13 June 2023 EV Charging, Net Zero

EV Fleets: Why the Advisory Electricity Rate (AER) can never be fit for purpose in its current form

EV charging

Mark Winn, Head of EV Strategy at SMS, shares his thoughts on the new Advisory Electricity Rate (AER)

Following HMRC’s announcement that the rate will remain at 9 pence per mile, and what this means for UK businesses who currently operate, or are considering the switch, to a fleet of electric vehicles (EV).

As the nation races for net zero, electric vehicles (EVs) are joining the road at a rapid rate. Whilst the market is driven predominately by businesses that have finally taken the leap to decarbonise their fleet, for many organisations, navigating driver reimbursement is one of the biggest barriers stalling wider adoption.

To help businesses avoid the headache that is calculating individual energy costs, the government introduced the Advisory Electricity Rate – a fixed pence-per-mile reimbursement rate for drivers using company-owned electric vehicles. However, since the rate was first implemented in 2018, it has only risen by 5 pence.

Followings its increase from 8 to 9 pence last quarter, the government has recently published that the rate will not be increasing this quarter. Whilst it is positive to see that the rate is being reviewed quarterly, rather than annually previously, it is disappointing that it has not risen considering the economic turmoil in the UK ignited by the ongoing cost-of-living crisis and volatility of the energy market.

Why the flat AER rate will never be fit for purpose

The challenge that lies in the AER is that, unlike the Advisory Fuel Rate, the AER is a fixed rate that applies to all Battery Electric Vehicles (BEVs). Yet, in the ever-evolving world of the EV market, a single rate will never reflect the true cost of charging, considering all BEV models differ in weight, size, and battery type, leading to varying charging speeds and efficiency.

The fundamental problem with the AER is its inability to consider the wide range of external factors that influence the cost of charging an EV, such as the volatility of the energy market, charging infrastructure availability, and huge price disparities in charging rates depending on location, time of day, charger type, and supplier.

A single rate will never be sufficient if drivers use a combination of home, work, and public charging. Drivers who may not have access to a driveway at home and solely rely on public charging will suffer the most, whilst drivers who exclusively charge at home are the ones who have the best chance of not being out of pocket. Further undermining its purpose, VAT on home charging is 5%, whereas it surges to 20% on a public network, so individuals without access to home charging find themselves grappling with a combination of higher charges that further exacerbate their situation.

Lastly, the rate fails to provide a comprehensive reimbursement structure that incentives and rewards employees to practice sustainable charging, such as charging during off-peak hours. By simply setting a base rate of 5% VAT for all chargers, the government could encourage more drivers to adopt EVs and ensure a fair charging experience for all.

The solution

When it comes to reimbursing EV drivers, no ‘one-size-fits-all’ model will ever work. To ensure drivers are not left out of pocket, businesses need to urge policymakers to implement a framework that considers all factors that influence individual charging costs, such as charging location, car model and battery size, and charging efficiency.

As businesses become more aware of the financial implications the rate can have for EV drivers, many are putting policies in place to pay above the AER. However, this is not an easy solution considering the admin and resources associated with calculating the combination of energy costs accumulated from charging at home, the workplace, and on the public network. As more companies start to adopt EVs and rely on public charging networks, it is evident that significant reform is needed to root out inequalities in the reimbursement system.

The only way to develop a fair and fit-for-purpose reimbursement system that prevents drivers from being short-changed is to pay the exact charging costs. With regulatory change, it is possible that home charging can be paid for directly by fleets without any impact on the driver and the home supply. In this way, drivers would not be directly exposed or responsible for the charging costs. When charging publicly, drivers can use unique fobs which send the invoice straight to the business, so they will never again bear the financial burden themselves. Therefore, by eliminating reimbursement entirely, businesses can successfully transition to a carbon-free fleet, all the while ensuring the continued support and engagement of their driver community.