Opportunities in shift to electric vehicles

The share of electric vehicles (EVs) in modern transport is certain to expand as the market predictably responds to customer demand, technological development, and government regulations on clean energy.

The shift to zero-emission mobility has been strongly embraced worldwide in a quest to solve climate change.

Kenya is no exception and is gradually becoming part of the e-mobility journey as evidenced by the flurry of ongoing preparations by both the private and public sectors.

From the acquisition of EV fleets to the establishment of charging stations, as well as crafting requisite laws and incentives on this technology, a lot is happening in Kenya.

Notably, the transport sector is the fourth largest greenhouse gas (GHG) emitter after agriculture, electricity generation, and land-use change and forestry (LULUCF), according to Kenya’s 2017 Emission Baseline Projections Report.

This explains the government’s drive for the uptake of e-mobility as one of the solutions to climate change, with a target of reducing emissions in the transport sector by an estimated 3.46 metric tonnes of carbon dioxide by 2030.

Both public and private sector players have joined the fray toward e-transport through various initiatives. They are preparing the ground for the big shift.

Some of the initiatives include the development of EV standards; the reduction of excise tax on EVs from 20 percent to 10 percent; and partnering with development partners including the United Nations Environment Programme (UNEP) to roll out pilot programmes to appraise the uptake and challenges in e-mobility adoption.

The majority State-owned KenGen has recently unveiled four EVs to primarily be used for data collection and policy development.

KenGen now has two EV charging stations in Nairobi and Naivasha and plans to roll out about 30 EV charging stations in major cities across the country.

E-mobility startup BasiGo, which has a fleet of electric buses in Kenya, has also partnered with the Associated Vehicle Assemblers Limited to assemble its buses in Mombasa as the shift to clean transport gathers pace.

But that is not all. Kenya Power has too embraced e-mobility with a projection that it now can charge 100,000 EVs.

The company on February 7 to 8, 2023 hosted an e-mobility stakeholder’s conference themed Powering e-mobility in Kenya.

The conference brought together policymakers, tech providers, financiers, and Kenya Power to develop an ecosystem that will support the growth of e-mobility in Kenya.

As an incentive to EV owners, Kenya Power even proposes a preferential power tariff of KSh17 per kilowatt-hour (kWh) for charging stations as it positions itself to cash in on the growing uptake of EVs in Kenya to boost its electricity sales.

Evidently, a lot is happening on the e-mobility front and more is expected in the medium term as regulatory pressure and consumer pull intensify.

But amid this shift, there is a dilemma and concern about the impact it would have on the mobility sectors which have for decades been dominated by combustion engine technology and fueled by oil companies.

The move to EVs will no doubt impact the traditional downstream business model of oil majors. However, all is not lost because many new opportunities will arise.

For example, oil firms have a chance to ride on the demand for public EV charging stations by utilising their established brands and wide networks of service stations.

The EV charging stations can complement their service and revenue streams during the transition to a full-scale e-mobility.

By establishing the EV charging stations, the oil companies have an opportunity to retain the loyal customer base through concepts such as charge cards which make it flexible for managing fleets through the transition.

Secondly, the traditional strong financial frameworks for oil companies place them in a good position to spearhead financing the purchase and lease of EV fleets.

Like with any innovative technology, the pilot phase of products is traditionally costly as is the case with the pilot EV fleet and it would make sense for cash-thin firms and individuals to take up lease financing from the oil firms as they wait for prices of units to fall over the years.

Because both the EV units and replaceable batteries are costly, the lease financing could be split to provide options to the customers such as buying a vehicle and separately leasing a battery.

Closely related to this, the oil companies also have an opportunity to invest in EV-battery services such as maintenance, repairs, or swapping.

They would, for example, establish facilities at their existing retail stations for EV battery banks that enable consumers to swap depleted batteries for charged ones and even extend provisions to include options for rent or lease of batteries that are still expensive to buy outright.

So there are opportunities for everyone in the e-mobility journey although oil companies must forge a united front and engage the government as critical partners in the transition.

A transition from petrol pumps to charging stations entails massive capital and policy changes and the oil companies and regulators must share a table to ensure a smooth change-over and protection of the massive investments made over the years.

An industry transition of this magnitude is akin to an industrial revolution and deserves incentives and policy support for a win-win outcome.

Petroleum importation and distribution is a mature and highly competitive sector with small profit margins and requires support from the State because it cannot on its own afford the huge capital needed to repurpose and replace its existing asset with e-mobility-focused ones.

With most private investors still reluctant to the clean energy shift, the success of e-mobility transitions will rely heavily on State-backed initiatives such as loan guarantees, tax incentives, and capex grants to kick off the transition.

This can be followed later by other initiatives such as special feed-in tariffs by regulatory agencies.

The state-industry partnership toward e-mobility transition is therefore critical and petroleum companies must forge a common front in this race for survival.

The writer is Galana Oil CEO.