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As huge quantities of electric vehicle (EV) chargers and energy
storage are installed worldwide in the coming years, there is the
possibility for both technologies to be deployed together.
According to an IHS Markit report, energy storage has the potential
to solve two big problems faced by EV charge point developers:
High grid costs - As electricity networks become more
constrained, the cost of connecting to the grid has risen in
certain locations. In these places, it is often unprofitable to
install EV
chargers.
Low revenues - In most countries, policy has promoted the
buildout of the EV infrastructure as a means of encouraging EV
uptake. As a result, EV infrastructure networks are currently
underutilized, leading to low revenues.
Because of these problems, deploying EV infrastructure is seen
as a necessary evil required to support the wider goal of higher EV
uptake. Reluctant investments by automotive OEMs have been
bolstered with public funds to enable development of a network that
will not be used fully for numerous years. However, it doesn't have
to be this way. As the business case for energy storage improves,
it can provide a quicker route to profitability for EV
infrastructure providers.
Mitigating high grid costs
It seems intuitive to view energy storage as a way to reduce peak
energy demand at EV chargers. By charging the energy store from the
grid when demand for charging is low, developers could supplement
the power supply at high-charging demand times, leading to a lower
peak in power demand from the grid.
Why hasn't this use case been widely
adopted?
First, charge point developers point out that in most cases
batteries are still too expensive for this niche role. Second,
charge point developers view a grid connection that will meet peak
EV demand as the gold standard - whereas batteries come with
concerns over degradation and maintenance requirements.
Missing from this analysis is the difference location can make
to the cost of connecting to the grid and the potential revenue for
charge point development. Grid charges are often highest at the
locations where EV charging is most needed. Demand charges in urban
areas of New York can reach $25/kW/year, and connections at service
stations on trunk roads in the United Kingdom can be up to
£1,000,000 for a rapid charger station. Demand for EV
infrastructure will be highest at these urban and trunk road
locations. Therefore, EV charge point developers are commonly faced
with a no-win choice: install EV chargers at locations with lower
grid demand and accept less revenue due to a non-optimal location
or chase the best locations but accept unprofitable development due
to high grid-related costs.
By peak shaving demand, energy storage can enable charge point
operators to minimize grid costs at prime locations. In a few niche
locations, the increase in revenue achieved by installing where
demand is highest will be enough to cover the cost of the battery.
However, the widespread opportunity for charge point developers to
use storage lies in the way it can cut grid costs while also
enhancing revenues.
Increasing revenues
The number of EVs is still low, at less than 5% of the total
vehicle f leet in most countries. Therefore, the charging
infrastructure typically has subpar utilization rates, threatening
the profitability of charge point developers.
Meanwhile, the case for energy storage has grown substantially
in recent years, with investment being driven across the globe by
profitable use cases. Battery energy storage projects are accessing
revenue streams by bidding into existing frequency response
markets, providing other ancillary services, or increasingly
trading wholesale
energy as price volatility increases.
Commonly quoted returns for energy storage projects are as high
as 12% to 15% in the United Kingdom, United States and Australia,
surpassing those of charge point developments. This means there is
an emerging opportunity for charge point developers to incorporate
energy storage alongside EV chargers. This can generate additional
revenues by providing grid services prior to EV adoption and
increasing demand for EV charging - thereby de-risking the overall
investment case.
Bringing it together over the life of the
project
To maximize benefits, charge point developers should include energy
storage at EV chargers - using the battery to generate additional
revenues by providing grid services as well as reducing costs by
peak shaving. To fully achieve this goal, the use case of the
energy storage system must change over the lifetime of the
project.
In the early years, the battery will provide much of the
project's revenues via ancillary services. Then, as EV adoption
increases, project revenues will shift toward electricity sales to
vehicles. The battery use case will shift to peak shaving in order
to minimize grid charges. In this way, charge point developers can
generate diversified revenues throughout the lifetime of the
project while reducing risks.
A small number of companies are considering deploying batteries
to do just this in the United Kingdom. However, the market for
energy storage to provide ancillary services and wholesale
arbitrage is becoming more established across Europe and the United
States and, at the same time, the rollout of EV chargers is
accelerating. IHS Markit expects this trend will lead to growing
synergies between energy storage and EV chargers. Using the
flexibility of energy storage to both reduce grid-associated
charges and provide additional revenue, this approach can help
address both of the big problems faced by charge point
developers.
The Global Clean Energy Technology service provides market
intelligence of the important technologies shaping the energy
transition, including batteries/energy storage, hydrogen and
renewable gas, solar PV, and wind. Find out more: ihsmarkit.com/GlobalCET1
Posted 16 December 2020 by George Hilton, Senior Analyst, Energy Storage, S&P Global Commodity Insights
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