Navigant Research Blog

California Utilities Look to Manage EV Charging

— March 27, 2015

Through multiple programs aimed at both supply and demand, California has developed the most vibrant market for plug-in electric vehicles (PEVs) in the world. According to the forthcoming update of Navigant Research’s report, Electric Vehicle Geographic Forecasts, the total number of light duty PEVs in California is expected to surpass 140,000 by the end of this year and 1.5 million by 2023. The state’s electric power sector is taking note because the speedy PEV market growth may pose problems if PEV charging isn’t managed well.

The most likely problems will occur at the residential transformer, where a cluster of PEVs may outstrip a transformer’s capacity, requiring costly upgrades and/or repairs. To date, this issue has been fairly minor, with California’s three major utilities (Pacific Gas and Electric [PG&E], Southern California Edison [SCE], and San Diego Gas & Electric [SDG&E]) reporting that, of the 97,350 PEV customers in their combined service territories from July 2011 to October 2014, there have only been 126 PEV-related infrastructure upgrades.

Getting Worse

These problems are likely to worsen with the aforementioned 10-fold increase in PEVs in under 10 years. Looking ahead, the California Public Utilities Commission (CPUC) launched a PEV submetering pilot in September 2014 through the big utilities. The pilot is designed to lower energy costs for PEV owners through time-of-use (TOU) rates that incentivize off-peak charging and measure their energy consumption for vehicle charging apart from their overall energy consumption. By separating PEV charging, utilities could assess how best to influence PEV charging beyond TOU rates to avoid infrastructure upgrades.

Although TOU rates are effective at managing demand for a more efficient grid at the generation and transmission level, their effect on localized demand issues like transformer capacity is limited. Automated charging of PEVs based on TOU rates essentially creates a new spike in demand at the beginning of the off-peak period. This spike looks marginal at the grid level, but can be fairly drastic at the transformer feeding a cluster of PEVs.

Leading Edge

Thus, utilities, electric vehicle supply equipment (EVSE) manufacturers, and EVSE service providers are looking to create more dynamic and advanced PEV charging schemes to manage charging at all levels of the grid. Greenlots, for example, recently announced its partnership with EVSE LLC to demonstrate the company’s SKY Smart Charging system in 80 Level 2 workplace chargers at SCE facilities. The SCE project will examine how PEV owners respond to demand response events and dynamic pricing schemes for a number of purposes, including mitigating local transformer issues.

Outside of California, other PEV markets are expanding, too; utilities in these areas will need to begin testing and implementing similar technologies and programs soon. Companies competing for utility services in California now will be well served by expansion elsewhere and likely represent the leading edge of charging services development for years to come.

 

Making Sense of the Apple iCar

— March 23, 2015

Since early February, evidence has been piling up suggesting that Apple may develop an electric car to launch by 2020. Apple has yet to verify that it’s developing a car, but that has not stopped many from speculating what the Apple car might look like or how Apple might enter the automotive industry. Dan Akerson, the former CEO of General Motors (GM), weighed in on the subject, saying that instead of building cars, Apple should team up with automakers to develop operating and entertainment systems for vehicles.

As Akerson pointed out, the auto industry is dealing with heightened regulatory and safety standards alongside low profit margins in comparison to Apple’s other product lines, creating a grim outlook for any company looking to enter the auto industry. It should be noted, though, that Apple would be entering an auto industry that is significantly different than the one Akerson has known.

Beyond ICEs

For the last 100 years, the light duty vehicle hasn’t evolved much beyond the conventional internal combustion engine (ICE) with four wheels and multiple cup holders. To be sure, the established auto industry has made drastic improvements to this basic concept. But in the next 100 years, vehicles are going to look a whole lot more like smartphones, a category in which Apple has some expertise.

While plug-in electric vehicles (PEVs) represent only a small fraction of the vehicle market now, their numbers are growing quickly and will continue to increase, as electricity is clean and cheap and batteries are getting cheaper and better. Already, automakers are displaying fully electric vehicles for the mass market with 200+ mile ranges, to be sold within the next 3 years. Much of the established auto industry’s expertise and capabilities still center around making cars with ICEs. When that technology becomes obsolete, space will open for new competitors to emerge, such as Tesla and, yes, Apple.

Connected Future

Even more quickly than vehicles are becoming electrified, they’re becoming connected. A white paper published by the Continental Automated Buildings Association (CABA) outlines the advantages of connectivity for motorists, primarily around safety and autonomous driving. Additionally, vehicle connectivity can lower the cost of electricity for PEV owners and help create a more efficient and cleaner grid infrastructure. These developments are detailed in Navigant Research’s new report, Vehicle Grid Integration.

Though Apple would encounter struggles entering the established auto industry, the war chest Apple has should be more than enough to overcome those struggles. Further, there is, arguably, no other non-automotive company better positioned to provide an electric/connected vehicle than Apple. In fact, if Apple isn’t planning to develop a car, it could be missing out on a big opportunity to enter the fastest growing segment of one of the largest global markets.

 

Oil Price Retreat Could Spur Government Action

— February 24, 2015

Although the oil market has been historically volatile, the circumstances of the latest price dive suggest that low oil prices may be the new norm. If that’s the case, it could negatively affect both oil companies and the markets for clean transportation technologies like alternative fuel vehicles (AFVs).

Because of U.S. and some state government policies that mandate automakers produce more fuel-efficient vehicles and/or AFVs, low oil prices mean that it’s more expensive for automakers to improve fuel efficiency and produce AFVs to make these vehicles competitive with less fuel-efficient, and less costly, conventional vehicles. If they don’t absorb these costs, they’ll likely wind up paying penalties for being out of compliance with fuel efficiency standards and AFV mandates.

Raise the Tax

Federal and state government subsidies and incentives for AFVs provide some insulation from these costs. Yet, these policies were designed in an environment where oil prices were 30%–50% higher than they currently are. More recently, two policies have been proposed that would be beneficial to automakers seeking to comply with stringent fuel efficiency standards and AFV mandates. The first is an increase in the gas tax; the second, an increase to the U.S. federal incentive for plug-in electric vehicles (PEVs) and the inclusion of natural gas-powered vehicles in that incentive.

The federal gas tax is currently 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel. The tax, which has not been increased since 1993, is used to fund the repair and update of U.S. roads through the federal Highway Trust Fund. In recent years, the fund has been on the brink of insolvency but kept afloat by stopgap measures that provide money from the U.S. general fund. The current proposal, which would increase the tax by 5 cents per gallon over the next 3 years, would provide $210 billion over the next 10 years. The following chart shows the effect the proposal would have on the average U.S. price of gasoline over the next 10 years if oil prices rise to $90/barrel by 2025.

Gas Prices Under Increased Tax Proposal, United States: 2002-2025

(Sources: Navigant Research, U.S. Energy Information Administration)

Getting Flexible

The federal incentive for PEVs currently maxes out at $7,500 per vehicle and is accessed by the PEV owner when they file taxes for the year they bought their PEV. Of note, a PEV owner has to accrue at least $7,500 of taxable income to receive the max incentive. The White House has proposed to increase the incentive to $10,000 per vehicle, provide it as a point-of-sale rebate, and include natural gas-powered vehicles as eligible. The point-of-sale rebate would enable AFV buyers to incorporate the incentive into monthly payments upon purchase and receive the full incentive irrespective of their income.

The effect of both policies would make AFVs more competitive with conventional vehicles on an energy cost basis and open AFVs up to a larger, lower-income market, making it much easier for automakers to comply with federal and state fuel efficiency programs. This is not the first time these policies have been proposed, and it’s likely they’ll meet similar fates as their predecessors. However, low oil prices do introduce a new dynamic that may provide some flexibility in Congress, as well as increased pressure from interest groups that may create the necessary support.

 

Japanese Automakers Harness PEV Power

— February 2, 2015

Plug-in electric vehicles (PEVs) may provide far more value to their owners than just reducing gasoline costs and greenhouse gas emissions.  The significant energy and power capacities of the PEV system can be utilized to provide power during a blackout, curb commercial electricity ratepayer demand charges, power offboard equipment at work sites, and help grid operators balance supply with demand.  Each of the above uses requires, or is strengthened by, PEVs equipped with bidirectional capability – meaning the vehicle can both absorb electricity from the grid and return it.  Most PEVs available today, however, lack this capability.

This is because automakers don’t yet see a market for vehicle-to-grid integration, and they’re concerned that the use of vehicle batteries for purposes outside of motive power may shorten the batteries’ lives.  Test pilots in major PEV markets are answering some of these concerns, as well as developing the processes by which a PEV’s bidirectional potential may be harnessed.  The center of action is in Japan.

New Models

In Japan, the Nissan LEAF, Mitsubishi i-MiEV, and Mitsubishi Outlander PHEV are all sold with bidirectional capability as an option.  Each model can connect to an offboard inverter through the vehicle’s direct current (DC) charging port to enable a reverse power flow.  The offboard equipment only enables the PEV to supply power back to an owner’s home in the case of an outage, not back to the grid under normal circumstances.  Its purchase is subsidized by the Japanese government.

Though the system’s use is limited to emergency outage situations, this relatively early adoption of the technology in comparison to other large PEV markets is providing a launch point for testing other PEV power possibilities.  Nissan has already begun testing a fleet of LEAFs in curtailing commercial demand charges at one of the company’s facilities through the LEAF to Home system.  Similarly, the LEAF to Home system is also undergoing tests in grid balancing services.   A number of similar tests are underway in the United States and Europe as well; however, no vehicles have yet been made available to the mass market with bidirectional capability as they have been in Japan.

Two Ways Are Best

To date, using PEVs in grid balancing services represents the most interesting case from a revenue-generating perspective.  Though a PEV does not necessarily need to be bidirectional to service the grid, the revenue potential of a bidirectional PEV in grid services is significantly higher in comparison to that of a unidirectional PEV.  Tests and simulations in the United States indicate that the revenue potential of one bidirectional PEV can average around $5 per day of grid service.

This revenue potential provides a significant new incentive for PEV adoption.  However, it’s unlikely such a scenario will emerge unless energy companies and utilities pave the way for PEVs in grid services and automakers outside Japan offer bidirectional PEVs.  Please join Navigant Research’s webinar, Electric Vehicles and the Grid, at 2 p.m. EST on February 10 as we examine in detail the market drivers and challenges of using PEVs in grid services.  Click here to register.

 

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