Tag Archives: electrification

Electric vehicles as the next smartphone

In 2006 a cell phone was portable phone that could send text messages. It was convenient but not transformative. No one seriously thought about dropping their landlines.

And then the iPhone arrived. Almost overnight consumers began to use it like their computer. They emailed, took pictures and sent them to their friends, then searched the web, then played complex games and watched videos. Social media exploded and multiple means of communicating and sharing proliferated. Landlines (and cable) started to disappear, and personal computer sales slowed. (And as a funny side effect, the younger generation seemed to quit talking on the phone.) The cell phone went from a means of one-on-one communication to a multi-faceted electronic tool that has become our pocket computer.

The U.S. population owning a smartphone has gone from 35% to 85% in the last decade. We could achieve similar penetration rates for electric vehicles (EVs) if we rethink and repackage how we market EVs to become our indispensable “energy management tool.” EVs can offer much more than conventional cars and we need to facilitate and market these advantages to sell them much faster.

EV pickups with spectacular features are about to be offered. These EVs may be a game changer for a different reason than what those focused on transportation policy think of–they offer households the opportunity for near complete energy independence. These pick ups have both enough storage capacity to power a house for several days and are designed to supply power to many other uses, not just driving. Combined with solar panels installed both at home and in business lots, the trucks can carry energy back and forth between locations. This has an added benefit of increasing reliability (local distribution outages are 15 times more likely than system levels ones) and resilience in the face of increasing extreme events.

This all can happen because cars are parked 90-95% of the time. That offers power source reliability in the same range as conventional generation, and the dispersion created by a portfolio of smaller sources further enhances that availability. Another important fact is that the total power capacity for autos on California’s road is over 2,000 gigawatts. Compared to California’s peak load of about 63 gigawatts, this is more than 30 times more capacity than we need. If we simply get to 20% penetration of EVs of which half have interconnective control abilities, we’ll have three times more capacity than we would need to meet our highest demands. There are other energy management issues, but solving them are feasible when we realize there will not be a real physical constraint.

Further, used EV batteries can be used as stationary storage, either in home or at renewable generation to mitigate transmission investments. EVs can transport energy between work and home from solar panels.

The difference between these EVs and the current models is akin to the difference between flip phones and smart phones. One is a single function device and the we use the latter to manage our lives. The marketing of EVs should shift course to emphasize these added benefits that are not possible with a conventional vehicle. The barriers are not technological, but only regulatory (from battery warranties and utility interconnection rules).

As part of this EV marketing focus, automakers should follow two strategies, both drawn from smart phones. The first is that EV pick ups should be leased as a means of keeping model features current. It facilitates rolling out industry standards quickly (like installing the latest Android update) and adding other yet-more attractive features. It also allows for more environmentally-friendly disposal of obsolete EVs. Materials can be more easily recycled and batteries no longer usable for driving (generally below 70% capacity) can be repurposed for stand-alone storage.

The second is to offer add on services. Smart phone companies have media streaming, data management and all sorts of other features beyond simple communication. Automakers can offer demand management to lower, or even eliminate, utility bills and appliance and space conditioning management placed onboard so a homeowner need not install a separate system that is not easily updated.

How to increase renewables? Change the PCIA

California is pushing for an increase in renewable generation to power its electrification of buildings and the transportation sector. Yet the state maintains a policy that will impede reaching that goal–the power cost indifference adjustment (PCIA) rate discourages the rapidly growing community choice aggregators (CCAs) from investing directly in new renewable generation.

As I wrote recently, California’s PCIA rate charged as an exit fee on departed customers is distorting the electricity markets in a way that increases the risk of another energy crisis similar to the debacle in 2000 to 2001. An analysis of the California Independent System Operator markets shows that market manipulations similar to those that created that crisis likely led to the rolling blackouts last August. Unfortunately, the state’s energy agencies have chosen to look elsewhere for causes.

The even bigger problem of reaching clean energy goals is created by the current structure of the PCIA. The PCIA varies inversely with the market prices in the market–as market prices rise, the PCIA charged to CCAs and direct access (DA) customers decreases. For these customers, their overall retail rate is largely hedged against variation and risk through this inverse relationship.

The portfolios of the incumbent utilities, i.e., Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric, are dominated by long-term contracts with renewables and capital-intensive utility-owned generation. For example, PG&E is paying a risk premium of nearly 2 cents per kilowatt-hour for its investment in these resources. These portfolios are largely impervious to market price swings now, but at a significant cost. The PCIA passes along this hedge through the PCIA to CCAs and DA customers which discourages those latter customers from making their own long term investments. (I wrote earlier about how this mechanism discouraged investment in new capacity for reliability purposes to provide resource adequacy.)

The legacy utilities are not in a position to acquire new renewables–they are forecasting falling loads and decreasing customers as CCAs grow. So the state cannot look to those utilities to meet California’s ambitious goals–it must incentivize CCAs with that task. The CCAs are already game, with many of them offering much more aggressive “green power” options to their customers than PG&E, SCE or SDG&E.

But CCAs place themselves at greater financial risk under the current rules if they sign more long-term contracts. If market prices fall, they must bear the risk of overpaying for both the legacy utility’s portfolio and their own.

The best solution is to offer CCAs the opportunity to make a fixed or lump sum exit fee payment based on the market value of the legacy utility’s portfolio at the moment of departure. This would untie the PCIA from variations in the future market prices and CCAs would then be constructing a portfolio that hedges their own risks rather than relying on the implicit hedge embedded in the legacy utility’s portfolio. The legacy utilities also would have to manage their bundled customers’ portfolio without relying on the cross subsidy from departed customers to mitigate that risk.