How to make the transition to EVs: Inquiry looks for answers

The House of Representatives Standing Committee on Climate Change, Energy, Environment and Water will inquire into and report on the transition to electric vehicles (EVs) and has been taking public submissions to inform its considerations.  For transport, electrification is the obvious solution to assist this sector begin to decarbonise, and the AEC has always emphasised both the energy industry’s leading role in decarbonising to date, and its intention to ‘lean in’ and support other sectors of the economy which are yet to begin their necessary emissions reductions.  Part of the inquiry’s focus is on the issues related to the supply and sale of electricity for the purposes of EVs, and EV integration more broadly, and we limit our discussion here to this scope.

The inquiry seeks advice on the establishment of the resources, systems and infrastructure required to support a transition to EVs. It’s a complex task, as the energy transition is not just about reducing emissions by changing technologies in large-scale generation, it is also about a trend towards more localised, or distributed energy resources (DER) and customer-owned energy resources (CER). The most obvious example of the latter is the millions of solar PV systems on customers’ rooftops around Australia, and these are expected to be increasingly joined by household batteries and EVs as we move towards net zero.

There is no doubt that electrification of transport will significantly add to the stock of battery capacity owned by consumers, although there is an important question therein as to consumers appetite to use their vehicles as an ancillary storage, in what is called “vehicle to grid” (V2G) technology.  If consumers are prepared to use vehicles as ancillary storage, then orchestration of this storage is required.  Orchestration is the direct management of CER by another party to achieve a “firm” response when requested.

At its simplest, orchestration has been used by distribution network service providers (DNSPs) for decades, primarily via timed electric hot water systems and more recently for direct load control of air conditioners. Whilst they have a historical role, the DNSPs (networks) do not necessarily need to be the orchestrators of the future.  With more complex services able to be provided by the two-way energy flows from CER and the likes of EV batteries (EVs being the subject of the inquiry) for things like voltage and frequency or energy it can be argued that networks should not be the orchestrator to avoid the risk of vertical integration of the regulated business into merchant markets.  And it’s not that hard to imagine that with technological advances aggregators or others will be able to set up similar controls and sell these to DNSPs as network support services, providing a flexible long-term market solution.

In preparing for this new world, aggregation and orchestration would be facilitated by DNSPs adopting consistent protocols and standards as far as possible. This would be especially important given many aggregators will want to operate across multiple networks. And most importantly in this consideration, customer sovereignty over their resources must remain a key principle. Customers should have the ultimate right to choose which (if any) service provider they would like to manage their resources and on what terms. 

The inquiry also sought advice on opportunities for fuel savings, such as by combining EVs with other consumer energy technologies and savings for outer suburban and regional motorists.  A successful transition to a high CER future offers potential economic benefits for both CER owners and all electricity consumers’ and could accelerate the pace of the transition to net zero.  This has been examined by Project EDGE[1] (Electricity Demand Generation Exchange), a field trial using real customers and CER assets and a theorized hybrid framework for two-sided electricity marketplace that can better integrate CER into local distribution networks.  EDGE was undertaken over 333 days in an off-market environment to test how price-responsive CER can be efficiently integrated into existing market arrangements.

In combining EVs with other consumer energy technologies there is potentially high future benefit.  The EDGE final report cites that the coordination of an estimated 31GW of active CER storage, including 7GW of vehicle-to-grid (V2G) means (EVs) could be a significant portion of the consumer storage that may represent almost half of total dispatchable capacity by 2050[i].  This is the energy sectors “batteries on wheels” hypothesis.

But EDGE also confirmed that customers are cautious about aggregators or others using their assets and that they are in the main lukewarm about joining an EDGE style program. The report notes that customers don’t currently see the value behind these schemes, and that CER owners are quite reasonably motivated primarily by the desire to reduce their own electricity bills and to be energy self-reliant.  This latter point identifies one of the key problems with future opportunities to combine EVs with other consumer technologies; that is there is a difference between what is possible and what is likely, and that these two are not always well aligned. EDGE also found that easy to understand financial benefits, whilst not alone, were key in any success in acquiring customers to participate.  To date, easy to understand financial benefits, or consideration of “what it’s worth to customers to participate”, has provided price signals that seem to remain below that of a compelling consumer proposition.  It may well turn out that alternative resources of CER to V2G could be less expensive, less variable and less complex to give practical effect to.  Flexibility for alternate consumer storage or other sources to V2G is prudently required.

The impact on electricity consumption and demand

The most recent State of Electric Vehicles report showed that by June 2023, Australia had seen the sale of 46,624 electric vehicles (EVs), representing a 269 per cent surge compared to the same period in 2022. The total sales figure now indicates that EVs account for 8.4 per cent of all new car sales in Australia, representing a substantial 120.5 per cent increase when compared to the full 2022 year.

Encouraging innovation in service provision, and in recognition that new service offerings will be essential to unlock participation, retailers already offer a number of electric vehicle tariffs (energy plans) and storage (home battery) plans that are widely available to consumers in most states (you can find an outline of these here).  Energy retailer innovation and investment in this important sector will continue to grow with the increasing deployment of EVs. 

Electric power is already cheaper than combusting hydrocarbons for small vehicles, and the main barrier to EV uptake is the up-front costs, even if the EV investment will be cost-effective over its lifetime.   We expect that these conversion costs, along with broader cost of living pressures, will likely create deferred conversion to EV’s and as a result have some braking effect on increases in electricity consumption and demand from EVs, and interestingly, potentially make the transition to EVs more manageable.  Notwithstanding whether this occurs or not, the uncertainties about the impact of electrification of transport on the electricity system centres around the characteristics of demand for EV charging (how fast, when, and where) have already been studied, and research by the University of Queensland has provided practical insight into each of these parameters.

It makes interesting reading.  Broadly, the University of Queensland study found that in Australia, the majority of charging events occur during daytime and night, outside of peak hours, and that charging patterns are mostly similar during weekdays and weekends. The report finds that most vehicles are parked during the daytime, although as to be expected more vehicles are being driven during the daytime on weekends. The report noted that these trends look pretty positive in terms of demand management and smart charging possibilities.  Our view is that this sort of evidence based assessment should help remove some of the anxiety around (and pressure for) overstated future electricity network investment and spending as a function of EV charging. 

Finally, given the evidence available, the AEC’s view is that in the near term the policy and regulatory focus should remain on “least regrets” next steps that will help manage the network and permit more evidence-based decision making as opposed to “build it and they will come” approaches to technologies and forecasts.  An evidence based approach gives policy makers and regulators flexibility for moving to more permanent and fit for purpose solutions when the evidence is more compelling and the cost/ benefits are well understood, and potentially more favourable.

[1] https://aemo.com.au/-/media/files/initiatives/der/2023/project-edge-final-report.pdf?la=en

[i] This is based on the forecasts in the EDGE final report and the Australian Energy Market Operator’s step change scenario in its Integrated System Plan.