Electric vans - does the £8000 grant make them a good buy?

The UK government has just announced grants of up to £8000 to support sales of electric vans.  Will the take-up on these be better than the take-up of electric cars?  Arguably yes.  Businesses tend to make decisions based solely on economic criteria, and the economics support the purchase of an electric van under the right circumstances.  However, the truth is that very few firms would currently benefit from buying an electric van.  This is because of current technical constraints – they won’t last forever, but they will dent the growth prospects of EV vans in the short term.

Range: who will be able to use an EV van?

The first question everyone asks about electric vehicles is range.  Take for example the Renault Kangoo ZE, with a range of 106 miles.  Assuming no power infrastructure, that gives a return range of 53 miles, the distance from Bristol to the M50 junction with the M5.  At the moment, the UK network of EV charging points is underdeveloped, although Ecotricity is working on this.  The Ecotricity charge points are currently slow (6-8 hours for a full charge on a Renault Kangoo van), making their use for commercial transport impractical.

This means that at present, electric vans are only suitable for businesses that mainly serve their local area, or which have a fleet of more than one van, where at least one (electric van) could be dedicated to local service.

The typical charging time means these vans are also mainly going to be used only by firms that need the van intermittently, rather than driving all day.  For all day driving one would need either several vans, or a fast charge point, and while the prices of these are coming down they are still prohibitively expensive.

Running cost: who will gain financially?

Even at today’s high electricity price levels, running an EV is cheap compared to either diesel or petrol – about one fifth the cost.  On the other hand, the van itself is more expensive.  How many miles would you need to do to make the EV worthwhile?

This depends on your firm’s economic circumstances, of course, because the cost needs to be paid up front, while the savings will come over a number of years.  Let’s compare two firms – one drives about 115 miles per week, or 6000 miles per year, using the van for only about ¾ of an hour each weekday.  The other firm does 15K miles per year, or about 288 miles per week, using the van for nearly 2 hours per day on average.

First, the lower-mileage firm:

	Kangoo EV	Kangoo diesel	Difference
Price after subsidy	13,592	8,950	-4,642
Miles per gallon		54
KwH / mile	0.21
Battery lease £/month	60
cost per mile	0.02	0.11
miles per year	6,000	6,000
Road tax		115
Running cost per year	844	788	-56

In other words, for the low mileage firm it’s actually more expensive to run the electric van, even before we look at the up front cost.

Now let’s look at the higher mileage firm:

	Kangoo EV	Kangoo diesel	Difference
Price after subsidy	13,592	8,950	-4,642
Miles per gallon		54
KwH / mile	0.21
Battery lease £/month	105
cost per mile	0.02	0.11
miles per year	15,000	15,000
Road tax	-	115
Running cost per year	1,570	1,798	228

Unlike the other firm, this one gets an annual saving from driving the electric van, but the payback time is only about 20 years.  This means that even for the high mileage firm, which generates the most savings from driving, the electric van is still not currently worthwhile.

So will anyone benefit from buying an electric van?

There are some additional considerations on the financial side.  First, a central London-based firm will save on the congestion charge, which could mean that the choice to go electric pays for itself in a couple of years.  A firm with just one van delivering every weekday for 50 weeks of the year would save £2600.  Combined with the good EV charging network in London, this makes EV vans an excellent choice for firms that deliver within the London congestion charge zone.

Another consideration is the capital allowance – firms can claim 100% of the van’s cost in the first year.  Of course, SMEs with low capital spend may be able to do this anyway.  Whether this benefits your firm depends entirely on your circumstances.

Last but not least is the marketing benefit of driving a green vehicle.  Whether your customers are private sector bodies, socially conscious urbanites, or commercial firms looking to green their supply chain, driving an electric van can send out a useful marketing message.  It is difficult to quantify this but plenty of firms will no doubt use this argument to tip an uncertain financial decision in favour of the electric van.

Does this mean electric vans will never dominate?

No.  Many of the drawbacks depend on things that will change.  Range will improve.  The differential between electricity and petrol / diesel prices may widen.  EV charging will get faster, cheaper, and more ubiquitous.  So the economics of electric vans will change, and they will undoubtedly change for the better.  Of course, by that time there may be hydrogen powered vans competing for our business buck, but that blog entry will have to wait until 2015. 

Why your business customers want you to cut carbon

Recent research from The Carbon Trust reveals a potentially unsettling truth for the B2B market: multinationals are not just addressing their own greenhouse gas emissions.  They are also increasingly including carbon in their selection criteria for suppliers.  Within three years, the vast majority will do so – only 10% say otherwise.

Why this move – is it part of these multinationals’ attempts to look green?  The report ascribes the trend to “shareholder pressure”.  Are these shareholders investing in an increasingly ethical way, or are they looking for financial value?  I would suggest the latter - in other words, this isn't a fad.  It's part of a trend towards shareholders actively looking after the value of their investments.  Suppliers should take note.

It is not only shareholders who know that low carbon can translate into good value.  Sourcing professionals look for signs of quality and efficiency to ensure that they are getting the best goods at the best price.  Low carbon emissions signal efficiency – that a supplier is using less inputs for the same output.  That will translate into a sustainably lower cost structure, from which the buyer hopes to benefit.  Multinationals are sourcing low carbon because it’s often cheaper, and is likely to get even more competitive if fossil fuel costs rise further.  Shareholders and management want to know that their companies are managing for value.

A quote from Chris Harrop of Marshalls plc is particularly revealing: “By choosing suppliers of responsibly sourced goods not only do we cut carbon emissions but invariably there are cost and efficiency gains to be had, which all adds up to a strong competitive advantage.”  Perhaps it’s nice to be green, but it’s good business to be cost competitive, and paying attention to carbon in the value chain helps firms solidify this advantage.

So, suppliers now have another reason to address emissions, if cost competitiveness itself were not enough.  Multinationals will be expecting suppliers to report on, and compete on, greenhouse gas emissions.   Their suppliers will be asking the same questions right down the supply chain.  If your business customers are not already asking you to reveal to your carbon footprint, they soon will.

We all need to cut food waste

This is the conclusion of a new report, The Future of Food and Farming: Challenges and choices for global sustainability, which has just been published by the UK Government Office for Science.  The study concludes that we all need to cut food waste across the supply chain, from producer to consumer, by 50% by 2050.  This is in addition to improvements in land productivity, and changes to the mix of "resource-intensive" types of food. Only in this way, the report says, can we hope to feed the 9 billion population that the earth is expected to carry in four decades' time.

So how do we do this?  The report offers some high level solutions:

1. Narrow the gap in wastefulness between geographies, countries and organisations in terms of waste - spread best practice
2. Advance research that reduces waste further

These are good, high level observations - but now that we have the "big picture" motivation, what we need is action by individuals who can influence waste.

Some may think that in places like the USA and Europe, waste is pretty low.  We don't have the huge losses that are experienced in post-harvest storage and transport where investment in agriculture is low.  However, we do have enormous production, and even marginal waste adds up.  Moreover, recent publicity about fish discards shows an area of waste which is not normally included in official accounts of waste, because the fish are never landed.  Problems like this are due not to lack of investment, but to public policy, and this is rightly an area where the public are demanding action.

However, we cannot all get off the hook by demanding action from our elected representatives.  Much of the supply chain is under the control of businesses and individuals, and we need to accept responsibility.  Many of us can remember our elders telling us to eat up "because there are children starving in Africa".  Back in the days of overproduction, this didn't make a lot of sense.  But now, and in future, all of our waste, from field to fork, is ultimately going to put pressure on the availability of food, and we need to do something about it.

In developed countries, waste by consumers and the food service industry can be on the order of 20-30%.  The waste of food in industry is particularly interesting because in principle, companies should be motivated to reduce waste in order to reduce cost.  This could apply to consumers too, but where incomes are high in comparison to food costs, factors like "convenience" and "culture" can drive up waste.  Are these factors also influencing the food service industry?

I think so.  Most research focusses on using food waste productively (incineration for energy, or composting for fertiliser).  However, these uses generally don't save much money - they're just popular because they're fairly easy.  Much harder is to change procedures and systems so that unneeded food doesn't end up entering the supply chain in the first place.  This requires people in the organisation to accept that there's room for improvement.  That's not an easy ask.  People will ask - "if it were that easy, surely we'd have done it already?"

And that's right - this isn't the easy way to deal with waste.  However, it is the most lucrative.  Not buying what isn't needed - and using as much as possible of what you buy - is clearly going to be much better for the bottom line than disposing of waste productively - food is generally more valuable than the fuel or fertiliser it would become as waste.