As momentum builds for an early transition from Internal Combustion Engine (ICE) vehicles to Electric Vehicles (EVs), the market is shifting its gaze to potential revenue streams available to EV charging assets that can provide services into the flexibility markets.
A couple of areas of policy are getting people excited. One is the rumoured acceleration on the ban of new ICE and Hybrid sales, and the other is next year’s tightening of carbon emissions targets for vehicle manufacturers, aimed at driving EV adoption more quickly. This blog gives some initial thoughts on the opportunities that in-home charging can provide, both to the consumer and businesses, as smart EV charging assets continue to grow.
What is EV Smart Charging?
Before looking at the service offerings that smart EV Charging Assets can provide, it is important to have a clear view of what ‘smart charging’ capability is. A common misconception is that smart charging refers to the capability for bi-directionally charging (V2G). This is not the case. Single-directional charging (G2V) can also be smart, and today is still the predominant consumer choice. It is a cost-effective option, providing the capability to charge at home flexibly and manage charging schedules through either app or vehicle functionality, for a cost as little as £500 (inclusive of the government grant).
That said, the market for V2G is likely to mature, with Virta predicting that it will grow to over $5 billion in monetisable value across the globe between 2020 and 2040. Various trials are underway, and some businesses are already using the technology to monetise the EV charging assets they install for business use. I touch on this later in the blog.
What does Smart Charging allow us to do?
G2V technology provides the capability to control the charge rate and time, giving the EV driver the capability to schedule their charging based on price, carbon intensity and priority. Remote command and control of charging assets adds the provision of flexibility services to the mix, such as aligning charging demand with times of excess generation. As technology develops, EV uptake increases and homes transition to become low carbon – with improved insulation, heat pumps, smart water heaters, solar PV and enhanced capability to load – there will be increased access to more varied and sophisticated revenue streams for the prosumer (or other parties).
As EV numbers grow and households increasingly aspire to own more than one EV, many homes will need more than one charge point. Under the current CAPEX expenditure model where customers must invest upfront in the cost of infrastructure that will be very costly and could place greater stain on local networks. However, as the market continues to grow and evolve it is likely to transition to an ‘as a service’ subscription model, whereby a second or subsequent charge point connections are provided at a monthly cost, like watching satellite TV in more than one room of your house. If the market for EV flexibility grows as much as some models forecast, companies that aggregate demand assets for flexibility could even offer this for free, subject to commitments on availability of the assets, which could be tracked and managed by AI.
Critical mass matters, because even as they achieve scale on a consumer level, EV assets have little system-wide monetary value as individual units. An individual EV will be small beer to the system operators, but the collective ability of thousands of EVs will be a compelling option for system management. As GB looks to accelerate its energy transition to low carbon sources, the EV will integrate in various ways to the smart home.
At that point, demand management capability at peak times – dependent on smart charging – will become vital.
What are the revenue streams?
Demand Side Response (DSR) – DSR is when electricity demand is turned down at times of system stress through a contractual relationship with the network operator. The main aim of DSR is to avoid the costs of building new generation and reinforcing networks for relatively short times of high demand (e.g. winter teatime peaks). In this context, EV charging assets and the EVs they serve can help to shave demand off this peak by varying charging times and charging rates. In future, if the economics stack up, EVs can provide excess power back to the Grid through V2G technology.
However, there are barriers to participation in the DSR market. If the demand user does not behave as they have agreed, financial penalties may be charged. Putting this into the context of the EV driver, if they agreed to shave off a charge at 6pm in return for a payment, but then have to charge faster for an unforeseen personal reason, a penalty charge is likely to discourage them from further participation. Furthermore, to provide enough aggregate demand shifting to justify investment will require widespread EV adoption, at least within a focused geographical area. Aggregators will play an important role in packaging up incremental actions, however it will require the local DSO to make the benefits attractive enough to incentive the customer to participate.
Another key to obtaining benefit from DSR is participation in the Capacity Market. In this market, contracts are awarded for making capacity available, so that supply can continue to meet demand as more volatile and unpredictable renewable generation increases. Again, this is likely to present challenges to aggregators who are looking to gain an advantage from DSR. Often Capacity Market contracts are agreed in advance and run for several years. What happens if the EV driver moves home, changes product, or just decides they no longer want to actively manage their demand usage?
In both scenarios (direct participation in the DSR market and offering DSR into the Capacity Market), who should bear the cost of any non-delivery penalties is still up for debate. Nor is it clear how changes in consumer behaviour can be accommodated, and what market mechanism can be put in place to make participation attractive to the consumer.
Frequency Response (FR) – There are three elements making up National Grid’s requirement to meet their FR obligations. These are: Dynamic Containment, Mandatory Frequency Services and Firm Frequency Response (FFR). FFR is likely to be the focus area of consumers and those businesses providing EV charging infrastructure. FFR is the provision of dynamic or non-dynamic demand in the event of changes in grid frequency to maintain frequency within an operating range.
With the development of V2G technology moving rapidly, this could provide the EV with the capability to act as a Generation of demand response asset for this service. FFR is good for EVs as an EV is a static asset that can control its rate of charge. However, it is important to note that EVs have to be plugged in to a charge point in order to offer these services and that it still needs to be understood how these signals would be provided to the vehicle itself due to its requirement to respond within milliseconds. It is possible that EV chargers could deliver FFR services semi-autonomously, by sensing frequency of the power by the EV itself detected locally by the EV charger.
We await with interest the outcome of the BSI’s recent work on the PAS standards which aim to provide standards for Smart Appliance (including EV chargers) and the government’s decision on the use of Smart Metering systems in optimising the use of smart charging capabilities for EVs.
EVs acting as storage assets – Many DNO’s/DSO’s have noted the potential for EVs to be used as a storage asset at times when the UK Grid is generating excess capacity from low carbon sources. For example, in the East of England when sun rises, excess power generated from solar farms could be stored in EVs. This provides a potential revenue stream for EV drivers and businesses who service those EV drivers by having the potential to charge using low cost, low carbon energy.
Under V2G technology, the energy could then be released back to the Grid at times to shave peak load. This would provide EV drivers with a further opportunity to take advantage of financial incentives. As the uptake of EVs increases, peak load times – traditionally in the early evening – could shift and become more variable. In this scenario, EVs can be utilised to provide more flexible response to local peaks as the distribution network transitions towards a DSO model.
EVs responding to energy system balancing signals – Whilst EVs have the potential to act as storage assets, they also have the potential to increase demand in response to price signals provided by the charge point operator, energy suppliers, aggregator or another actor, or a mixture of these. This could be as part of an aggregated offering into the balancing market, where bids and offers are taken by the system operator to vary system demand and generation; or by varying demand to take advantage of price signals and reduce home energy costs, with the latter already being available via the Octopus Go tariff, for example, with others coming onto the market.
Whilst these revenue streams provide the home with the potential to use their EVs to participate in a suite of flexibility markets (and be paid for the privilege), the question of firmness and reliability does not go away. How is it determined that what was delivered matches what was promised? As actions only run at the whole home level, it will be hard to prove whether turndown was a result of responding to a signal or whether they were going to turndown anyway. New methods of measurement and more granular data are required to unlock the benefits of smart charging.
All the above revenue streams are likely to become available as the uptake of EVs gathers pace, providing further opportunities for EV owners to benefit.
It is also likely that these benefits will be accessed via energy suppliers, aggregators, car manufacturers, network operators, charge point operators and / or potential new innovative market players – with products being stacked to provide new offerings and new income streams from the energy network in the GB – and new opportunities to engage with the end consumer.
What is not so clear is how these flexibility markets will operate. What products will be offered and by whom; how delivery will be confirmed and non-delivery penalties will operate; how the regulatory framework will protect consumers; how new markets will integrate with existing markets; what role each of the actors will play; and how each of the markets will be settled.
Providing consumers with additional revenue streams will further incentivise the switch from ICE vehicles to EVs, helping us meet our carbon reduction targets. Making it all happen is the next exciting challenge.