- Fredrik Billing
Can the Swedish Energy Agency Save the Charging Industry?
The electric vehicle charging industry is pestered with ineffectiveness and frustration caused by the large number of payment solutions. In response, the Swedish Energy Agency has embarked on an ambitious mission to unify the payment solution landscape - but unless they change their approach, success may remain just out of reach.
The future of electric vehicle (EV) charging is constantly evolving, and while Charge Point Operators (CPO) remain on the front line of developing the infrastructure for renewable energy, questions remain about how best to make charging both profitable and sustainable.
Nowhere is this conversation more relevant than right now in Sweden, where the government’s Energy Agency is scrambling for a solution to the biggest obstacle facing the market: the fragmentation of payment solutions. And the momentum is building up. The public, private, and academic sector are in agreement that the fragmentation must be harmonized in one way or another. At least if we are to reach the goal of reducing the emissions of Sweden’s transportation sector by 30% in 2030, as compared to 2010.
But this new-found initiative risks pivoting in the wrong direction.
The Swedish Energy Agency, as well as the whole industry, are bogged down in a way of thinking that does not account for the systematic nature of the fragmentation and focuses instead on suboptimal half-measures. As Albert Einstein once famously said: “We can’t solve problems by using the same kind of thinking we used when we got there.” Yet this is exactly the current strategy.
So what does this mean for CPOs? Can the Swedish Energy Agency really save the charging industry?
The Wild West of the Web 2 Payment Landscape
The core underlying issue is that CPOs are stuck in a dysfunctional market competition that actively aggravates the fragmentation of the payment solution landscape. And failing to recognize this fact is a symptom of an illness that we like to call “the web 2 mindset.”
Web 2 is the second generation of the World Wide Web. Characterized by increased user interactivity and the growth of social media and online communities. Basically, the user-centered internet as we know it today.
But there is one problem. It is centralized.
“Drivers and operators are bleeding because the cost and complexity of collaboration in the web 2 centralized ecosystem is simply too high.”
Many of its key applications and services are controlled by a single entity or a small group of entities. Facebook or Twitter are examples of centralized systems that store data on servers that they own and operate. And yes, as you might have guessed, transactions are also centralized. Web 2 transactions are mediated through a centralized entity such as a bank, that verifies and processes the transaction through centralized payment systems such as Paypal.
And this is where the trouble begins.
Web 2 centralized transactions carve up the payment solution landscape into a jigsaw of siloed payment solutions specific to each charging network. The reason for this is that the stakeholder allowing the transaction with the centralized third party is the same one who receives it. Every stakeholder has their own transactional one-way street to the centralized third party with its specific characteristics that the EV driver has to re-learn and adapt to for each new operator they interact with.
It’s truly a wild west out there and the dynamic is self-perpetuating.
With a myriad of payment solutions on the market, CPOs are struggling to keep their customers close. Without a payment solution that enables an industry-wide framework for collaboration, many operators have become entrenched in their own tailored payment solutions in an effort to keep customers engaged with them exclusively.
And operators are not the only ones who are struggling. As one disgruntled EV driver puts it:
“What bothers me and other EV drivers I’ve talked to is the hassle when charging your car. Cards, tags, apps, and a never-ending cycle of registration and downloading codes. Why should it be so damn complicated to charge your car?”
The affliction of the web 2 mindset, that’s why.
Drivers and CPOs are bleeding because the cost and complexity of collaboration in the web 2 centralized ecosystem is simply too high.
The only value the web 2 ecosystem can provide is the simple transaction of money. But centralized payment solutions limit the ability of operators to customize their payment processes to meet the ever-increasing unique needs of their customers.
And it can certainly not be the foundation of an industry-wide framework for a collaborative network of stakeholders that in turn provides abundant access to customer data and new means of customer interaction. Instead, it has led the entire industry into a kind of inescapable prisoner’s dilemma.
“The fragmented and inefficient web 2 system is simply not up to the task of meeting the increasing demands of cohesion and coordination that the energy transition requires.”
CPOs are unable to relinquish control of their payment silos, since a centralized system does not allow mechanisms of trust to establish between actors. Trust is only guaranteed toward the centralized entity mediating the transaction and they are forced into a state of dependency on them with no other viable alternatives.
The fragmented and inefficient web 2 system is simply not up to the task of meeting the increasing demands of cohesion and coordination that the energy transition requires. To truly make an impact, we must direct the forces of innovation toward rebooting the system from the ground up so that actors can engage in healthy market competition that nourishes the unification of the payment solution landscape, rather than its fragmentation.
Web 2 vs Web 3
In comment to the latest Human Development Report (2022), United Nations Development Program (UNDP) stated that “the world is lurching from crisis to crisis, trapped in a cycle of firefighting and unable to tackle the roots of the troubles.”
This couldn’t be more true in the case of the payment solution landscape in the charging industry. If we want to tackle the roots of the problem and develop efficient new networks of collaboration, we need to take the leap from the wild west of web 2 centralized payments – to web 3 decentralized payments.
“Web 3 has the potential of revolutionizing how we organize ourselves toward the attainment of a common goal.”
Web 3 is the next generation of internet services that revolutionizes the way we access and use digital services. It is characterized by decentralized systems, meaning that data is stored and processed across many nodes in a network rather than in a centralized location controlled by a single entity. It provides users with greater autonomy while also bolstering security by distributing data more widely across the nodes.
But most importantly: decentralization is the antidote to siloed ineffectiveness.
The leap from Web 2 to Web 3 means that explicit trust toward a centralized authority is replaced by implicit trust between the stakeholders themselves. It allows for innovative new ways of coordination and incentivization in an open network that is built on open-source software where data and information can flow freely and directly between users and stakeholders without a third party intermediary. Such a network of collaboration would erase the encroaching boundaries of the web 2 jigsaw for good and it would finally make the sustainable choice easy, convenient and profitable.
As such, Web 3 has the potential of revolutionizing how we organize ourselves toward the attainment of a common goal.
However, the Swedish Energy Agency is currently operating in a paradigm that is blind to the importance of how transactions are mediated with respect to centralization vs decentralization.
The Swedish Energy Agency and the Way Forward
The Swedish Energy Agency report “Accelerated electrification of road transportation and uniform payment solutions in the Nordic countries” from April 2022, outlines that the market is divided into eight different payment methods. With countless of additional CPO-specific apps, cards, and tags.
It concludes that the way forward must combine two things: Uniformity and added value.
A uniform payment solution that customers can access regardless of the charging network they choose which also supplies users with convenient features and CPOs with means for data harvesting and customer lock-in effects.
They conclude that card terminals offer the best potential in providing uniformity of payment solutions since it’s the global standard for monetary transactions and is already proposed in implemented and pending legislation on both national and EU level. The downside is that they’re expensive. They’re fraught with high installation costs, monthly fees, transaction fees and they require high upfront investments. Not to mention the complete lack of any kind of data harvesting or any means for improving customer retention which is so precious in a closed-off market such as they operate in.
Apps and RFID cards represent the best solutions from an added-value perspective in terms of enabling customer lock-in effects. Apps in particular offer the best potential for harvesting customer data and staying ahead of the demand curve through services that are easy to update. But as mentioned before, it’s still a challenge for CPOs to access new customer groups due the endless registration and general hassle CPO-specific solutions entail.
It's a mixed bag with pros and cons.
Therefore the report concludes by suggesting that “a mix of payment solutions” may need to “coexist” in order to “enable easy payment of EV charging today but also capture the full potential of a data-driven future” (35).
“This is the system failure the industry must solve. But instead, the branch organizations have only managed to sharpen the shovels with which they continuously dig their own graves.”
The Swedish Energy Agency is exactly right in prescribing uniformity and added value as the two main ingredients to any kind of solution, but striking a balance between the two will be a precarious business as achieving one will come at the expense of the other. They correspond to different payment solutions.
But most importantly, the report fails to accommodate the systematic nature of the problem: Any sort of mix of payment solutions based on the centralized web 2 recipe will by default fail to supply the industry with new ways of interaction and collaboration built on implicit trust between stakeholders. Only then can uniformity and added value be combined in the same solution rather than having to juggle between the two in the desperate attempt to achieve a self-defeating balance.
This is the system failure the industry must solve. But instead, the branch organizations of the industry, afflicted by the fever of the web 2 mindset, have only managed to sharpen the shovels with which they continuously dig their own graves.
In May 2022, Drivkraft Sverige, Energiföretagen Sverige and Mobility Sweden made a market agreement declaring that all future charging points would support ad-hoc payments such as card terminals and QR codes. The agreement was thought of as an anticipatory move ahead of the proposed EU regulation Alternative Fuels Infrastructure Regulation AFIR. Unfortunately however, this is a perfect example of a sub-optimal attempt to balance the need for uniformity against the potential of value-added services of other payment solutions.
Although both are good candidates for uniformity, they offer limited prospects in terms of added value for CPOs and EV drivers alike. The report even suggests that card terminals are “likely to result in higher charging prices for EV-drivers compared to CPO-specific solutions and may even result in fewer charging stations being built” (32).
As the EV market continues to grow and mature, we are beginning to see that the charging industry is entering into its earliest phases of converging on a smaller number of standardized payment methods. But it is paramount that regulations or market agreements don’t force a direction without letting innovation have its say.
Whether or not the Swedish Energy Agency will ultimately be able to save the innefficient charging industry depends on how successfully they will navigate the transition from traditional web 2 technologies to innovative web 3 solutions.