Using plug-in electric vehicle (PEV) batteries to support ancillary services for the grid has been a promise of the PEV revolution for years, but signs of the market’s viability have been limited until recently.  Two recent developments are driving innovation and development in this market, and proving the worth of vehicle-to-grid (V2G) technology.  In January, the U.S. Department of Defense (DOD) announced it will purchase 500 V2G-capable vehicles this year through a $20 million investment.  Additionally, last month, PJM Interconnection and NRG Energy successfully tested a fleet of V2G-enabled Mini-E’s.  The Mini-E’s accrued an average of $5 per day by participating in PJM’s frequency regulation market.

The DOD’s order is significant not only because of its size, but also because the Pentagon plans to make money on the program.  Often, government programs for clean technology investments are based on environmental objectives (reducing greenhouse gas emissions) or national security concerns (reducing consumption of foreign oil), rather than achieving a net positive financial return.  In this case, the program’s financial goal is explicit: the Pentagon is making a business decision to invest in V2G.

V2G’s profitability has much to do with Federal Energy Regulatory Commission (FERC) Order 755, issued in late 2011.  The order mandates that energy generation assets participating in frequency regulation markets managed by independent service operators (ISOs) and regional transmission operators (RTOs), such as PJM, must prioritize and compensate generation sources according to how quickly and accurately they are able to respond to the operator’s generation signal.

Aggregation Required

Advanced batteries in PEVs are one of the few generation assets that can respond quickly and accurately.  This means that when PEV batteries are used for frequency regulation they can be compensated around 3 times more per kilowatt (kW) than slower, more traditional assets, like natural gas power plants.  PJM was the first ISO or RTO to implement the rules. Additionally, PJM reduced the minimum power capacity generation assets must produce to participate in its frequency regulation market to 100 kW.

The last point is pivotal, as it represents a major challenge to V2G development.  Though PEVs store a substantial amount of energy, the power any single PEV can discharge or absorb from the grid is limited by the battery size, and by bi-directional electric vehicle charging infrastructure.  Thus V2G-enabled PEVs must be aggregated to participate in ancillary service markets, as in the case with the NRG Energy/PJM trial.  While 100 kW is substantially higher than most PEV batteries can discharge or absorb from the grid, the reduced minimum allows V2G proponents to participate with fewer vehicles, especially when using medium duty PEVs that typically have higher power and energy storage capabilities than light duty vehicles.

The military has a large fleet of non-tactical, medium duty vehicles, such as refuse trucks, maintenance vehicles, and buses, at bases around the country.  Many of these vehicles are largely sedentary and can be connected to the grid for more hours than most vehicles in commercial fleets, making V2G a better fit for the DOD than for many private sector fleets, at least so far.  The DOD’s use of this technology will advance it considerably, laying the foundation for software and infrastructure developers to make this technology a possibility for greater numbers of private fleets – and making PEVs much more attractive.

I’d like to say I was surprised to hear that $850 million bust Better Place has entered bankruptcy, but the company’s audacious vision for electric cars was a longshot from the start.  Founder Shai Agassi started in 2007 by raising hundreds of millions and quickly staffed up a global operation as the company attempted to prove that being able to swap out a car’s battery pack in minutes was a requirement for EVs to succeed.  This message ran contrary to the rest of the industry’s strategy to convince motorists that EVs could be sufficiently charged for local travel through a combination of overnight home charging, public charging, and the occasional fast charge.

But as I wrote 3 years ago, the risky strategy of positioning battery swapping as a panacea (while denigrating fast charging) was not a good one for consumers, and was only suited to specific applications.  For taxis or fleets, where maximizing time on the road is crucial, the extra cost of building a network of battery swapping stations could make sense.  Better Place could not even gain traction in its home turf of Israel, a small country where employers purchase many of the vehicles.

Better Place could only have succeeded if multiple auto manufacturers had designed cars for battery swapping, and once it was clear that only Renault would be a partner, the implosion clock started ticking.

Beyond Battery Swapping

As owners of the Nissan LEAF, Tesla Model S, and other battery electric cars have realized, public charging, supplemented with occasional fast charging, is sufficient for most local driving needs.  With Better Place gone, consumers will no longer receive mixed messages about what is required to keep EVs on the road.

Over the last few years I’ve spent hours chatting with many very bright and committed people at Better Place who were underutilized and mismanaged.  Better Place failed to go beyond being an incredible marketing engine and leverage its other assets that could have increased its prospects.  The company’s software and communications system, which recognizes electric vehicle driving patterns and monitors performance, could have been licensed to other EV charging companies.  Despite the nearly billion dollars Better Place raised, the company made very little effort to develop an energy storage solution for its reserve battery packs, which could have generated revenue from utilities or grid operators.  While neither of these options was a guaranteed success, they could have diversified the revenue stream during the years that the company was hemorrhaging cash.

We haven’t heard the last of battery swapping though.  If the cost of infrastructure can be kept to a minimum, a battery swapping taxi or delivery fleet could make financial sense.  That is what Slovakia’s GreenWay Project is doing, and I was encouraged by what I saw when I visited it in April.  For less than $100,000 (or 20% of the cost of a Better Place location), the company has an operational swap station for replacing a delivery van’s battery pack in under 10 minutes.  For battery swapping to survive, a targeted rather than a bold vision is called for.

The advanced lithium ion battery in a plug-in electric vehicle (PEV) accounts for as much as one-third of the vehicle’s cost. Without government incentives, PEV premiums can top $10,000 over a similar conventional gas-powered vehicle. Even with lucrative government incentives, EVs are still a hard sell. However, automakers are diligently working out ways to bring purchase costs down so that potential owners can absorb the PEV initial purchase costs over time.

In Europe, automakers Renault, Daimler, and Mia Electrique have pioneered the battery lease option, whereby PEV owners buy the vehicle but lease the battery for a monthly fee. In the states, automakers have not warmed to the idea, instead offering cheap lease deals with low signing dues. That could change, beginning when Daimler deploys its smart fortwo ED to the United States next month with a battery lease option.

In Europe, the battery-leasing option for the fortwo ED reduces the vehicle’s purchase price by over $6,700, but requires the vehicle owner to pay roughly $83 a month for the battery. In other words, the purchase price discount accounts for about 80 monthly payments. Under the lease agreement, Daimler, which retains ownership of the battery, ensures its life, thus easing concerns PEV owners may have over battery longevity. Theoretically this option also enables Daimler to find additional value from the batteries by reusing them for stationary energy storage applications once they’ve been removed from the vehicle. The appeal of the offer is clear, as around 97% of the fortwo EDs bought or leased in Europe have included this option.

Swap It Out

Battery leasing has also been pursued by battery swap developers like Better Place which has deployed more than 50 battery swap stations for national networks in Israel and Denmark, and the State Grid Corporation of China (SGCC), which has more than 200 battery swap stations in various Chinese cities. These two companies take the battery lease concept a step further by literally separating the battery from the vehicle. Their business models require both companies to keep excess batteries on hand to supply customers. This allows them to generate additional revenues from the unattached batteries through grid-tied energy storage services.

The major challenge to the battery swap business model is that each company needs automakers to develop vehicles compatible with their systems, and few have. Renault has built the Fluence Z.E. to be compatible with Better Place’s system, while Chinese automakers Kandi Technologies, Zotye, and Zap Jonway are building or have built PEVs compatible with the SGCC system.

The terms of Daimler’s battery lease option for the states have not yet been released. Even without the option, the fortwo ED will be the lowest-priced highway-capable PEV available in the United States, with a $25,750 MSRP before federal and state incentives. When coupled with government incentives and the lease option, the fortwo ED will have a significant impact on the world’s strongest market for PEVs.

If the lease is as enticing in Europe as it is in the states, then other automakers will take note and more battery lease options for PEVs will follow. Nissan has already announced it is entering the fray as it plans to sell the LEAF with a battery lease option in the United Kingdom this year.  As automakers become more comfortable with the idea of battery leasing, they will also become more comfortable with developing vehicles that are battery swap-capable, allowing a third party like Better Place to manage the battery liabilities, lease arrangements, and the recycling.

The electric vehicle (EV) industry got off to a slow restart in 2010 and has had its share of highly publicized missteps (e.g., Fisker, CODA, and A123), but it has already made many contributions to the economy.

First off, sales of plug-in electric vehicles in the United States generated revenue of around $1.7 billion in 2012, and Tesla Motors alone generated revenue of more than $300 million in the fourth quarter.  Sales of plug-in vehicles are up 145% this year compared to the first quarter of 2012, with more than a dozen models on the market.

Then there’s the investment in charging infrastructure equipment, which was around $92 million in 2012.  That does not include payments to electric contractors for installation work or the permitting fees that go to state and local governments to get approval for installation.  Expenditures on commercial and residential electric vehicle supply equipment (EVSE) are expected to exceed $172 million in North America and more than $713 million globally during 2013, according to data from Navigant Research.

Total Installed Commercial EVSE Stations by Accessibility and State, Top 10 U.S. States: 2012

(Source: Navigant Research)

EV charging is now available across the United States at more than 20,000 locations, which are bringing in money every day through pay-for-charging events.  Not all of the equipment providers will survive – consolidation is natural in any rapidly growing industry – and any companies that fall by the wayside should not be viewed as indicators of the broader failure of the industry.  While some of the seeds of the Department of Energy-funded EV infrastructure did not take root, the investment has been critical to increasing consumer adoption of EVs.

Another beneficiary of the EV industry is the solar industry.  As outlined in Navigant Research’s recent report, Solar and Electric Vehicles Cross Marketing Strategies, many car dealerships, including Chevrolet, Ford, and Nissan dealers, are installing solar as a visible sign to consumers that they are environmentally conscious and so that they can offer emissions-free charging to EV customers.   Many of the early EV adopters live in single-family homes and are installing solar arrays to offset their energy consumption.  In many cases the solar panels are capable of providing more than enough electricity for their EVs throughout the year.

It is easy (and headline grabbing) to focus on the failures, but that ignores the many jobs that have been created and the new and established business ventures that are poised to take off now that the industry has made it through its rough infancy.