Navigant Research Blog

Electric Vehicles and the Clean Power Plan

— August 24, 2015

Power_Paddle_webPlug-in electric vehicles (PEVs) bridge the gap between transportation and electric power—two sectors that until 5 years ago were effectively disparate. Overall, the potential future synergies between the two sectors seem promising. However, because these sectors are somewhat foreign to each other, some uncertainties are likely early on. One area of uncertainty is with regard to the U.S. Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP), released August 3, 2015.

The CPP is not designed to explicitly affect PEVs; rather, it is designed to decrease electric power sector CO2 emissions from existing fossil-fuel power plants. However, depending on the method by which each state implements the policy, PEVs may present a detrimental or beneficial component to state compliance strategies.

Because each state has a different electric power generation mix, each state will have individual goals and pursue varying strategies in order to comply with the CPP. The CPP CO2 reduction goals have been developed by the EPA using a rate-based approach, which places CO2 per megawatt-hour limits on power plants, but states may also use a mass-based approach (i.e., total metric tons of CO2 from the electric power sector).

PEVs Increase Demand

The mass-based approach will likely create complications for states with fast growing PEV markets. The complication arises on behalf of the fact that PEVs increase electricity demand, which increases the total emissions from power plants, while the overall CO2 reductions achieved on behalf of the PEV are not integrated in CPP calculations. This means that while a PEV would likely reduce net CO2 emissions, PEVs could make state compliance efforts for the CPP more difficult.

The rate-based approach may produce similar complications; however, this is entirely dependent on what grid resources are used to fuel PEVs. For instance, utilities may design incentives to coordinate PEV charging with peak solar or wind generation times, which would in effect increase utilization of renewable generation assets, decreasing the average rate of CO2 emitted per megawatt-hour produced in a state.

Vehicle Grid Integration

Programs and technologies to shift PEV charging to off-peak hours and integrate PEV charging into advanced grid services are being developed in large PEV markets. BMW’s iChargeForward program, which aggregates 100 BMW i3s in the San Francisco Bay Area for grid services, launched in July. Recently, charging station manufacturer eMotorWerks and non-profit software developer WattTime debuted a charging station that can automatically schedule PEV charging when the carbon emissions from the grid are lowest.

While the load represented by PEVs is still marginal compared to overall electric power sector demand, PEVs will become an ever increasing concern. Navigant Research estimates that the average PEV can increase the average U.S. household annual energy consumption by around a third and estimates that the median state PEV market share of 0.5% in 2014 will grow to over 2.5% by 2024. By the time the CPP takes effect in 2022, this equates to 4.4 million light duty PEVs in use, each consuming around 3,000–4,000 kWh annually.

PEV Market Share (% of New vehicle sales) by State, United States: 2014, 2024


(Source: Navigant Research)

As PEV adoption reduces overall emissions in most states and cases, state PEV adoption incentives should not run contrary to state CPP compliance efforts. Rather, states should encourage efforts to utilize PEVs as potential distributed generation/energy storage resources useful for CPP compliance.


PEV Sales Grow Everywhere … Except Where They Started

— August 20, 2015

When the Nissan LEAF and the Chevrolet Volt were introduced in late 2010, plug-in electric vehicle (PEV) sales were concentrated on the respective automakers’ domestic markets, Japan and the United States. Japan was the largest PEV market in 2010, was quickly overtaken by the United States in 2011, fell behind Western Europe in 2012, and then behind China in 2014. Meanwhile, the United States has maintained a lead on China and Western Europe, but it’s possible that like Japan, it too will fall behind China and Western Europe this year.

In the first 7 months of 2015, PEV sales in the United States are down 6.3%. Many of the compliance PEVs made by Toyota and Honda have been phased out, while production of higher-volume PEVs has slowed before the introductions of the next-generation updates scheduled to be released before the end of the year. Similarly, only one new PEV has been introduced this year, the Mercedes S550 PHV, which is a high-end luxury vehicle likely to be sold at low volumes. The limited amount of new vehicle introductions is a stark transition from 2012, 2013, and 2014, where over the course of each year, around six new PEV models were deployed.

Meanwhile, in China and Western Europe, PEV sales in the first 6 months of 2015 are estimated to be up 175%, and 77%, respectively. The surge in China and Western Europe can be attributed to PEV introductions from an influx of domestic automaker platforms alongside significant government incentives in select Chinese cities and European countries. Volkswagen, Mitsubishi, and BYD have been particularly aggressive in these markets. In addition, the oil price dive has been less impactful on retail fuel prices in these markets than in North America due to higher taxes on retail fuels in these markets.

Though the North American market is slowing relative to China and Western Europe, annual growth is likely achievable by the end of the year. Despite some delays, a number of new PEV models are set to be introduced in the next few months. Among the introductions are three SUVs: the Volvo XC90 T8, the Tesla Model X, and the BMW X5 eDrive, which will help break PEVs into new high-volume markets. Similarly, the redesign of the Chevrolet Volt, which increases the vehicle’s all-electric range and internal combustion engine fuel efficiency at a lower purchase cost, is set to go into production this month.

However, for Japan, growth is likely negative in 2015; the market has contracted over 20% over the first half of the year. This puts Japan in line to fall behind Norway, the United Kingdom, and France, with Germany closing in. Most of Japan’s PEV sales come from domestic automakers Nissan and Mitsubishi. Toyota and Honda have been reluctant to sell PEVs, favoring fuel cell technologies instead. With BMW and Tesla being the only foreign PEV automakers making sales in the country, PEV availability in Japan is severely limited.


For EV Range, 200 Miles Changes Things

— July 23, 2015

The rapid growth of plug-in electric vehicle (PEV) sales in the last 4 years has slowed in the United States as of late. Low gasoline and diesel prices have likely had an effect, but more likely, the slowdown is coming from a lag between the introduction of next-generation models and the clearing of first-generation inventories. Notably, second-generation PEV development is focused on significant range increases at lower costs, which will greatly impact the PEV market as well as create interesting implications for infrastructure developers and electricity providers.

The most near-term second-generation introduction is the Chevrolet Volt, which is slated to enter production in August. Besides the significant redesign of the vehicle body, the Volt’s all-electric range has been extended by 12 miles and the price starts around $34,000. This is $7,000 less than the original 2011 Volt. Further afield, Nissan has announced its intention to increase range of the next-generation LEAF beyond 200 miles. The second-generation LEAF is not likely to be introduced for quite some time, however, it is rumored that some of the battery technology designed to achieve this 200-plus mile range will feed into the 2016 LEAF, assisting that vehicle in breaking the 100-plus mile all-electric range mark.

When the second-generation LEAF is finally introduced, it won’t be alone. 200-plus mile all-electric range introductions are expected from Tesla and Chevrolet at price points from $30,000-$40,000. Similarly, some premium brands, specifically Audi, are likely to introduce 200-plus all-electric range vehicles to compete against Tesla’s large sedan and SUV platforms. The introduction of these vehicles makes all-electric drive a more viable option for a larger population. However, it also drastically changes things for electric vehicle service providers by increasing demand on a per-vehicle basis and expanding that demand to intra-city locations.

Longer Range = More Use

Most battery electric vehicles (BEVs), aside from the Model S (which already has a 200-plus mile range), are acquired as the second vehicle in households with two or more vehicles, and use is limited by vehicle range. Initial studies on average annual vehicle miles traveled (VMT) for BEVs have indicated that these limited-range BEVs travel around 9,650 miles a year. Meanwhile, light duty vehicles average around 11,250 miles.

However, for the Model S, average annual VMT is higher than for the average BEV. Last month, Tesla was the first automaker to announce that drivers of the Model S have surpassed 1 billion all-electric miles, with 68% of those miles being driven in North America. This equates to roughly 13,200 miles per Model S sold in the United States and Canada through May 2015. Given estimates on Tesla’s U.S. monthly sales, the average Model S has been in service for over 1.3 years. This means average annual mileage is around 10,400 (or 7% more than other BEVs).

Granted, Model S owners have great incentives to drive often, as the Supercharger network makes long-distance travel fuel costs free. Yet, these drivers also have the benefit of a vehicle that can get them to the network stations. Soon enough, owners of non-Tesla’s will, too, and these vehicles will need their own networks.


Nissan Enters the Energy Storage Market

— June 19, 2015

Since Tesla debuted the PowerWall in late April, two other automakers, Daimler and Nissan, have announced plans to bring similar products to both the commercial and residential energy sectors. Daimler announced in early June that it’s offering a storage plant of up to 20 kWh that will begin shipping in September. The next week, Nissan announced it will deploy second-life vehicle batteries for commercial energy storage markets through partner Green Charge Networks. The first system is set to be placed this summer at a Nissan facility to offset demand charges. These three announcements are important indicators of trending automaker revenue stream diversification. However, Nissan’s announcement is far more important as an indicator of a strengthening business case for plug-in electric vehicle (PEV) ownership.

Outside of automotive and mobile device applications, stationary batteries can provide energy cost savings to homeowners through energy arbitrage and increased rooftop solar utilization. The same applications are true for commercial entities. An additional use is to draw power from the batteries during peak energy consuming times, which minimizes the monthly demand charge, significantly cutting electricity bills. Further, batteries can be used by aggregators to participate in grid service markets, as BMW is doing in the Bay Area. Though these opportunities have existed for some time, the high costs of batteries have made these investments risky.

Minimizing Risk

To minimize risk, some companies are developing ways to utilize PEV batteries when the PEV is parked. This reduces the total investment, as battery costs are borne by the PEV owner, but it also reduces returns, as a PEV’s primary function is mobility and the PEV owner requires compensation. Utilizing a PEV battery in such a fashion strengthens the business case for PEV ownership; however, the technological and logistical requirements of these business models are complex.

Nissan’s and Green Charge Network’s development of a business model for a second battery life is another approach to harnessing the full potential of vehicle batteries, though without the logistical complexities inherent in utilizing a battery while it’s still in the vehicle. Theoretically, the success of this type of business model would likely increase the value of PEVs already in use and/or play into innovative automaker financing schemes that bake second-life battery value into PEV purchase costs. Both of these strategies would be a significant step forward in strengthening the business case for PEV ownership in high volume economy class vehicle segments.


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