Vehicle-to-grid Part II: How vehicle-to-grid technology could help save us from blackouts

Last week we discussed the Texas blackouts and I shared that your EV battery might be able to power your home during a blackout. This week we cover it in detail.

The reason i’m returning to this topic is because it could be the key to our future energy storage needs. As the recent events in Texas showed, the US electrical grid is highly sensitive to extreme weather events, and those events are becoming more and more common due to climate change. The good news is that the solution to this problem is all around us: our cars, or should I say our future cars. As we switch over to an electric vehicle fleet we will have a large battery in our cars which is capable of storing enough energy to power our homes through a multi-day energy blackout. Furthermore, when aggregated together, these car batteries can be used to make our national energy grid more resilient and dynamic. 

The electrical vehicle revolution has arrived

If the viral Superbowl video of Will Ferrell driving to Norway (whoops Sweden) and lamenting the lack of electrical vehicle sales in the U.S. didn’t catch your attention, perhaps this will… 

There are currently 1.6 million electric vehicles in the US today and that number is projected to reach 30 million by 2030 (that’s 15% of all passenger vehicles). All those electric vehicles and their lithium ion batteries represent a phenomenal source of distributed energy storage. 

Unbundling the buzzword “vehicle-to-grid” or V2G

This is a term that gets used a lot in climate tech circles. When used, this term encompasses 3 sub-categories:

  • V1G: This involves the ability to stop and start charging on demand. The purpose of this technology is to optimize the time of day when the EV battery is charged such that it does not increase peak demand on the grid

  • V2H/V2B: vehicle-to-home or vehicle-to-building. This is a form of bi-directional charging which allows the vehicle to deliver energy within a closed system like a building or a home. It does not entail providing energy back to the electrical grid

  • V2G: vehicle-to-grid. A form of bi-directional charging which allows the vehicle to deliver energy back to the electrical grid. This is distinct from V2H/V2B and typically requires regulatory approvals. 

How does this really work from a technology perspective?

This is an incredibly confusing topic. If you really want to understand it in depth, I recommend giving this a read. At a high level what you need to know is that electric vehicles can be powered either by AC or DC energy. For instance, the Tesla Model S uses alternating current (AC) induction motors, but the Model 3 uses permanent-magnet direct current (DC) motors. An expert reading this would correctly call out the fact that there are several permutations that the below scenarios can take, so please bear with me and take the below as the most common example:

  • How an electric vehicle (EV) gets charged: An EV battery stores power as Direct Current (DC) energy, while energy arrives from the grid in the form of Alternating Current (AC). If using an AC charger, the AC energy must be converted to DC, which is done via a component within the vehicle called an on-board charger. If using a DC charger the conversion from AC to DC takes place within the physical charger and no conversion is required to take place within the vehicle between the charger and battery. If your EV uses an AC induction motor your EV will also contain an electrical device called an inverter to convert the DC energy stored in the EV battery back to the AC energy required to power the vehicle. (for a more detailed description, read this).

  • How does energy from an EV charge your home, building or the grid: That’s the same process, but in reverse. Either the battery on the electric vehicle must convert its DC energy to AC energy before discharging back to the grid or the vehicle must rely upon the physical charging hardware to convert its DC energy to AC energy. Currently, there is only one passenger vehicle in production capable of V2G and that is the Nissan Leaf. There are upwards of 20 passenger and commercial vehicle manufacturers working on prototypes that they hope to bring to market in the coming years. 

    • Which approach is better? It is really hard to say. Both come with their pros and cons

Cui Bono (who benefits)?

At the highest level, the planet benefits! The key theme here is load balancing. As discussed in my previous post, there are two large grid related challenges to electrifying our economy: 1) the need to 3x the capacity of today’s grid, balanced by 2) the need for the supply and demand for energy to remain in perfect harmony. Having more distributed storage assets that can discharge at a moment’s notice provides substantial additional grid capacity and load balancing capabilities. It also means that we can finally flatten the neck of the “duck curve” (keep reading for a translation of that nerdy energy colloquialism) and in doing so, we can rely less on non-renewable forms of energy.

Who benefits economically? Let’s review the 5 key constituents at play:

  • Consumers: When buying an electrical vehicle, the battery is by far the most expensive part of the purchase (~25%, or $10,000 of the $40,000 average purchase price of a Tesla model 3). If you now own that battery why shouldn’t you be able to monetize it somehow? That’s the thought behind the ~$490/year V2G opportunity for consumers who partner with Dreeve (a joint venture between renewable powerhouse EDF and recent SPAC Nuvve). Participants in OVO Energy’s V2G pilot in the UK have earned upwards of $1,000 in annual energy credits. Economic upside: significant

  • Auto OEMs: now that all Auto manufacturers have hopped on the EV bandwagon and are focused on moving more units they will be happy to take advantage of ways to lower the purchasing cost or leasing cost of an EV. China based Nio, for example, recently rolled out a battery leasing option which could certainly integrate V2G technologies in the future as a way of lowering overall cost. Economic upside: significant

  • Electric Utilities: these old guard companies are looking for ways to remain relevant and to pivot towards owning the digital energy experience. They are also struggling to manage congested transmission lines and peak capacity loads. V2G represents less of an overall revenue opportunity as it does a chance to lower risk and increase margins by cutting down on peak energy costs. Economic upside: medium

  • Renewable Energy Developers: Companies like EDF and Enel have repeatedly shown that when it comes to deploying more renewable infrastructure they are here to stay. When municipalities, schools and businesses look to both reduce their overall energy costs and execute upon their sustainability commitments, offering V2G-compatible charging solutions will be yet one more product in their feature set. Economic upside: medium

  • Charging manufacturers: In the near term the demand for V2G enabled chargers should provide the charging manufacturers with an opportunity to sell newer and more expensive charging stations. However, in the long term I anticipate that charging hardware will increasingly become a commodity and software installed on the actual vehicles will handle the complexities of V2G and represent the higher margin opportunity. SF based WeaveGrid is one promising early stage software company which is enabling the OEMs and utilities to work together directly to manage the challenges of EV charging demand and the opportunity of V2G. Economic upside: limited

How does V2G generate revenue:

  • Energy arbitrage: the most simple and obvious solution: charge up the batteries when energy is at its cheapest price and get paid to discharge it when demand is high and the price is high.

  • Frequency response: typically via pooled EV resources like a fleet of school buses, the owner/operator of a group of distributed battery resources can be paid by a utility or grid operator to discharge energy at anywhere from 10 seconds to 30 minutes notice.

  • Capacity: in most energy markets, regulatory bodies require network operators to maintain excess energy capacity on standby for emergencies (this is required everywhere in the US except Texas). In this model, the owner of an EV fleet could be paid for the contractual obligation to hold in reserve a certain amount of power at a future moment’s notice. 

  • Transmission and distribution network services: due to the high levels of congestion caused by supply and demand imbalances at different places along the grid in markets with high renewable penetration like California, EV fleet owners could be paid to pause charging or to discharge power in areas with high demand for energy and charge batteries in areas with an over supply of energy.  

If I use my EV battery to charge the grid, how will I have any battery left for driving? 

If you are using the battery as a backup power resource during an extended blackout, it is true that you may be left with no charge left to drive with, however as we discuss later in this post the battery can power your home for days so it would take a very long blackout to completely drain your EV battery and at that point you’d probably be grateful just to have some power! The other use case for EV battery power is to balance the grid and cut down on peak demand for non-renewable energy in the evenings. In that scenario since demand peaks around 10pm and is very low from 10pm - 6am you could easily recharge your battery at very low cost during the night. 

The elephant in the room (battery degradation)

One of the biggest impediments to rapid rollout of vehicle-to-grid offerings is concern from the battery manufacturers over the impact of additional charging and discharging on battery performance. Put simply, the more often you charge and discharge a battery the more it depreciates the value of the battery and shortens the overall lifetime. Most passenger EV’s come with a battery warranty for ~16,000 miles driven per year, which equates to ~4,000 kWh / year in energy usage. In order to realize meaningful benefits from providing V2G services, an EV owner would need to consume about twice that amount of energy, which places significantly more strain on the battery. Bloomberg NEF has modeled the potential cost of this degradation at $80/year. 

Concerns over battery degradation won’t stop V2G from happening

  • Tesla is supportive in the long term: Tesla, which has historically taken a very antagonistic stance towards V2G due to its concern that V2G would degrade the performance and reputation of its batteries, recently disclosed that it has enabled hundreds of thousands of its Model 3s with bidirectional charging capabilities. 

  • Additional OEMs are moving forward to support V2G: both Nissan and U.S. bus manufacturer Blue Bird have updated their warranties to include V2G services. These manufacturers have realized that V2G is coming and the best way to position themselves for it is to exercise more control over the discharge process and to participate in a share of the revenue created. 

  • Research indicates concerns of V2G induced battery degradation are overblown: researchers in Denmark on the V2G ACES project found that factors like battery temperature, state of charge and depth of discharge can meaningfully impact the potential battery degradation. If managed correctly, they found annual battery degradation of just 0.2% from V2G versus 1.5% from normal vehicle usage. 

How does EV energy storage potential compare to stationary storage?

Surprisingly, the amount of energy storage potential from EVs dwarfs that of physical batteries. Today there is 13x the amount of EV storage as installed stationary storage. Projecting forward to 2040, if all electric vehicles and buses were to be enabled with V2G technology they could provide 38% of all energy generation requirements. 

How much energy can my EV battery actually provide?

It all depends on the size of your EV battery. Let’s take a Tesla Model 3 for example which has the smallest battery of all the Tesla models, or 82 kilowatt hours.  

How does that compare to the standard home battery storage options (Tesla Powerwall or Sunrun Brightbox)?

The standard offerings (Tesla 13.5 kWh and Sunrun 10 kWh) - assuming average power usage - can provide 10-15 hours of power. Thus a Tesla Model 3 battery with 8x the kWh of a Brightbox could provide enough energy to power your home for up to 5 days (or the length of the Texas blackout).

Blackouts are pretty rare. Are there other use cases for EV battery power?

Many energy markets that have a heavy reliance on renewable energy sources (think California for the below example) suffer from a dilemma referred to as the “duck curve”. The duck curve, pictured below, shows the demand for non-renewable energy sources by time of day. As you can see, during the sunlight hours the demand for non-renewables is very low (because the sun is shining). However, after sunset and as energy peaks in the evening due to lighting, appliances and cooking demands, the demand for non-renewable energy spikes from 6pm-10pm. The curve resembles the shape of a duck, hence the colloquialism. 

What does this duck have to do with battery storage?

The neck of the duck from 6pm-10pm represents the ideal time to use electric vehicle battery discharge to lessen the load for non-renewable energy sources. The v2g-simulator from Lawrence Berkeley National Laboratory has calculated that with a conservative projection of only 3M plug-in electric vehicles (PEVs) in California in 2030 using V2G technology, we could flatten that curve by as much as 5GW. That flattening of the curve would replace $27B in stationary energy storage investments currently needed by 2030 to achieve California’s net zero goals. 

What are the opportunities for venture capitalists and entrepreneurs?

V2G Software: As previously mentioned, there is a huge opportunity to build the software that enables V2G and companies like WeaveGrid appear to be the early leaders in the clubhouse. The need for new, innovative companies helping to enable this trend is only going to grow.

Commercial fleets as virtual power plants: So far we have mostly framed this discussion in terms of passenger vehicles. There is however, a massive opportunity to use a different vehicle with bigger batteries, more predictable usage patterns and low utilization rates. Meet the school bus. In fact, there are a number of extremely well financed venture-backed companies building solutions in this space. The two leading companies are Nuvve (reported to be going public via a SPAC this quarter) and Highland Electric Transportation which just announced a $253 million dollar fundraising haul and won a $169 million dollar contract to supply Maryland’s Montgomery County Public Schools district with 326 electric buses and 5 charging stations over the next 4 years. Companies like Highland are able to offer extremely competitive proposals to school districts to electrify because Highland can earn significant revenue by providing V2G services back to the grid under FERC order 2222 which requires grid operators to allow distributed energy resources like EVs to serve in energy generation and capacity markets. 

And that is just the tip of the iceberg in terms of opportunities in our future V2G world. I’d love to hear thoughts from the readers on where you think other opportunities or challenges lie.