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EV charge point developers have two big problems; energy storage can help to address them both

08 October 2020 George 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:

  1. 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
  2. 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.

Energy storage installations at EV chargers by major region (2018-25)

For more about our energy storage research, visit our energy storage capabilities page, which is now included in our Global Clean Energy Technology service.

George Hilton is an energy storage senior analyst with the Gas, Power, and Energy Futures team at IHS Markit.

Posted on 8 October 2020


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