Energy and Environment / October 22, 2024

Battery-as-a-Service: What is the business model’s potential?

Circular’s Bethany Greenman explains why Battery-as-a-Service business models must be facilitated if the electric vehicle transition is to embrace circular economy principles.

The mobility sector is undergoing a radical transition away from internal combustion engine (ICE) vehicles to electric vehicles (EVs).

EVs are becoming more attractive to consumers as their ranges increase and their cost comes down – which, in large part, is a result of improvements to battery technology.

The battery makes up about a third of the price of an EV and contains critical raw materials, such as lithium, cobalt, nickel and graphite, that are at the forefront of resource-security issues requiring circular solutions.

Ambitious circular economy strategies at government and business levels are urgently needed to address current and future resource challenges across the battery supply chain.

Product service systems (PSS) could be used to address resource-security issues and, rather than follow a “business as usual” ownership route, allow the consumer to be sold a service.

This business model will be key to the transition to a circular economy because it means valuable resources, such as critical raw materials, will not be lost when a product reaches its end of life.

Battery swapping

Battery-as-a-Service (BaaS) is a PSS model that means motorists don’t own an EV battery and, instead, use one as a service.

Under BaaS, the business models for the vehicle and the battery are decoupled.

If a company retains ownership of the batteries, users do not need to pay to own one – although they may pay for a subscription/leasing service.

This could reduce the cost of an EV by a third, helping to drive the global transition away from fossil fuel-driven ICE vehicles and meet phase-out targets.

BaaS models could encourage circular practices by designing batteries: for multiple uses (within different car models and, potentially, other applications); to be removed – which could facilitate reuse into other applications, ease of repair and refurbishment; and to be more easily upgraded or retrofitted with newer, more efficient, more sustainable technology and materials.

Battery swapping is the process of removing a battery (the unit, module or cell) and implanting a fully charged one. The user simply takes their EV to a battery-swapping station for a fully charged battery.

They could, however, need more than one battery per EV (to allow for swapping), which would increase demand and costs for battery manufacturing, and put more pressure on resources.

Battery-swapping stations could slow the ageing process of batteries, as the batteries would not always be in use, so longer-term demand for – and investment in – replacing batteries could decrease.

Such stations could also contribute to vehicle-to-grid (V2G) initiatives – using balance demand and load to lower the demand on the National Grid and providing a backup reserve of energy during peak demand.

Chinese electric car company Nio, for example, has launched its own V2G initiative – although not yet in the UK.

Battery-swapping stations could go further by providing an energy-storage service, re-using EV batteries that have come to the end of their first-use lifetime (in the EV) for another application.

This would reduce their resource intensity, while allowing battery owners to make money by selling them as a service, for cars, and as an energy reserve.

Aligned ecosystem

To achieve such integrated offerings, batteries and battery-swapping stations would have to be aligned, so stakeholders – including battery and car manufacturers, energy providers, infrastructure operators, local authorities and governments – would need to work collaboratively.

A holistic BaaS model requires contractual arrangements between stakeholders and an ecosystem in which all actors are aligned on the rights and obligations of parties, exclusivity, minimum user commitment, and risk or incident management.

This has not yet been fully developed in the UK market and, as a result, has limited the development of battery swapping.

For example, the Local Electric Vehicle Infrastructure (Levi) fund is primarily targeted at addressing the need for EV charging in areas with lower levels of residential off-street parking, as EV owners who park on-street will need to rely more heavily on the public charging network.

The fund aims to help local authorities to work with private business and charge point operators (CPOs) to drive the sustainable growth of local networks.

While the UK Government steers funding towards local authorities, it acknowledges that CPOs need to make large changes and investments for EV charging.

However, upon speaking with CPOs it becomes evident that this relationship must be streamlined and strengthened.

While policy-makers encourage innovation, their stance on charge points suggests they have yet to fully embrace other novel approaches.

The conditions for Levi funding explicitly favour charge points, so backing for innovations such as battery swapping may be harder to achieve.

The complexity and uncertainty of the battery and mobility policy landscapes – changing agreements on the phase-out of EVs, for example – as well as gaps, such as a lack of up-to-date battery legislation and missing safety regulations, could also increase investment hesitancy.

This would make it more difficult for these technologies to prevail.

Policy intervention

With BaaS innovations potentially on their way to the UK market, the government should prepare a position that considers design for circularity, funding, and organisation between stakeholders.

The relationships between all the actors in this system must be understood so that any barriers can be identified and addressed.

This would be underpinned not only by the physical infrastructure and how consumers interact with it, but also by the agreements, relationships, and operations – such as the energy and regulations underpinning and connecting the infrastructure.

Any setback could cause a risk to these players, making them unwilling to invest or unable to access funding, and impacting – or, potentially, putting a stop to – the whole system.

Two strategies are proposed for policy interventions that will facilitate a successful transition pathway for EV charging innovations.

Strategy 1

Foster the development and implementation of innovative ideas and business models in charging infrastructure that showcases clear commercial use cases for users and the circular economy.

Any innovation that succeeds must offer resilience to factors that will continue to develop and evolve (climate change, economic uncertainty, battery technology, and markets).

The battery-swapping use case may be solidified by its potential to support the grid if it also uses V2G, or as energy storage.

If the technical potential of BaaS is demonstrated through experiments, this could give stakeholders the confidence to invest in and support it.

Strategy 2

Ensure funding and regulations for EV charging innovations are available, and effectively managed, by having clear organisational structures to synergise offerings and create simplicity for users and stakeholders.

The disconnect between local authorities and CPOs must be overcome to pave the way for the current EV system – and any future systems, such as BaaS – to succeed.

All stakeholders and actors must be aligned, so overcoming organisational barriers must be a priority.

Examples of BaaS innovations

Tesla was an early pioneer of battery swapping and, in 2013, laid out its plans to propel the technology for its Model S car, but then dropped the tech in favour of rapid charging.

Renault trialled battery leasing but did not progress with it when its EV price became more competitive.

Toyota is exploring the potential of the BaaS market, although not in the UK.

Geely Holding, parent company of Volvo, Polestar and Lotus, has signed a strategic partnership agreement with Chinese electric car company Nio on battery swapping. They have agreed to cooperate on aligning battery standards, battery-swapping technology, battery-swapping network operation and model development, and battery asset management.

Nio stated in 2022 that it would bring its battery-swapping technology to London by the end of 2023, but this was delayed. The company has said it will only launch once the infrastructure is in place to offer a “fantastic user experience”.

OnCharge, UK-based start-up company, is looking to address issues with fleet vehicles accessing fully charged batteries and has a BaaS solution for van fleets.

Ample, a start-up in California, specialises in modular BSS. It proposes fitting out fleet vehicles with its modular battery packs, which can be swapped out at dedicated stations. In 2021, Ample landed a deal with Uber to explore using BSS to charge its fleet.

Charge Fairy is another UK-based company that offers a battery subscription service aimed at EV car owners who do not have access to an at-home charger.