Authored by Alana Valero and Emma Wink
The uptake of electric vehicles (EVs) is driving the change towards emission-free and cost-efficient electric urban transportation solutions.
Providing transport under a servitisation business model can support the transition to low-carbon mobility.
How? The service or vehicle provider would be in charge of the upfront costs and all challenges related to obtaining funds, allowing for better allocation of risks and responsibilities and thus removing the barriers stopping most people from going electric.
In support of Solutions Day at COP27, this article identifies several high-level gains from servitisation and innovative business models that can help drive the transition to sustainable transport solutions.
Just the beginning of the journey
Why the urgency?
In line with the Paris agreement, the decarbonisation of transport must occur to meet the 1.5°C threshold, through travel reduction, improved efficiency, use of alternative fuels such as liquid biofuels, hydrogen (and derivatives), and the electrification of transport. The urgency of this cannot be overlooked. According to the IPCC, it’s “Now or Never” on the 1.5°C warming limit. Without significant change, transport emissions could increase at a faster rate than emissions from other sectors (reaching 12 Gt CO2eq/year by 2050).
Indeed, the transportation of both goods and people is one of the highest GHG emitting sectors, and also the fastest growing sector in relation to GHG emissions. The transport sector accounts for around 23 percent of global CO2 emissions, 28 percent of global final energy consumption, and is the second biggest polluter. To stay on track to achieving net-zero by 2050, there must be a 20 percent reduction by 2030. This must hwp-contenten in parallel with growing demand.
Africa is the fastest urbanising continent
By 2050, around 60 percent of the population is expected to reside in urban areas, compared to less than 20 percent in 1960. Africa’s overall population is projected to double by 2050 to 2.4 billion, mostly in cities. Urbanisation tends to go hand in hand with congestion traffic and, in the case of internal combustion engine (ICE) vehicles, increased air pollution. While e-mobility alone cannot solve the problems related to congestion and traffic, it can positively impact air pollution and GHG emissions. Creating electric public transport systems which are affordable and reliable would also make e-mobility more attractive to end-users. Ultimately this could translate into fewer individual vehicles on the road, reducing congestion in cities.
The roadblocks
While the challenge of providing sustainable e-mobility and decarbonising the transport sector differs by country and city, four overarching ‘‘roadblocks’’ must be addressed for the transition to gather speed. We explore some of the strategies already implemented to tackle these challenges in African countries that can be built upon or replicated.
- Limited enabling policy framework
Without market readiness created by policy and pricing, there will be limited motivation to transition towards e-mobility.
On the African continent, the growth and development of the e-mobility sector continue to contend with issues like electricity access, low vehicle affordability, and the dominance of used ICE vehicles, including those meeting lower emissions regulations standards. In order to increase the adoption of electric vehicles, enabling policy that includes a range of mechanisms is required. For example, Nigeria has no e-mobility policy framework, and the government continues to provide fuel subsidies. The current National Automotive Industry Development Plan (NAIDP), the only framework relating to the automotive industry, does not cover EVs. However, there are plans underway to incorporate electric vehicles. Despite this, the first made-in-Nigeria EV and EV charging station were presented by the National Automotive Design and Development Company (NADDC) in Sokoto state in April 2021.
Initial actions being taken:
Rwanda:
- Rwanda’s e-mobility programme includes rent-free land for charging stations on land owned by the government and green licence plates to allow preferential parking for EVs and free entry into future congestion zones. VAT exemptions are also in place.
South Africa:
- The Transport Strategy of South Africa provides ways to reduce GHG (from 2018 to 2050). For example, the strategy encourages investing in green energy infrastructure and reviewing levies on new motor vehicle CO2 emissions.
Egypt:
- Subsidies for the first 100,000 locally produced EVs.
Kenya:
- Within its 2020 National Energy Efficiency and Conservation Strategy, several suggestions are made to accelerate e-mobility development. These include lower import duties for EVs, revising building codes to include charging infrastructure and awareness raising. By 2025, Kenya aims for 5 percent of imported vehicles to be EVs.
Morocco:
- Aims to meet the UN’s target of 80 percent renewable energy by 2050. VAT exemptions are also in place.
- Electricity cost and grid reliability
The high cost of electricity and grid instability, coupled with a lack of reliable integrated renewable energy charging solutions, will affect the feasibility and workability of EVs for service providers and end-users.
To tackle this issue in Rwanda, electricity tariffs for charging stations with charge point operators are cwp-contented at a lower rate: nearly USD 10 cents/kWh instead of 20 cents/kWh, and reduced tariffs are in place for charging during off-peak hours. These types of incentives may encourage the uptake of EVs.
In Egypt, the electric charging tariff has set prices for EV charging, with an agency issuing licences to operators. These operators and investors have contracts set at a specified price at which the operators can purchase electricity from distributors and the profit margins when stations sell to customers.
The price of electricity in comparison to petrol or diesel may also work in favour of EVs, such as in Morocco where the energy cost of an EV is USD 0.66 per 100km compared to an ICE costing an estimated USD 3.86 per 100km.
- High Upfront Costs
Financing the decarbonisation of the transport sector requires acceptable returns on investment for e-mobility solutions and infrastructure. Many EVs on the market remain more expensive than existing ICE vehicles. In fact, electric vehicles in South Africa are on average twice as expensive as a new ICE vehicle. The lack of charging stations and a longer when buying an EV makes the wider uptake of EVs even more challenging.
These issues will remain until purchase price parity is reached. However, there are other ways to reduce the upfront costs linked to the enabling policy frameworks, such as having financial incentives (no VAT, custom exceptions) or having more competitive interest rates for EVs.
Financial institutions play a critical role in creating an enabling environment for the e-mobility market; however, currently, many financial institutions either do not understand the latest technology or do not understand the business models*. These are not internalised in their credit-lending structure, which, in turn, prevents banks from creating newly customised and accessible financial products. This results in the banks having a high perception of risk, which translates into high-interest rates and other less favourable terms. The sum of which makes financing for EVs and charging infrastructure more expensive.
- Range Anxiety – the fear of running out of power
Urbanisation means increased travel demand in and around cities. A big factor limiting large-scale uptake of e-mobility is range anxiety, especially in rural areas. Not having a stable supply of energy from the grid worsens this fear. In an interview by Mckinsey, all interviewees in Nigeria and Kenya said that “range anxiety” and high up-front costs were their primary concerns with EVs.
Different solutions can tackle this issue. For example, the battery swwp-contenting model, where batteries can be removed from an e-bike or e-motorbike easily and charged separately. In this way, a pre-charged battery can be inserted into a vehicle. It means that the ‘recharge’ is almost instant. This is an emerging business model in some parts of Africa, such as Kenya and Rwanda. The roll-out of decentralised services, such as integrated battery charging systems running off renewables, could help to reduce carbon emissions associated with charging.
A new way of doing business
It is clear that the decarbonisation of transport should be a priority, and subsidy schemes should favour EVs, not combustion vehicles. E-mobility solutions under a servitization model can help to decarbonise the sector. Those attending COP27 likely support prioritising infrastructure development, an infamously expensive process. The World Bank estimates the annual transport infrastructure financing gap at USD 944 billion per year (estimated up to 2030), far exceeding traditional sources of funding. The challenge of developing the e-mobility sector must therefore consider innovative business models like servitisation which can be integrated with renewables and wp-contentlied to charging infrastructure, batteries, and EVs.
An e-mobility future must run on renewables
Electric vehicles are only part of the solution. These can only contribute to decarbonisation efforts if the electricity used for charging comes from a renewable energy source. Increasing EVs in areas where emission factors for the national grid are high may ease localised air pollution but ultimately do not tackle grid CO2 emissions. If grid systems increasingly harness renewable and clean energy, this will also improve the life cycle CO2 emissions of these vehicles. Overall, the move towards e-mobility solutions should not wait until electricity is decarbonised as emissions are demonstrably lower.
Servisation model
The servitisation model has great potential for the urban transport sector, with potential for renewable energy integration. Customers engage with service providers on a pay-per-use basis rather than purchasing physical assets, such as a fee per km travelled or time in use. E-mobility providers retain ownership of the asset and are encouraged to design for modularity and consider reuse and material recovery to extend asset lifetime. An important aspect of e-mobility development is battery charging infrastructure and the potential for battery swwp-contenting.
Battery-as-a-service
E-mobility adoption in Africa is already hwp-contentening. With an increasing amount of electric 2-wheelers and 3-wheelers being used for commercial activities. Africa has one of the lowest per-capita car ownership levels globally. In East Africa there are more motorcycles than cars. There is a finance and infrastructure gap. This is where battery as a service comes in, where the end-user pays per km used, per time or even simply to recharge or exchange the battery. This is how startups can create and capture economic value to integrate e-mobility into Africa’s transport system.
The service provider would track their batteries, and they would know the state of charge. They would have a threshold and once it is reached the end user would know it is time to go to a nearby swwp-contenting station. This would greatly remove range anxiety. This would also remove the end user’s hesitation about battery maintenance and depreciation. The charging hub could use solar to charge the batteries, on a rotating basis.
In Kenya, there are several e-mobility and enabling companies. They are predominantly focused on battery swwp-contenting and charging stations for 2-3 wheelers. These companies are still new as it’s an emerging market. As a solution, the battery-as-a-service model can disentangle capital and operational risks.
Conclusion
E-mobility in Africa now presents an emerging opportunity with great potential for growth in the face of rapid urbanisation and motorisation, and for dealing with the predominance of ageing and inefficient vehicles. Things are shifting, as the e-mobility expo held in Nairobi in October this year demonstrated.
At the same time, the road to net-zero and access to clean mobility solutions requires the decarbonisation of the electricity grid and investment in renewable energy solutions. In cities, charging infrastructure could, for example, be optimised through partnerships between shared-mobility providers.
We call on government delegations attending COP27 and transport authorities to push for policies that encourage the adoption of EVs. Targets and roadmaps must be set for the phase-out of ICE vehicles.
We ask for the consideration of enabling models such as servitization for e-mobility solutions. The servitisation business model removes upfront investment costs for consumers and fleet providers, and has the potential to accelerate renewable energy-based battery-swwp-contenting infrastructure. We invite countries to work together with national financial institutions and multi-laterals to develop financial mechanisms best suited to local conditions.
Africa faces many unique challenges to developing e-mobility whilst decarbonising the transport sector, but solutions and opportunities with potential are materialising.
*according to BASE interviews with ESCOs in Africa
