Frankfurt’s car show, one of the most important in the world, this September spotlighted electric vehicles (EVs). France and the United Kingdom have already decreed an end to sale of cars with internal combustion engines by 2040. Norway is looking to do the same by 2025. And China has begun the push to electrify its vehicle fleet. In the process putting pressure on foreign manufacturers to share technology if they want to gain entry to the potentially enormous Chinese market.
Politicians, eager to claim credit for factories and jobs, have begun to make decisions about EVs--even if customers and car markets have not. Auto manufacturers in Europe, Japan and China have taken to heart government dictates regarding the eventual phase out of internal combustion engines. Large auto manufacturers are global in scale. EVs manufactured abroad to U.S. specs will eventually be marketed here whether our environmentally recalcitrant federal government encourages them or not.
The prospect for a big shift in vehicular energy consumption from oil-based products to electricity could have enormous implications for the global electric utility industry.
EVs will increase power consumption and more importantly could raise power demand during peak periods when some systems may already be straining under existing load. Britain’s National Grid, in its official report to the government, Future Energy Scenarios (2017), claimed that vehicle electrification could increase peak demand 7-14 percent by 2030 and 10-30 percent by 2050.
While we would take any 33-year forecast with a grain of salt and a dose of skepticism, we wouldn't disagree that the development of an EV load has investment implications, including one that does not seem to be getting much attention. That is, could it increase risk to incumbent utilities if all of these battery owners somehow unite and sell power to each other? Or even back to the local utility? After all, a large number of batteries synched together does resemble a power plant.
The numbers are high and the ranges are wide. Why? The higher estimated demand assumes that car owners plug in “without smart charging.” In other words, they charge at the wrong times, when everyone else is using electricity for other purposes. If that happens, the new load could strain the grid.
On the other hand, assuming usage of smart meters, clever pricing strategies and deployment of off-peak charging locations, the problem goes from systemically stressful to minor nuisance. Or if the utilities play it right, a bonanza, producing new sales during periods when sales would normally be low.
However, the utility (and ultimately its consumers) has to invest in the necessary infrastructure. One journalist claimed that the average British home’s wiring could not handle an electric teapot and a vehicle recharge at the same time. (Interestingly, National Grid predicted kwh sales increases from EVs over 2017 levels of only 4-7 percent by 2030 and 12-15 percent by 2050. Having to increase grid capacity by 30 percent for a 15 percent sales increase is not good business, so it is important for the utilities to convince consumers to plug in at the right times. )
Lacking a National Grid to produce an official US projection, we have to rely on studies from industry, government and interested parties that may not have National Grid’s resources or the same incentives to come up with an unbiased projection. But we can hazard an informed guess.
Demographic trends seem negative for the auto industry due to declining population growth, fewer miles driven and declining car ownership per capita. In a way, the automobile business is as stagnant as the electricity business. But the electric business has a far better regulatory scheme.
We believe kwh sales to EV owners will remain modest in the near term for three reasons: the initially slow rate at which electric vehicles are introduced into the overall car fleet, and the likelihood that heavy trucks will not have electric engines for years to come.
We estimate that EV owners will consume no more than 2 percent of electricity sold 2 percent by 2022 and 7 percent by 2027 — numbers the industry could easily manage.
But once EVs account for the bulk of the light vehicle fleet, sales to EV owners could equal r 30 percent of total current electricity sales. That incremental business, if it materialized over 25 years, would add 1.1 percent annually to industry sales, more than doubling sales expectations.
But what about demand added to peak load? The impact on electrical system usage depends not surprisingly on when EV owners recharge and the frequency of those recharges.
If every car owner were to recharge simultaneously during peak periods, peak load would more than double. With the rapid, significant investment this might imply, the electric industry might end up in worse shape than without the additional load. On the other hand, assuming that car charging behavior is spread through the week, that charging still could add 30 percent to peak demand. Utilities need to convince those recharging consumers to plug in the cars during periods of low usage, instead.
The key? Consumer education. Try to convince EV owners to recharge during off peak hours to reduce strain on the electric power generating and distribution system. But no matter when this battery re-charging occurs, the utility will have to invest in network upgrades in anticipation of not only increased usage, but also potentially changing local patterns of demand as well.
Enter public policy. As solidly investment grade corporations, the U.S.'s regulated electric utilities could easily raise capital to build this new infrastructure provided that public policy requires it. Regulators, however, are a skeptical lot. They are not likely to allow meaningful capital expenditures based merely on speculation that EV load will materialize.
The British, French, Norwegian and Chinese policymakers all have a leg up so to speak on their U.S. counterparts. The former have promised to eventually ban non-EVs. That alone will guarantee the regulators some certainty and would stimulate a market EV battery recharge.
In order to encourage comparable investment here, state governments would have to act. Getting the Trump administration to advocate for an end to internal combustion and diesel engines as a means to mitigate a climate challenge seems a stretch. Related: Trouble Is Brewing In Kurdistan
The other questions about EVs—whether miners can produce enough lithium for batteries, whether the industry needs to standardize plugs, whether the government should invest in particular technologies or policies, or even whether EVs are an optimal means to address CO2 pollution and climate change--are topics for subsequent discussion.
These are the key takeaways. The electric utility industry needs EV manufacturers to create a standard plug-in protocol (which might require government action) in order to be able to serve all customers. Also, the regulators must enunciate clear and supportive public policies that encourage EV usage and that assure utilities of the prudence of building the infrastructure.
Furthermore, to make the transition to EVs economical, regulators will need to approve electric rates that encourage car-battery charging at less stressful, off-peak times. Otherwise, vehicle electrification will either not materialize or create extraordinary and unnecessary disruption of our electricity networks.
By Leonard Hyman and Bill Tilles for Oilprice.com
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