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EV charge point developers have two big problems; energy storage can help to address them both
08 October 2020George Hilton
As huge quantities of both EV chargers and energy storage will
be installed across the world in the coming years, IHS Markit has
investigated the possibility for the two technologies to be
deployed together in a recent report. Energy storage has the
potential to solve the 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. This often means that it would be
unprofitable to install EV chargers at these locations
Low revenues - In most countries, policy has
promoted the buildout of EV infrastructure as a means of
encouraging EV uptake. The result of this is EV infrastructure
networks that are under-utilised, leading to low revenues and a
painful wait for EV uptake to increase.
These two problems combined, mean that deploying EV
infrastructure is seen as a necessary evil, required to enable the
wider goal of higher EV uptake. This has forced reluctant
investments by automotive OEMs to be topped up with public funds in
order to enable a network to be developed that will not be used
fully for a number of 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 by
helping to address these two problems.
Problem 1 - High grid costs
It is intuitive to see energy storage as a way of reducing peak
energy demand at EV chargers. By charging the energy store from the
grid when demand for charging is low, the power supply at high
charging demand times can then be supplemented by the energy
stored, leading to a lower peak in power demand from the grid.
Why then, has this use case not been widely adopted?
Firstly, charge point developers rightly point out that in most
cases it does not make financial sense - batteries are still too
expensive for this niche role. And secondly, having a grid
connection that will meet the peak EV demand is seen by charge
point developers as the gold standard - whereas batteries come with
concerns over degradation and maintenance requirements.
But what is missed with this analysis is the difference that
location can make to both the cost of connecting to the grid and
the revenue available to a charge point development. It is an
unfortunate fact that grid charges are often highest at the
locations where EV charging is most required. 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. It is these urban and
trunk road locations where EV infrastructure will have the highest
demand. Therefore, EV charge point developers are commonly faced
with the no-win choice - install EV chargers at locations with
lower grid charges and accept lower revenue due to a non-optimal
location; or chase the best locations, but still have an
unprofitable development due to high grid associated 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 alone 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 in
addition to solving their second problem.
Problem 2 - Low revenues
EV charging infrastructure is being installed in order to enable
EV adoption. However, with the number of EVs still low (less than
5% of the total vehicle fleet in most countries), charging
infrastructure typically has low utilization rates, which threatens
the profitability of charge point developers.
Meanwhile, the case for energy storage has grown substantially
in recent years with investment driven by profitable use cases
being established across the globe. 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 12-15% 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 to provide
additional revenues by providing grid services prior to EV adoption
and demand for EV charging increasing - thereby de-risking the
overall investment case.
Bringing it together over the life of the
project
To maximize the benefits of including energy storage at EV
chargers, charge point developers should use it to address both of
their problems by using the battery to generate additional revenues
by providing grid services, as well as reducing costs by peak
shaving. To fully achieve this, 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 towards electricity sales to vehicles. The
battery use-case will then shift to peak-shaving in order to
minimize grid charges. In this way, diversified revenues can be
generated throughout the lifetime of the project, and risks can be
reduced.
A small number of companies are looking at 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 roll-out of EV chargers is
accelerating. IHS Markit expects this will lead to growing
synergies between energy storage and EV chargers, enabled by using
the flexibility of energy storage to both reduce grid associated
charges and provide additional revenue - helping to address both of
the big problems for charge point developers.
