The energy transition in Germany is an enormous project. One of the greatest challenges has been (and still is) financing, which is provided primarily by the private sector.
Electromobility is a linchpin of the energy transition. Electric vehicles and the batteries that power them are not only important for reducing vehicle emissions; they are also becoming an increasingly attractive option thanks to their potential to store energy. Renewable energy sources are not always available consistently, which means that the electricity they generate must be stored when consumption is low so that it can be retrieved at times when it's not possible to produce energy. In the future, electric vehicle batteries will be able to take on this storage function too. This system, known as "vehicle to grid", is still in its infancy, but the technical feasibility of bidirectional charging has already been trialled multiple times with successful results.
The charging infrastructure ecosystem – with participants such as car owners, car manufacturers, charging service providers, charging point operators and energy suppliers – is consequently becoming more complex, not least for investors and financiers. Firstly, there's the market situation to contend with: Construction of the public charging infrastructure has always been highly fragmented and skewed by subsidies. It will be a long time before the market is in a position to regulate supply and demand. Secondly, because the potential returns are crucial for private investors, they are primarily interested in financing infrastructure in "A" locations. However, the public interest lies in having charging points offered at more remote locations as well as busy ones. After all, acceptance of electromobility and its success on the market will very much depend on the widest possible charging network being available.
This problem could potentially be solved by combining different locations into packages or providing usage-based financial assistance with more funding for less-frequented locations. This would entail financing charging stations not only in high-traffic, high-yield locations, but also in areas that are expected to generate less revenue. Combining locations reduces the financial risk of a single charging station and can also simplify cash flow processing by avoiding the overly compartmentalised billing of individual stations. This is even more relevant where stations are intended to be used for bidirectional charging, which makes users not just buyers but potentially also beneficiaries of payments for merely providing their battery capacity.
The example shows how complex financing could be in the future. The networking of ecosystems spanning different sectors is likely to be the hallmark of many future financing projects. This will require the interests of different stakeholders to be taken into account. Generating income by potentially posing an obligation to pay suppliers of battery infrastructure results in all financing being heavily based on variable cash flows. This is likely to become the standard of future sharing economies and circular economies. Companies should not be deterred by this complexity, as it provides access to sustainable financing projects. Help is being provided by banks that are already gaining experience in combining and processing variable cash flows – experience that can be transferred to other fields too.
Featured article by Michael Spahn, Co-Head of Financial Institutions & Public Sector at ING Wholesale Banking in Frankfurt am Main and Jens Brokate, Vice President of the Automotive Sector at ING Wholesale Banking in Frankfurt am Main, DerTreasurer 01/2022