Electric Cars: Will the Cure Be Worse Than the Disease?

By Bill Moore

Posted: 21 Jan 2010

Imagine you built a car plant that could produce 100,000 vehicles annually. Despite a huge capital investment, you only really intend to build between 20,000 to 30,000 annually. You're either expecting sudden, unanticipated demand at some unforeseeable moment in the future... or you're an electric utility.

That's the point Bill Shanner wanted to get across to me this week as we talked for nearly an hour about the realities of the electric power industry; why some types of utilities like the idea of electric cars and others very much don't.

All of us in the developed world expect that each and every time, regardless of the time of day, we throw a power switch, the electricity will flow: lights will glow, microwaves will run, air conditioners will cool and computers will go 'ping" as they boot up. Live in other parts of the world where the grid is wobbly at best or just doesn't exist and it's a different story.

The problem and the opportunity -- depending on your perspective -- with adding millions of grid-charged vehicles, be they plug-in hybrids, extended range EVs, or pure battery EVs, is that they do add load. Yes, there is currently sufficient overnight generation capacity, but from the utilities' perspective, in order to keep a comfortable reserve they have one of two options: build more capacity -- especially on the transmission and distribution side -- or buy power from someone else, typically at rates, Shanner explained, 10 to 100 times what it costs the utility to generate its own, which is, on the global average, about 2¢ a kilowatt hour. But buying power from someone else doesn't solve the problem of distribution.

There is, however, a third option emerging: the smart grid, but Shanner's view is a bit different than what you're used to hearing. The reason utilities are interested in the smart grid is so they can shift the risk of electric power availability to the consumer. There are very pragmatic reasons for this having to do with how the utility industry has evolved.

The industry is divided into essentially three types of power producers: investor owned utilities or IOUs, electric power cooperatives and municipal power companies; and depending on which you are colors your view of electric cars.

As Shanner explains it, grid-connected electric cars are a lot like air conditioners in that their load is fairly unpredictable, largely because despite incentives to shift charge times to off-peak hours, EV owners are going to charge when and where they feel they need to. I can appreciate that because even though most of the time I usually plug in our converted Prius after 10 pm in the evening and unplug it before 8 am in the morning, there have been several times when I've wanted to charge it during peak hours. Now, with one such car in the entire state, and region for that matter, this isn't a problem. Even a few thousand grid-charged cars wouldn't be that big an issue for the grid. Millions of such cars, however, will be.

It is the unpredictability of this load that is worrisome to electric power planners. Enter the 'smart grid,' which from my confidant's perspective is the electric power industry's way to get the consumer to accept more of the capital investment risks that heretofore in a more monopolistic, vertically integrated power industry, the utility would have to bear.

Case in point: Vehicle-to-Grid (V2G) electric vehicles. It isn't the utility that is buying all that energy storage capacity, it's the car owner who is assuming the capital costs. Solar PV on your house? Same story. You're assuming the investment risk, though even here, you're counting on the grid to swap power with you: expensive solar during the day for cheap coal, natural gas and nuclear generated power at night. You're still bearing the lion's share of the cost. In fact, renewables like wind and solar don't reduce the need for grid capacity, they increase it because of their intermittency. A million solar roofs may work fine to help ameliorate some mid-afternoon air conditioning load, which is really what all the excess capacity was built for. It's like that 100,000 car per year plant that most of the time only turns out a few tens of thousands of cars annually. And since most of those solar PV installations haven't invested in banks for back-up batteries to handle night-time loads, the grid still has to provide all those homes with power after the sun goes down or when its not shining, like it's been here in eastern Nebraska for what seems like weeks now.

According to Shanner, two-thirds of the capital costs of the grid are T&D, transmission and distribution. It's all those wires, towers, poles and substations needed to get the 'juice' from the generator to our wall outlets. It's all those millions of neighborhood transformers that once two or three Volts and Leafs start to appear in a neighborhood will need to be replaced every 12 years instead of every 17 on average according to Arizona State's Power Systems Engineering Center.

Two nations, Korea and Denmark, have begun developing strategies to deal with the problem. They realize that the grid needs to be managed much closer to the load than it presently is. Under our current regime, utilities manage in 100MW blocks of energy, either in terms of production or buying and selling on the spot power market. In Denmark's case, Dong's wind power is sold to a central power pool and then resold to individual substations. What's happening is that the power company is starting to practice the same production strategies car makers adopted decades ago: lean [power] production, just in time [power] delivery and activity based accounting.

In effect, what Korea and Denmark are doing is moving energy management down to the substation level, making each a separate profit and loss center in their business model. But ultimately, that means increased electric power costs, not less; costs being borne more and more by the power consumer.

In fact, for any of this to work, it is Shanner's contention that there needs to be a complete transformation of the electric power industry business model; and the price tag to do it will run into the trillions of dollars; a lot of it being spent to buy up stranded utility assets, as well as expand and upgrade the T&D system. What's needed is both improved macro and micro management, plus a far more heterogeneous power grid instead of the hodgepodge we now have to live with.

To illustrate his point, he said that Intel has three production facilities in Silicon Valley, one in San Jose (PG&E), one in Santa Clara (a well run muni) and one in Sunnyale (a cooperative). All three charge Intel different power rates. You can probably figure out which charges the highest rate. There are 2000 distinct electric power monopolies across America, and each has a different business model and consequently a different view of the coming of electric cars. The IOU's (and their investors), as well as coops, generally speaking, see EVs as another profit stream because they make their money on the margins, around 12% Shanner estimates. If their net revenues go from $1.5 billion to $1.515, so much the better. The more power they sell, the more profit they can make. For the municipal-run utilities like Omaha Public Power District that produces the power to keep my lights on, iMac running, and Prius recharged, electric cars are a liability requiring more capacity that has to be built at the expense of the rate payers for whom they work.

I won't pretend that I understand all the delicate nuances of a very complicated industry, but Bill Shanner certainly seems to have a good grasp of it and if he's right and we don't do this carefully, in his words, "the cure could be worse than the disease."

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