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How Utilities Can Drive the Future of Transport

The following article by Energy Foundation Transportation Program Director Patty Monahan and Vice President of Power Strategies Dan Adler appeared in Utility Dive, an online news and analysis resource for utility industry professionals. Patty was previously a senior analyst at the Union of Concerned Scientists and a team lead at the Environmental Protection Agency. Dan was formerly a managing director at the California Clean Energy Fund and senior staffer at the California Public Utilities Commission.

The Transportation Grid: How utilities can drive the future of transport

“The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.” — former Saudi oil minister Sheikh Yamani

When it comes to how we fuel our cars and trucks, America is standing at an inflection point. The electrification of our system of personal transport, which for many years was little more than a visionary theory, is now in its initial stages of design and implementation; with the right policies, the bulk of our passenger vehicles could shift from being fueled by oil and gas, to being powered by electricity. If transport electrification is truly a question of “when,” rather than “if,” it poses some profound—and immediate—questions for the electricity sector, and, in particular, electric utilities. Because of the vast infrastructure needed to charge electric vehicles (EVs), utilities may in fact hold the keys to accelerating their deployment.

And as a side benefit to accelerating EV deployment, utilities could see increased energy demand and revenue growth. An outcome that favors both utilities and consumers is not, however, a given. The way utilities structure EV charging rates, and the strategies they use to integrate “smart” vehicle charging with existing and emergent programs and technologies, will determine the extent to which utilities set up a “win-win-win” situation – for the economy, for consumers, and for their own business.

As utilities around the country experiment with EV grid integration, a growing body of evidence is pointing to a set of best practices that ensure EVs have a positive impact on the grid, offer benefits to ratepayers, and address urgent public health and environmental issues. Utilities who choose these approaches may eventually come to be seen as the key players ushering us out of the oil age, and into the age of electrified transport.

The Utility of the Future

Across the United States, utilities, grid managers, ratepayer advocates and electric vehicle (EV) innovators are experimenting with new policies and incentives for EVs that, when observed in aggregate, are on their way to bringing electric vehicles out of their niche, and into large-scale consumer adoption. While these conversations are still nascent, they fit squarely in the emerging debates about the “utility of the future” taking shape in New York, Minnesota and elsewhere. Some initial findings suggest that tomorrow’s electric utilities will be rewarded for integrating EVs and the related host of new energy technologies and services—technologies and services that are clean, reliable, affordable, and attractive to consumers.

As more utilities realize the potential value of EVs to their bottom line, and as more EV manufacturers grasp the importance of the electric grid for vehicle sales, we may see a perfect storm of convergence that will facilitate a sea change away from the internal combustion engine and toward a transportation system that is powered predominantly by electricity. Several important variables will determine which set of actors ultimately get to play the lead roles in accelerating a transition to electric drive. All evidence suggests that utilities are the front runner. But a lot is riding on the path they choose. A growing body of empirical evidence from Energy Foundation partners and others suggests that, with the right policies in place, utilities are uniquely positioned to help oversee the vast network of charging stations, set prices, and structure and manage various EV incentive programs. They’re also in an ideal position to play the role of “referee” for the various technologies that will be deployed in service of electric vehicles – making sure that the full suite of technologies meet rigorous standards for engineering, grid compatibility and interoperability with other systems.

The fact is, no single entity or group of companies has more experience managing the development and deployment of large-scale electric infrastructure than electric utilities. With the right policies in place, utilities may well prove to be the lynchpin to developing a nationwide network of charging stations to rival today’s gasoline stations. We’re already witnessing an uptick in related activity – and not just in places like California and Washington state, both of which have aggressive goals for vehicle electrification. Utilities in Alabama, Michigan, Maine, Missouri, New Jersey, Indiana, Vermont, Florida, and Minnesota are all experimenting with various programs to incentivize electric vehicle deployment. The range of policy experiments is what you might expect in our diverse, federalist system; and of course, some policies are more effective than others. But while each state’s program has its own unique attributes, there are some common themes that suggest an emergent pattern of best practices:

Use Time of Use pricing to encourage off-peak charging

Like most passenger cars, most EVs are only in use a few hours per day, when drivers are going to and from work, or running errands; the rest of the time—between 20 and 22 hours per day, according to US Department of Transportation—they sit idle. The average car’s idleness presents an opportunity to use price signals to encourage charging during off-peak hours. Several studies have found that, by using time of use pricing for EV charging stations, utilities can get owners to charge their vehicles during periods of low power demand. The benefits of such price signals are substantial: When EVs are charged off peak, consumers face lower energy prices, and utilities increase revenues without the need to invest in new grid or generating capacity. Already, a growing body of evidence points to the ability of TOU rates to enhance the EV value proposition for consumers and power companies:

  • In Virginia and North Carolina, Dominion Resources is running a pilot project, to determine how TOU pricing may influence vehicle charging behavior.
  • According to the California Transportation Electrification Assessment, the net benefit to utilities, which could be recycled back to all ratepayers, varies from $2800 to $9,800 over the life of the electric vehicle, depending on the rate structure. These benefits occur by charging EVs at off-peak when capacity utilization is low. The report found, “additional revenue from PEV charging exceeds the marginal costs to deliver electricity to the customer, providing positive net revenues that put downward pressure on rates.”
  • The U.S. Department of Energy’s EV Project found that TOU pricing pushes the majority of EV charging into off-peak hours: “In regions where the electric utility provided TOU rates, the driver typically programmed the EVSE or PEV to begin charging at the time the lower rate started.” In regions that didn’t have TOU pricing, the EV Project found that EV owners plugged in their vehicles in the early evening, when capacity utilization is often high. The rate structure is a key factor in determining whether EVs are good or bad for the grid.
Use smart charging of EVs to increase grid flexibility, reduce rates

As everyone in the electricity business knows, the rapid growth of variable renewable energy will eventually lead to technical challenges with grid integration. Through the use of smart charging and related technologies, utilities can actually use their customers’ EVs to enhance grid flexibility—while reducing rates for all ratepayers. When combined with smart meters, sub-meters, and advanced controls, utilities can turn EVs into the equivalent of a “utility infielder” for the grid. Most scenarios for very high renewable energy penetration envision some form of rapid-dispatch storage that can absorb excess generation during periods of high solar or wind output, and feed it back to the grid during low generation. Theoretically, smart charging for EV could enable EVs to be charged when there is excess generation from renewables. Over the longer term, the batteries being developed for EV penetration could become an integral component of the distribution system.  Research continues to determine if it’s possible that EVs (and their used batteries) could feed energy back to the grid, known as vehicle to grid (V2G). But there are major barriers to using EVs to provide power to the grid, since doing so may degrade battery life and may void vehicle warranties. EV charging stations can also be set up to participate in demand response programs. Because individual EV batteries are too small to provide utility-scale benefits, the concept will likely require utilities to aggregate multiple EVs, such as fleets, into pools of dispatchable power that range from 0.1 to 1 MW in size. But there are clear advantages to doing so: EV batteries ramp very rapidly, and can provide ancillary services like any other fast-ramping source. In a recent pilot project, GM’s OnStar division worked with PJM Interconnection, the world’s largest competitive wholesale electricity market, to coordinate EV charging to coincide with times of high renewable energy production—in particular, overnight wind power production. By informing OnStar when renewable resources were available on the grid, PJM showed that it’s possible to shift EV charging to be powered primarily by renewable energy, resulting in substantial air quality benefits and reducing the carbon footprint of vehicle charging. While there are still many policy and related issues to be addressed in deploying such a system, the hurdles are no longer technical in nature: To enable a grid-interactive vehicle system to move forward in which EVs are serving as resources in wholesale markets, regulators, ISO/RTOs, utilities, and other stakeholders will need to make decisions about how these systems should be structured to clarify ownership and participation. A clearly defined program in which customers understand what they are signing up for and how they benefit from participating will be necessary.

Rate-base charging stations for maximum benefit

As recently as 2011, regulators in California opposed utility ownership of charging stations, out of fear that such a move would stifle innovation and competition. But with a few years of experience under their belts, the California PUC is now headed in the opposite direction. With the benefit of hindsight, the reasons are fairly straightforward: EV charging stations must integrate with the grid seamlessly, and meet the same rigorous standards for safety and reliability required of utilities. If states are to truly push the large-scale deployment of EVs, they’ll need to turn to utilities as the most experienced operator. But, as the old saying goes, with great power comes great responsibility. Utilities, EV owners, and the broader public all stand to gain substantial benefits from the large-scale development of EV charging stations. The policies that empower utilities to collect the revenues and invest in the needed EV infrastructure must therefore ensure those benefits are properly distributed—and don’t result in market distortions that hinder other objectives, such as encouraging continuous technological innovation, fostering new business opportunities for service providers, enhancing environmental performance, and extending the benefits of vehicle electrification to all. As states begins to address the carbon emissions that cause climate change, there will need to be an even greater focus on the transportation sector as a major source of this pollution. By embracing vehicle electrification and the related need for new infrastructure, utilities stand to help solve the challenge of decarbonizing the transport sector. But that means they’ll also need to continue addressing carbon emissions from their core operations, and not simply shift the proximate cause of emissions from stationary to mobile sources. There are many challenges that lie ahead – we’ll need to properly structure utility policies, while continuing to entice consumers to purchase electric vehicles through rebates, incentives, and other programs. But all signs point to utilities having a central role in the effort to bring human mobility out of the oil age, and into the era of vehicle electrification.

Photo credit: Matthew Staver / NREL