EV Charging Investment – the benefits of due diligence
Significant investment has already gone into the roll out of charging infrastructure around the UK, but that is set to increase, particularly with the announcement of the Government’s Charging Infrastructure Investment Fund (CIIF). Zouk Capital were recently announced as the Government’s preferred bidder to act as fund manager for the public private mixed fund to catalyse the roll out of charging infrastructure in the UK. The fund will provide up to £400 million (£200 million provided by the Government) for investment into anything related to charging infrastructure for electric vehicles. Investments under the CIIF will be made on a commercial basis and will have commercial conditions attached to them.
The very mention of due diligence often conjures up thoughts of it being a necessary evil - a potentially expensive and time consuming process for little value at the end; or a tick box exercise. But, if you strip due diligence back to its fundamental purpose, parties ought to embrace it. If performed well and scoped properly, due diligence can be an extremely important part of any investment process and a significant benefit for all going forward. Due diligence is key to understanding the risks of a transaction and how they are being managed and mitigated and it can act as verification of the value and worth of the project/investment. For the business itself looking to gain external investment, due diligence can be an opportunity for that business to demonstrate its worth to potential investors ahead of competitors, by disclosing areas of risk to an investor and demonstrating how these risks have been properly managed.
What follows is a summary of the key legal areas to consider when carrying out due diligence on charging infrastructure projects.
Some of the most common issues raised on EV charging infrastructure projects include whether the charge point site is taken under lease or licence and the security packages that are available. In our experience, licences have the benefit of potentially being quicker, although it is not always the case. Leases are generally a better option if the business is looking to secure funding because it enables the developer to register the lease and provides potential investors with comfort as a result of their option to take security in the form of a legal charge over it. Interestingly, landlords often prefer leases as well because they typically have a greater understanding of them and are nervous about giving away rights under a licence.
Ownership of equipment, risk passing and buy out ability
Considerations such as who will eventually own the charging infrastructure and how it is managed must be addressed at the outset of a particular project. Is the customer going to buy the equipment out-right, for example; or will the required funds be provided by a third party who will then have to transfer the asset having been paid down over time? Is there an ability for the customer to buy itself out of the charging infrastructure contract, and what happens in the end when the project terminates?
Operations, maintenance and interface risk
There are a whole variety of different potential parties involved in charging infrastructure and the interfaces between them need to be understood. If, for example, one party in the chain defaults or breaches the underlying agreement with the landlord, how is this compensated and do other parties have an ability to step in to continue the arrangements?
Grants and the conditions attached to them
There are an abundance of grants available for electric vehicles at the moment – however, those looking to take advantage of such funding should be alert to conditions attached to grants. There is, in many cases, the ability to claw-back grants, and conditions attached to funding can preclude the benefiting party from taking certain specific actions. It is therefore crucial to understand the conditions that come with grants and the restrictions they might impose on the parties’ on-going plans.
Framework contracts for multiple charge points are very popular at the moment in the development of charging infrastructure, but before entering into such contracts, consideration must be given to what the framework in question means and again what it may preclude the contracting party from doing. Understanding exactly what you are getting out of a framework and how long you are going to be committed to it is essential. Does the framework actually give you exclusivity over a set number of sites? What is the true value of the framework? Could the provider find that, in due course, it has only been allowed to install a few charge points upsetting the financial mode and yet is required to operate and maintain these for a long period?
Consortia and understanding who does what
Consortia are commonly set up to bid for charging infrastructure. These can be very beneficial, but it is important to understand who is responsible for doing what. Who is leading the consortia? Who provides what in terms of funding, different pieces of equipment, and what happens when things go wrong?
The technology and intellectual property in electric vehicles and charging infrastructure often represents a considerable amount of the value of the project. Understanding ownership and rights/freedom to use the technology and intellectual property is critical for anyone involved in an EV charging infrastructure project.
The successful functioning of the EV network is dependent on connectivity. Issues to be considered include understanding the security that is embedded in the network; is the infrastructure secure by design? Are charge points future-proofed?