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Vehicle-to-Grid: The solution to our energy problem?

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Vehicle-to-Grid (V2G), a technology that has the power to transform our energy systems, remains highly promising in helping to combat the challenges of the energy transition, enabling power systems to cope with the additional load from charging EVs whilst also facilitating the integration of intermittent renewables into the system.

In essence, bi-directional smart charging (V2G) can enable energy flows that supply power directly into the grid as needed. Managed by a sophisticated energy management system (e.g., third-party service provider), it provides energy supply and ancillary services (for example, frequency response) to the grid and enables consumers to earn a source of income.

V2G can offer opportunities not seen before and can be broken down to the various participants.

Cost savings and revenue opportunities 

By allowing their vehicle to respond to demand reduction signals (V1G) or at times go ‘off-grid’ (V2H/B), EV owners will benefit from dynamic pricing tariffs meaning the energy they consume will be at non-peak times at a reduced rate. 

The V2H/B concept also becomes more lucrative for the EV owner if they were to pair it with a self-generation asset such as rooftop solar PV. Beyond the savings achieved, they could also benefit from additional revenue by providing supply-side services back to the grid in times of supply shortages i.e., being paid for discharging their EV back into the grid (V2G). Energy suppliers can play a key role in articulating these benefits to their customers.

Additionally, fleet owners with last-mile vans, long-haul trucks or intercity buses have similar financial opportunities to those of a consumer with optimised smart control of their EVs’ charge and discharge. However, their opportunity is greater given the larger aggregated capacity as a micro-grid. They have the possibility to self-generate (for example through solar PV) in parallel and could, in turn, participate in energy arbitrage markets through trading their stored energy or participating in balancing markets by means of a virtual power plant. Like other participants, these opportunities are somewhat dependent on software, hardware and regulation developments, and fleet owners would need to obtain access to energy markets.

Automotive OEMs can also tap into new revenue pools through business model innovation and extensions. Firstly, they can size batteries based on consumer demands, for example a customer wanting their EV to be V2G and V2H ready, would require a large bi-directional battery, which could be priced at a premium, as opposed to a consumer who only plans to use their EV for transportation. 

Other opportunities such as Battery as a Service (BaaS) or battery swapping business models could emerge, in essence charging a premium to remove battery responsibility from the consumer. 

OEMs will also have access to more data (e.g., GPS, telematics, Battery KPIs) that could be sold to other ecosystem participants. They will also have a higher willingness to pay for batteries driven by the incremental efficiency value of using the battery for transportation and grid services. This could help OEMs improve the resiliency of their battery supply chain compared to generators with lower willingness to pay for batteries for storage only. 

However, securing the batteries is just the first step, OEMs will need to continue to test and improve battery efficiency to ensure that that they can deal with the additional load drawdowns from participating in V2G, for this function must be handled in an efficient way without significant operational energy losses or negative impacts to battery life.

Of course, these are only a few of the participants who will benefit. Generators and network operators can benefit from long-term CAPEX avoidance savings linked to building out their generation capacity that would be needed to fulfil EV charging demand if V2G is not achieved. 

Energy suppliers (also called retail utilities) will be the primary touch point for customers as they provide energy for charging and remunerate the customer for any energy discharged back to the system through V2G services. They will also play a vital role and will need to incentivise the customer to participate, making it easy and transparent as to what exchanges are taking place.

More widely, broader society will benefit from lower emissions due to avoidance of having to build new fossil power generation capacity to meet the additional EV charging load. Additionally, scaling V2G will be able to support further penetration of renewables – thus, accelerating fossil power plant retirements and lowering carbon emissions. Lastly, V2G technology has the potential to provide additional indirect benefits such as the creation of new businesses and jobs.

What are the implications of not achieving this in the long term?

When assessing a future scenario where 80% of cars are electric in the EU, the European Environment Agency concluded that the share of electricity required for EVs could represent up to 25% of the total electricity consumption.

This will place significant stress on the system and, if ecosystem participants do not work together and fail to unlock the potential of V2G, energy grids could face significant challenges. This includes:

  • Additional generation capacity needed to avoid system failure and blackouts to meet new demand
  • Higher peak electricity demand requiring grid upgrades and higher network capital costs
  • Less efficient provision of balancing services, with increased renewable energy curtailment, lower power plant utilisation rates leading to higher operational costs 
  • Increased electricity rates for consumers and price spikes and higher grid carbon intensity and emissions – higher costs needed to meet CO2 targets. 

To put this into perspective, Figure 1 below highlights the impacts of three different charging scenarios in the UK: unmanaged, smart (V1G) and V2G. Specifically, the incremental costs stemming from introducing one million EVs are quantified by comparing the three scenarios with a counterfactual system where there are no EVs. The V2G scenario proved to not only generate significant economic benefits but it also reduced CO2 emissions, lowering the UK power system’s carbon footprint by 12% compared to the counterfactual scenario.

Figure 1: UK power system incremental costs for three different EV charging scenarios

How can EVs can be the solution to a future grid filled with renewables

Although smart charging technically works at the individual vehicle level, the real value for the energy system will be found at the aggregated level where hundreds, thousands or even millions of EVs can be coordinated to participate in grid operations and power markets.

V2G has the potential to generate major benefits for power grids, and in turn protect consumers from outages and price spikes. However, it is worth discussing the key implications in more depth. Firstly, EVs represent the convergence of two previously distinct energy systems – soon, the power grid will also have to supply the large new energy needs of the transportation sector in addition to demand from residential, commercial and industrial electricity sectors.

Additionally, driven by climate change concerns and changing economics, the penetration of variable renewables and electrification of heating is expected to increase rapidly across most markets. Thus, the electrification of transport is, in effect, compounding the problem – meaning the grid must support far more than it used to, heightening the importance of managing EV loads via smart charging. Power grids, as they are set up today, would not be able to cope with the introduction of millions of EVs into the system.

A large number of EVs charging from the grid would result in a significant increase in overall energy demand and a much higher evening peak load – if commuters simultaneously plug in their vehicles after work it could cause the energy system to fail, resulting in outages and price spikes. This can be seen below in Figure 2 (unmanaged load).

Figure 2: Unmanaged vs. V1G vs. V2G charging

The overall demand and peak load from the unmanaged charging scenario exceed grid capacity – greatly increasing cost and causing system overload and blackouts. This can be mitigated with V1G (graph 2) by spreading out the charging profile to hours outside peak times, flattening the load in a way to enable grids to cope with additional EV demand. 

Taking this further, by developing V2G (graph 3) capabilities, the grid operator can also call on EV batteries to supply energy into the grid to meet demand, similar to a dispatchable power plant – thus the EV fleet could take advantage of excess renewables (e.g., solar) during the middle of the day and offset evening grid demand. 

This scenario would significantly reduce overall grid costs through energy arbitrage (between low midday prices in day and high evening prices), more efficient operation of generation assets and lower need for additional grid CAPEX.

Vehicle-to-Grid has the capability to transform – and accelerate – the use of electric vehicles and the impact that they have on the grid and our wider energy systems. Instead of a drain, V2G has the power to make transformational change, something that is vital as we continue on our way to achieving net zero.

Charles River Associates

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