How Better Place became a national project


The Ministry of National Infrastructures policy document on electric cars seems tailored to suit one venture.

The past four years have underscored the direct connection between the price of oil and the rate of progress in developing electric cars. When the price of oil soared past the psychological level of $100 per barrel in 2007, governments and tycoons rushed to the electric vehicle market and turned the concept into a reality.

When the price of oil fell back to $60 a barrel during the global economic crisis in 2008, the electric vehicle's pace of development slowed to a crawl. The electric car is now once again hurtling down the highway and becoming an urgent issue on the agendas of governments around the world.

Proof can be seen in the dramatic, possibly melodramatic, press release that accompanied the publication of the final version of "Policy principles for operation of the electric vehicle" by the Ministry of National Infrastructures. "We consider the introduction of the electric car to Israel as a national task that will help reduce Israel's dependence on oil, and will contribute to the quality of life and the environment. We want to see the electric vehicle enter strongly and compete in the market."

"Enter strongly and compete in the market?" What about feasibility? What about the gradual introduction accompanied by a cost/benefit assessment to the economy, of the kind undertaken by most Western governments? Or at least some kind of preliminary government study, even if it is small and token? Or a similar drive for alternative green engines, such as hybrid or natural gas engines?

The world can go on talking, but Israel's Ministry of National Infrastructures has already decided the winning engine technology that will improve the world, and it is determined to help it "enter strongly". If we were private entrepreneurs in the electric vehicle industry, we would definitely take this phrase to investors in order to boost our valuation.

The final and definitive document on ministry policy on the electric motor was published less than three weeks after the deadline for the public to comment and make reservations on the issue.

The final statement of principles underwent some cosmetic changes and proofreading, but the Ministry of National Infrastructures moved not one millimeter from its initial and controversial position, which requires "managed charging" of electric vehicles, and rejects the option of direct charging from the electricity grid. The document adheres to the approach that vehicle owners must charge their vehicles via a middleman, a "charging vendor", as defined in a ministry license.

Take as an example the owner of an electric car who does not want to contract with a charging vendor as a middleman. When he wants to charge his electric car, he will face three options: charging the car at a designated outlet at home, charging at a designated terminal at a parking lot, or charging at an available terminal on the street.

The first two options could ostensibly be provided without the need of a middleman. However, clause 15 of the document stipulates, "A vendor of a critical service (i.e. Israel Electric Corporation (IEC) (TASE: ELEC.B22)) will be banned from receiving a charging license, and may not operate as such in areas that are not defined as public."

In other words, even if a customer installs a private charging terminal at his home, he will have to contract with a charging vendor because IEC is banned from providing the charging service directly. This is also the case at parking lots, which are also private property; because IEC will not be a charging vendor, the property owner will have to sign contracts with charging vendors.

This means that the owner of a private car who wants to charge his car at a parking garage at work or at a municipal parking lot will have to pay the a fee to the charging vendor which has the contract with the property owner.

The relevant clauses may explain why one of Better Place's first business goals was to sign exclusive and collective agreements with several of Israel's largest owners of parking lots.

Another ostensible pro-consumer amendment in the final version of the Policy Principles concerns disconnecting from the charging vendor. "A charging vendor will not restrict its customers from installing charging terminals that are not its own, and it will permit the rapid termination of the contract with it." This is not a small matter for entrepreneurs who want to receive a charging vendor's license, with a minor exception called Better Place.

The business model of Better Place, which is set to become the largest player in Israel's electric vehicle market in the years ahead, is based on leasing fees for the vehicle battery, charging services, and connecting vehicles to the information and battery replacement network as part of a complete, binding customer services package.

How exactly does the ministry intend to allow "rapid termination of contract" with Better Place? Will the owner of an electric car be required to pay the full balance of the cost of the leased battery (about €12,000) at the time of the termination, as is the practice among Israel's mobile telephony carriers? Or will he simply have to return the battery to the vendor and continue without it? Or are we talking about an exception?

What it will cost us?

The Ministry of National Infrastructure's eagerness for strong entry of the electric vehicle to Israel causes it to elegantly overlook two drawbacks that are currently delaying the electric vehicle's introduction around the world. The first is the issue of the electric vehicle standard. The statement of principles states, "The international standard will apply with adjustments to this statement of policy principles."

This an ostensibly laconic and simple wording, but it carries two tiny traps. The first is that, at this time, there is no international standard for the charging of electric vehicles, and while there are intensive discussions on the issue between the electric utilities, international standards organizations, and carmakers, no one is prepared to promise when such a standard will be ready.

Moreover, the agencies formulating the standard are preparing at least five sets of international standards for charging, which will suit different charging conditions and technologies, including rapid industrial charging (which is the preferred solution of many carmakers), charging from an ordinary home socket, and so on. Most of the alternatives are not mentioned in the Israeli statement of policy principles.

The second trap is that, if and when there is an international standard, the manufacturers will have to "adapt themselves to the Ministry of National Infrastructure's statement of policy principles."

The final issue, about which more is concealed than revealed, is pricing. The final statement of policy principles leaves a great deal of room for creative guesswork in the later stages. "Charging rates at private homes and in public places will be set by the Public Utilities Authority (Electricity) and will be published by it. The charging vendors' rates for their customers will be published by them in a way that will be determined." There is not one word about supervision of prices, or restraint of trade.

The Ministry of National Infrastructure states that an electric car owner will pay more than the regular electricity rates on the national grid, but it does not guarantee amounts or set general rules for protecting consumers. After all, there is a limit to the regulator's intervention in what is supposed to be a commercial and competitive market that it profitable for entrepreneurs.

Published by Globes [online], Israel business news - - on March 2, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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