Companies are already re-shaping the economics of vehicle power, investigating distributed models of electricity storage and distribution, and offering users of electric vehicles flexibility in when and where they get power and how much they pay for it.
Resolving the challenges relating to the cost and practicalities of electric vehicle power is pressing: the UK government announced in 2017 that the sale of new petrol and diesel cars will be banned in the UK from 2040.
New business models and collaborations are emerging as businesses respond to the question of how power for the predicted proliferation of electric vehicles will be generated and distributed. Incumbents in the energy and automotive sectors are adapting their business models and collaborating in new joint venture partnerships, combining their expertise. Entirely new players are also emerging. These ‘disrupters’ offer new products or services that challenge our existing perceptions of both the energy and vehicle markets.
The UK's capacity to generate electricity will need to grow to meet the extra demand from electric vehicles.
Further improvements in the capacity of electric vehicle batteries, and the development of faster electric vehicle charging points, such as the 'ultra-rapid' 350kW chargers that cater for long-distance electric vehicle travel, will place further strain on generation, distribution and supply.
The UK government is aware of the issue. It has estimated that an extra 60 GW of electrical output (GWe) will need to be added to the UK's electricity generation capacity by 2025. Due to the UK's climate change obligations, the new capacity will need to be provided through a combination of nuclear and renewable sources of power.
It is predicted that 35 GWe will come from renewables by 2025 and a significant proportion of the remaining 25 GWe is set to come from nuclear, although only 16 GWe is expected to come online by 2030.
Relying on renewable sources of electricity, however, has inherent risks dues to the intermittent nature of its generation. On its own, renewables cannot provide a 24/7 reliable base load of electricity.
This demand offers opportunities for innovation, such as the development of electric vehicle charging points that incorporate on-site generation, typically by way of solar photovoltaics and battery storage capabilities. This can range from small-scale batteries for individual charging points or large, grid-scale batteries designed to serve a bank of charging points at a motorway service station, for example.
These solar and storage solutions give charging point operators greater flexibility and resilience, through a varying degree of self-sufficiency, and also provide them with the option to manage users' demand, and thereby their own revenues. They can do this by, for instance, charging a large battery during off-peak hours in the middle of the day, when solar power is at its most efficient and most people are at work, and discharging it at peak hours in the evening when users seek to charge their electric vehicles when back at home and electricity prices are at their highest. This model enables operators to minimise their costs of electricity supply too, with a view to maximising profits or passing savings on to customers.
There are also increasing opportunities for electric vehicle charging point operators to enter into power purchase agreements (PPAs) with electricity generators, such as local solar generators. PPAs provide the generator – or seller – a guaranteed price for its electricity and the charging point operator a secure supply of electricity. This arrangement can also be provided by way of a 'private wire' solution if the generator and the charging station are co-located.
The potential of 'vehicle-to-grid' and other developments in distribution and supply
Grid constraints and the cost of connection to the electricity grid can be major challenges for electric vehicle charging point developers and operators.
Charging points by nature need to be widely distributed, and may need to be installed in locations, such as petrol and service stations, which are not well-served by the grid. Other charging points will need to be installed in densely populated areas where the grid is frequently already at capacity, and cannot accommodate additional loads.
Either scenario can lead to high costs attached to planning, design and installation, as well as lengthy delays, for the charging point developer. This issue will become particularly acute as the case for installing increasingly high-powered charging points grows.
On-site generation and storage can play an important role here, providing charging operators a means of reducing their impact, and reliance, on the grid, and managing users' demand, for example through charging a large-scale battery during off-peak hours and discharging it during hours of high demand.
As well as conventional, ‘stand-alone’ batteries, the concept of a ‘vehicle to grid’ (V2G) solution is also being explored by the industry through so called 'V2G' bidirectional charging stations. This revolves around using the battery in the electric vehicle itself as a storage device to help balance the grid while the vehicle is not in use.
Operators could incentivise electric vehicle users to charge their vehicles at off-peak times through cheaper rates, and apply higher rates at peak times. This would help to balance demand as well as lower customers' electricity bills.
Another option is to pay electric vehicle owners for allowing an energy company or a third party aggregator to take over the management of the vehicle’s battery, charging it during off-peak periods and selling it at peak times by way of a specialised charger installed at the user’s home. Users would likely wish to specify a minimum amount of charge for driving the next day. Such schemes are currently in their infancy, but will no doubt become more widespread as electric vehicles become commonplace and providing users’ concerns over energy companies accessing their vehicle remotely are allayed.
Taken together with a home electricity generation and battery solution, the V2G model could enable demand for electricity to be managed and the grid to be effectively balanced while providing consumers with a greater degree of control over how they use energy in their home.
Business model innovation
Incumbents in the energy and vehicle sectors are responding to the new opportunities and challenges with innovative new products and cross-sectoral collaborations: energy companies are developing new product lines around electric vehicle charging, and car companies are using their electric vehicle battery expertise to branch into home energy storage. For example, both Nissan and Mercedes have home battery offerings which use 'second life' car batteries which are still serviceable as home storage solutions.
This commercial model makes a lot of sense for vehicle manufacturers. As the market for electric vehicles grows, increasing numbers of batteries that are no longer suitable for use in cars will be gathered by automotive businesses – those batteries could, however, still have a useful life for powering applications in the home, since the cycle and efficiency requirements are lower. Via this model, manufacturers would also have access to valuable data on how customers use their electric vehicles as well as how they use energy in their homes.
Car companies and energy companies are also collaborating to provide electric vehicle and home storage solutions: Nissan’s 'XStorage' is available as a home storage system to homeowners with solar panels in collaboration with Ovo, for example. Ionity, a joint venture between BMW Group, Daimler AG, Ford Motor Company and the Volkswagen Group with Audi and Porsche, is also collaborating with Shell to install a network of high-powered charging points at Shell petrol stations across Europe.
Car companies are also in some cases offering electric cars for sale with free or discounted charging for a period of time at certain brands of charging stations.
Battery storage operators and developers, relatively new to the energy market, are also able to offer their expertise to electric vehicle charging point developers and car companies by developing, operating and maintaining electricity storage systems for the charging stations, helping to maximise revenue and provide security of supply.
In future we could also see vehicle manufacturers offer electric vehicles at a discount to customers if customers enable the manufacturer to aggregate the capacity of their vehicles when not in use. This could create a ‘virtual power plant’ which the aggregators could access to sell energy at times of peak demand. A more advanced model of this nature could even see consumers earn money from the sale of electricity obtained from their vehicles, or use the value of their asset to the aggregator as a battery to offset the cost of buying their vehicle.
Some car manufacturers are already changing the basis on which they sell electric vehicles to customers, offering end-user services as opposed to the cars themselves. This reflects the fact that electric vehicles are less complex to maintain than traditional internal combustion engine cars due to there being fewer moving parts.
As a result, we may see manufacturers become more comfortable offering consumers a 'one price' model which covers all maintenance. This would leave consumers only liable for further costs of charging the vehicle, insurance and tax. Polestar is already offering its inaugural electric vehicle, after its spin-off from Volvo, on a subscription model, where a monthly payment covers all maintenance and servicing.
Lindsay Edwards and James Mashhadi are specialists in energy sector innovation and contracts at Pinsent Masons, the law firm behind Out-Law.com. Experts from Pinsent Masons will be discussing the future of electric, connected and autonomous vehicles at the Financial Times Future of the Car summit 2018 event in May.