting demand, with one smart EV tariff recently managing over 100MW of EV charging power.    

 

The UK’s electricity grid is undergoing a huge transformation in preparation for a Net Zero energy system. Not only are EVs unlikely to cause undue concern on grid capacity, they are also vital to avoiding such concern by facilitating load control and in managing costs for the network. The ESOs Future Energy Scenarios reports highlight the instrumental role that EVs must play in order for the UK to operate a secure and cost-effective Net Zero energy system.  

 

 

30. What is the role of distribution network operators in ensuring EV infrastructure can be rolled out sufficiently to meet 2030 target?

Distribution network operators (DNOs) maintain, operate and invest in the distribution network of specific regions. They facilitate the connection and charging of EVs, connecting supply and balancing capacity to ensure supply meets demand, upgrading the network where required. Without the smart standards being developed by DESNZ under the Smart Secure Electricity System workstream, the potential peak impact of electrification of domestic transport could result in total electricity demand increasing by 90 – 130 TWh and peak demand by 20 – 30 GW in 2050. Thanks to Government direction on both smart charging and clear timelines for the phase out of petrol and diesel vehicle sales, there should be more certainty about where and when to invest in networks.

Electricity networks are in need of significant investment in order to continue to deliver the same guaranteed level of service to consumers. A focus on short-term cost-efficiency within regulation and policy has resulted in significant underspend compared to the ambition in power, heat, and transport. As the level of EV uptake increases in line with the Government’s targets, it is critical that the regulatory frameworks are updated to ensure that networks are investing ahead of need, anticipating not only the connection of EVs but also a significant level of electrification of heating.

 

Without more visibility of the state of the connections queue at distribution level and an approach to strategically planned anticipatory investment, the ability of consumers to choose when to decarbonise their transport use may be impacted across GB. We encourage Ofgem to adapt the regulatory framework to enable anticipatory investment, but also to establish standards for open data, network monitoring and network connection processes and timelines in order to ensure DNOs are modernising and streamlining the approach at the same pace across GB.

 

Timely approval of an electricity connection is vital in rolling out chargepoints at the pace needed to meet the 2030 date. The current process for completing an electricity connection for public chargepoints involves various steps and some chargepoint operators are experiencing delays in getting a connection. DNOs have seen an extraordinary growth in low carbon technology (LCT) connections applications, which is placing growing stress upon existing industry processes and means the ‘first come first served’ model is no longer fit for purpose as the demand for networks out strips the available capacity.

 

The ongoing workstreams from DESNZ to develop a Connections Action Plan and from the Department of Business and Trade’s Better Regulation Unit are developing a more appropriate approach to investment and economic regulation in some areas, and further work from the Energy Networks Association, National Grid ESO, and the electricity networks commissioner have contributed to this work. It is critical to the successful decarbonisation of transport, delivery of existing targets, and the stimulation of private investment (both within the sector and from businesses and households) that these workstreams be coordinated, comprehensive, progressed in full consultation with industry, and delivered in a timely manner.