Germany is planning a nationwide network of EV fast-charging points – What’s in it for investors?

The proposed Fast Charging Law (Schnellladegesetz) will set the framework for tendering thousands of fast-charging points in Germany in a European procurement process. The aim is nothing less than creating a comprehensive nationwide network of fast charging points in Germany. The Fast Charging Law offers great opportunities for investors, but it comes with some strings attached.

Background

Following the surge in electric vehicle ("EV") sales in 2020, German policymakers have stepped up their efforts in deploying both private and public EV charging infrastructure. For private charging, this includes government grants for homeowners totalling 400m Euro, mandating charging infrastructure for many new buildings and major renovations, and helping owners and renters in apartment buildings to install private charging points in a shared garage by streamlining the process for obtaining the consent of the other apartment owners.

For public charging, the federal government has recently announced a 300m Euro government grant program for private investors. On top of this, it has proposed a new law – the Fast Charging Law (Schnellladegesetz) – setting the framework to procure public fast charging points (i.e. charging points with a capacity of 150 kilowatts or more). In a first step, the German Federal Ministry of Transport and Digital Infrastructure ("BMVI") plans to put to tender 1,000 of such fast charging points in ten lots. More may come in the future, as the ambitious aim of the new Fast Charging Law is to procure a comprehensive nationwide network of fast charging points enabling EV users to reach any spot in Germany without a detour. The Fast Charging Law is scheduled to be passed by parliament in spring 2021. The procurement process for the first 1,000 charging points shall begin in summer 2021.

Highlights and drawbacks

A major highlight of the Fast Charging Law is the fact that the German government is willing to spend substantial funds on public fast charging in a European procurement process. There are currently around 6,000 registered public fast charging points in Germany. This means that the tenders under the Fast Charging Law of 1,000 charging points and more will offer investors an opportunity to secure substantial chunks of the market. However, this opportunity comes with some strings attached.

Firstly, the lots will bundle commercially attractive and unattractive locations. Some particularly desirable locations at service stations along the Autobahn may end up not being tendered, as such locations will be offered with priority to the concessionaries of the service stations. It remains to be seen whether concessionaries will act on this opportunity. They may lack the required know-how or capital, but we may see concessionaries teaming up with charge points operators to seize this opportunity. Given the mix of attractive and unattractive locations, investors will have to evaluate whether a particular lot offers enough premium spots to justify committing to the less frequented ones. The Fast Charging Law tries to mitigate this with a subsidy mechanism. However, the wording on this mechanism is vague. Details are left to be determined by the BMVI. It also remains to be seen how such subsidy mechanism is to be assessed in light of European rules on state aids.

Secondly, a requirement of the tenders will be non-discriminatory pricing for ad hoc charging. Ad-hoc charging is a EU law requirement stating that electric vehicle users must be able to recharge at any public charging point without having to enter into a long-term contact with the relevant charge point operator or electricity supplier. The requirement creates a free-rider problem for cross-subsidised charging networks that are intended primarily for a specific group of users, such as Ionity, Tesla’s Superchargers or the new premium network contemplated by Audi. The free-rider problem is generally addressed in one of two ways. The sly approach taken by Tesla is installing barriers that open only for Tesla drivers at the entrance of the Supercharger parks, thereby making the charging points non-public and outsmarting ad-hoc rules. The more subtle approach is simply charging higher fees from non-members, as Ionity has been doing since 2020. Neither approach will be permissible for the charging points tendered under the Fast Charging Law. The charging points will have to be public and offer non-discriminatory pricing for ad-hoc charging. Only a premium for additional processing costs will be allowed.

Thirdly, the Fast Charging Law allows the BMVI to change the procured contracts – including their commercial terms – to reflect changes in demand, new scientific findings, technological developments or the legal framework. Even though additional costs of such changes are supposed to be compensated, such provision will not help to build trust among investors.

Lastly, the BMWI will specify areas or locations where the charging points subject to the tender shall be deployed, but the bidders will be responsible for finding and securing suitable real estate. This may turn out to be a tedious process, especially for large investors not familiar with the local situation. One solution may be to engage with specialised local project developers who know how to approach the relevant local real estate owners to secure the necessary land rights. This concept has proven to work well for onshore wind and solar projects, where investors face a similar challenge.

What about existing charging points?

Operators of existing charging infrastructure have been in a huff about the Fast Charging Law, fearing that thousands of new state funded charging points may devalue their investments. The Fast Charging Law addresses such concerns half-heartedly with a clause requiring the BMVI to “consider the interests” of existing operators when implementing the Fast Charging Law. In extreme cases of “unreasonable hardship”, existing operators may offer to sell their infrastructure to the state or apply for compensation. The Fast Charging Law states in its explanatory remarks that such hardship is expected to concern primarily operators which are too small to participate in the tenders. Large operators shall be satisfied with the opportunity to compete in the tenders. It is probably safe to assume that this will not provide comfort to existing operators.

Conclusion

It is great to see efforts from German policymakers to scale up public fast charging infrastructure to meet increased demand. Nobody wants new EV buyers to start regretting switching to e-mobility due to a lack of charging stations. The proposed Fast Charging Law is a leap in the right direction. However, presenting a bid that fulfils all Fast Charging Law requirements while being profitable will be a challenge to investors. Pricing restrictions for ad-hoc charging, subsidy and compensation mechanisms, and forcing investors to build charging points at mediocre locations may end up costing more government money than necessary. The fact that existing operators feel overlooked is unfortunate. Private investment was crucial for the rollout so far and will be even more in the future. Investors should feel legal certainty when investing in public charging points.