Jeff St. John, Canary Media
Jan 24, 2023
Neither tenants nor landlords want to pay for EV chargers. Maybe third-party infrastructure finance can solve the conundrum.
Farrukh Malik, CEO of Amperage Capital, sees a major roadblock on the path to getting Americans to replace their gasoline-fueled cars with electric vehicles: the lack of convenient and cost-effective EV charging for the one-third of U.S. households that rent their homes.
Renters make up about 44 million of the country’s 131 million households, Malik said. Those renters “need to be driving EVs for mass adoption to happen. And for them to drive EVs, they need access to charging, just like I have in my garage,” since more than 80 percent of all EV charging now happens at home.
A growing number of companies are taking a crack at solving this EV-charger bottleneck for multifamily rental properties. This month, Dallas-based Amperage Capital unveiled its own solution. Over the next two years, the company will seek out up to 100 “Class A” multifamily properties — the higher-end apartments that command higher rents. Amperage will lease parking spots from those properties and take on the cost of outfitting those spaces with EV chargers and the associated infrastructure. Then it will lease those spots to EV-owning tenants for a monthly fee.
That puts the costs and the risks onto Amperage, rather than the property owners, Malik explained. Amperage’s team has been busy studying rental properties in markets with high EV penetration to pick sites where this business model can pay off. Amperage’s investors include a number of Dallas-based “family offices” — the private wealth managers for wealthy families looking for investments.
This kind of infrastructure investment approach — one party owning and managing assets that are installed at another party’s property — has proven to be viable in fields from developing large-scale clean energy projects to installing internet service in apartments, Malik noted. It hasn’t yet been tried in a big way for EV charging, however, he said — at least not in the U.S., though some examples exist in Europe.
Multifamily housing has its own complexities to deal with when it comes to structuring the contracts and legal terms between property owners and infrastructure owners, he noted. But similar structures are starting to take hold to help overcome the barriers to installing solar panels and batteries in multifamily buildings.
For investors with an eye on long-term, steady returns, it’s a viable way to put money into the coming boom in demand for EV charging, said Matt Shields, president of The Shields Group, the family office that manages investments for his and other families’ wealth and an investor in Amperage Capital.
“As a business model in general, this unlocks access to low-emissions vehicles in a way that I haven’t yet seen,” Shields said. “If you’re living in an apartment complex, you can go to public chargers and fight for charging. That’s possible — but it’s not ideal.”
Why it’s so hard to get EV chargers into apartment complexes
The third-party approach is needed to get EV chargers installed at apartment buildings, Malik said, to cut through the misaligned incentives for tenants and landlords.
For landlords, the primary problem is cost, he said. Adding more than a handful of chargers to garages and parking lots can require costly and time-consuming electrical and construction work, and could potentially push a building’s electricity bills through the roof.
Property owners don’t want to take on those costs, which don’t necessarily offer any clear return on investment. That’s particularly true if they’re planning to sell the property in the next five to 10 years, as many multifamily property owners are likely to do, Malik said.
“A lot of multifamily owners will say, ‘We’re not gas stations. Why do we need to be the refueling station for our tenants?’” said Loren McDonald, CEO of analysis and consulting firm EVAdoption. “And then they say, ‘I only have two tenants who drive EVs and they can charge at work. Why should I pay for it?’”
Tenants, meanwhile, are usually not in a position to demand that their landlords do the work of installing chargers. And it would rarely make sense for tenants to pay for installation themselves if that’s even an option, because they may only be in a rental apartment for a limited amount of time.
The difficulties of charging an EV outside the home are almost certainly playing a role in the gap in EV ownership between homeowners and renters, according to Lucas Davis, a professor at the Haas School of Business at the University of California, Berkeley. Back in 2018, Davis analyzed federal data and found that homeowners are three times more likely than renters to own an EV in California, and six times more likely in the rest of the country.
This gap held true even for renters and homeowners with equivalent annual earnings, Davis noted. The difference in EV ownership, he surmised, is because renters can’t access charging at home.
But for more forward-thinking multifamily-property owners, EV chargers may be shifting from an unnecessary and expensive tenant luxury to a must-have amenity, McDonald warned. That’s particularly true in places like the San Francisco Bay Area, which leads the country in EV adoption.
“If you’re an apartment property in the Bay Area and don’t have at least a couple of chargers, you’re going to be at a competitive disadvantage,” McDonald said. “You’re going to start losing tenants.”
Shared charging as a stepping stone
Toronto-based EV-charging-management startup Swtch is another company working with multifamily building owners to take the first steps in their EV-charging journey. Most often, that starts with offering a handful of chargers for tenants to share, said CEO Carter Li.
Swtch specializes in networking and monitoring these shared charging stations and helping property owners and tenants schedule their charging in ways that optimize how often they’re used and minimize wait times, Li explained. His company has raised about $17.5 million and manages 2,200 charging points at North American multifamily properties, most of them at Canadian apartments and condominiums.
One key challenge for property owners is keeping the cost to a minimum, particularly as they expand from more than a handful of chargers. Li offered the example of New Times Square, a 375-unit building in Toronto that installed 14 EV chargers with Swtch’s help. Swtch set up the charging sites to ensure that they won’t all charge at full capacity simultaneously, helping avoid electrical upgrades and expensive demand charges on buildings’ utility bills.
Shared charging does create potential problems when the number of EV-owning tenants dramatically exceeds the number of chargers, he said. “In the context of shared charging, loitering is a big problem,” he said. Some of Swtch’s customers have imposed financial penalties on tenants who leave EVs plugged in longer than it takes to charge, he pointed out.
Amperage Capital’s approach of assigning charger-equipped parking spots to individual tenants is designed to avoid these kinds of problems, Malik said. But it means targeting apartments with wealthier tenants who are more likely to buy EVs and be able to afford a dedicated charger. “We want to go to communities that have demand today,” he said.
Finding business models that work for lower-income communities
Income disparities remain a primary barrier to EV adoption, particularly in communities that have faced a disproportionate burden from the environmental and health impacts of fossil-fuel use. EVs are still more expensive — and harder to buy in used-vehicle markets — than gasoline-fueled cars.
But the introduction of lower-priced EVs and the extension of U.S. federal tax credits for new and used EVs are starting to change that, Li noted. “If you look at the Chevrolet Bolt, it’s $26,000,” he said. The lower operating costs of EVs could be even more valuable for lower-income drivers, he added.
Still, it’s hard for EV-charging developers to justify the cost of building in areas with low EV adoption since chargers need regular traffic to pay off their installation costs. That puts the imperative on public policy that can support EV charging in communities that haven’t yet bought into EVs in large numbers.
Because of the misaligned economics between owners and renters, states with aggressive EV targets such as California, Colorado, Illinois, Massachusetts and New York have created incentives for installing chargers in multifamily buildings, but such incentives are still rare across the country. Much of the federal funding for EV charging has so far largely been targeted at public chargers along major transportation routes, although half of the $2.5 billion in charging grants from the 2021 infrastructure law will be prioritized to expand access to EV charging in low- and moderate-income communities, which could include multifamily housing.
Late last year, East Bay Community Energy, the California community energy provider serving Alameda County, approved a plan that could put private-sector capital to work to get chargers installed at more apartment buildings. The plan calls for contracting with two separate EV-charging developers to build and operate 40 to 50 public EV-charging hubs by 2030 in “multifamily housing hotspots.”
Nearly half of Alameda County residents are renters, and 90 percent of its multifamily housing buildings are older than 50 years old and would face high-cost electrical upgrades to support their own charging stations, according to EBCE. Its plan would target “charging deserts,” areas where private-sector EV-charging providers have yet to invest, and where state vehicle-registration data shows “virtually no uptake of EVs by renters to date.”
To reduce the financial risk to the charging-site developers, EBCE plans to sign a 10-year “tolling agreement” with each partner, in which EBCE pays each a set monthly fee to pay off the cost of the investment and operations. EBCE then takes on the responsibility and risk of setting the rates that EV drivers pay and supplying and paying for the electricity they’ll deliver.
Tolling agreements: A new way to make private-sector EV-charging investment bankable
These kinds of tolling agreements are commonly used to develop clean energy projects, and EBCE has used similar structures with companies that are deploying distributed solar and batteries. But they’re a novel approach to developing EV-charging infrastructure, according to EBCE — and its plan notes that they could serve as a model for other community energy providers and municipal utilities.
EBCE’s contracts, which have yet to be finalized, are with Calibrant Energy, a distributed-energy-development joint venture of electrical-equipment giant Siemens and Australian infrastructure investor Macquarie Group, and EV Realty, a startup that raised $28 million last year to build out charging sites, with a focus on serving fleet vehicles.
Patrick Sullivan, EV Realty’s CEO and co-founder, likened the EBCE arrangement to the power-purchase agreements with utilities and corporate energy buyers that have helped clean energy projects secure stable, long-term revenue critical for gaining the confidence of equity and debt investors. The alternative — selling the electricity that wind or solar farms produce at unpredictable and constantly changing energy-market prices — is too risky.
But that’s in essence the type of risk that most EV-charging developers take when building charging depots that will rely on enough EV drivers choosing to use their services often enough to pay back the upfront investment and cover long-term operating costs. Enlisting a utility or energy provider like EBCE to share the risk of projects earning back their upfront costs — what Sullivan described as “utility counterparty credit risk” — could dramatically expand the scale of private-sector infrastructure or debt financing to build the EV charging that multifamily properties need.
“Between taking utility counterparty credit risk versus hoping you picked the right spot for enough people to drive up and plug in, I’ll take the former every day,” he said.
EV Realty and Calibrant do have plenty of responsibilities on their end, Sullivan noted. “We’re guaranteeing uptime and performance,” he said — making sure the chargers operate properly and are plentiful enough to serve a growing number of EV drivers, many of whom are EBCE customers.
The site developers are also responsible for helping EBCE determine whether the locations being targeted have access to enough power grid capacity to serve the chargers that will be installed there.
Getting private-sector capital into the EV-charging game
For these third-party EV-charging business models to work, companies like Realty EV and Amperage Capital must convince investors to put their money into developing charging sites for the long term. What infrastructure investors demand in exchange for this is stable and secure cash flows and large-scale investment opportunities.
Individual EV-charging sites aren’t big enough to meet that threshold — but bundles of EV-charging sites could be, if they can be developed and managed in a repeatable and financially predictable way.
“Compared to utility-scale renewables, individually these projects are small, which means you have to scale,” Sullivan said. “You have to learn how to unlock lower-cost capital [and] infrastructure finance.”
Amperage Capital’s plans also rely on infrastructure investors, Malik said. “Our approach is not to do one apartment building here and another there. As we have these conversations with multifamily owners, they’re conversations about doing portfolios of projects.”
While major providers of EV-charging networks such as Blink, ChargePoint, Electrify America and EVgo have largely been focused on highways, shopping malls and other heavily trafficked sites, some of those companies are also offering financing for multifamily charging installations, he said. And EverCharge, a California-based EV-charging startup that has specialized in multifamily installations, was acquired by an affiliate of South Korea’s SK Group last year.
“I think it’s just a matter of time” before multifamily EV charging becomes a major target for investment, Malik said. “It’s hard to deny that that’s where the market is moving now.”
Read the article at Canary Media here.