AER remains unfit for purpose – despite recent hike

Chargecards offer a fair solution to keep driver costs down.

With 2035 bringing an end to the sale of new diesel and petrol-powered vehicles in the UK, the transition to alternative fuels – in most cases electric – is fast becoming a reality.

In tandem with electric vehicle (EV) transition and the challenges that naturally brings, fleet managers are also having to ensure drivers have access to suitable charging facilities to keep their vehicles moving, along with making sure they are fairly reimbursed.

These challenges differ radically from the fuelling requirements for internal combustion engine (ICE) vehicles because with EVs, there is the option for them to be charged at home.

Chargepoints are an increasingly common sight on the front of homes nationwide, allowing EV drivers to recharge their vehicles conveniently. Many businesses have already installed workplace chargepoints too, and alongside this, an array of public chargepoints of various types and speeds continues to grow throughout the UK.

The challenge for fleet managers is to ensure a fair reimbursement for business mileage costs for EV company car drivers – given the variance in EV energy consumption, but also the fact that public chargepoint tariffs can vary significantly. Additionally, whatever the costs of public charging, it is invariably much higher than using a home charger, particularly on an off-peak tariff.

Public chargepoints typically cost at least two-thirds more than a standard home electricity tariff, and can be as much as double, depending on what type of charger is involved. Compared to an off-peak tariff, public charging could cost a driver 5 or 6 times more.

This makes a uniform reimbursement rate for drivers very difficult to establish or implement – especially given the differences in energy consumption between EV models and the wide disparity in charging costs from one driver to the next.

As such, a single rate cannot truly capture the cost to drivers, which makes stipulating an accurate and fair Advisory Electricity Rate (AER) especially challenging.

Recent changes to AER

Since the government first introduced the AER in September 2018, set at 4p per mile, this rate has been increased three times – to 5p per mile, then to 8p, and more recently to 9p. This is also now being reviewed quarterly rather than annually.

These changes have, of course, been welcomed by drivers able to charge up at home, who have seen their home energy tariffs increase over the last year, but even the new rates may not cover their costs, depending on the model of EV.

However, what about those who are unable to charge at home or have to use the public charging network because of the quantity or type of journeys they undertake?

If their employer chooses to stick with the AER at 9p per mile, these drivers are likely to be significantly out of pocket, especially in cases where they have to use the most expensive, rapid chargers to get back on the road as quickly as possible to get where they need to be.

At a time when living costs are increasing, this is an extra cost that drivers may be unwilling – or even unable – to bear, and it goes without saying that drivers should not be out of pocket for the use of a company vehicle on company business.

In the very worst cases, relying on AER can provide a significant disincentive to those who can’t charge at home – for example, if they live in a flat or a house with no off-road parking. This could ultimately result in some company car drivers, despite the BIK incentive, opting to stick with ICE vehicles.

This clearly runs counter to the stated aims of the UK government – and many individual companies – to cut emissions and work towards carbon neutrality.

How to fairly reimburse EV business mileage costs?

Companies with fleets should be considering their own business mileage reimbursement strategy now to ensure a fair outcome for all drivers.

A system based on the AER may well be suitable for those drivers able to do the majority – or even all – of their charging at home, however this is not a long-term sustainable fleet solution.

All fleets will include drivers who have no choice but to tap into the public charging network, and so a different, fleet-wide approach, based around the actual cost of the energy put into each vehicle, will inevitably be needed.

An actual cost solution, utilising a multi-network charge card (the EV equivalent of a multi-brand fuel card), is a similar approach to that being commonly used to manage ICE fuel costs. However, this is made more complex by the fact that drivers may well use a combination of home, workplace and public charging, and all the different energy costs need to be captured and reconciled.

There are solutions already available to help fleets manage this new and complex challenge which, as well as creating a fair approach to business mileage reimbursement for all drivers, provides transparency on who has charged what vehicle, when and where – giving an overview of usage patterns and driving habits, enabling companies to identify any drivers who are not driving in an economical way.

VWFS Fleet’s fuel cost comparator tool also enables drivers and fleet operators to compare charging costs across a range of vehicles, annual mileages and charging solutions. David Watts, Fleet Product Manager at VWFS Fleet, working with the Association of Fleet Professionals (AFP), has also recently developed a new EV mileage cost calculator, which is designed to help fleet managers to calculate more accurate reimbursement costs for EV company car drivers.