Electrification of transportation will change the utility business

How electrification of transportation will change everything for utilities

The rapid growth of plug-in electric vehicle (PEV) sales in Canada and around the world will have a major impact on many industries, but it will be particularly profound for those that literally fuel this transition: electric utilities. With greater customer engagement and increased electricity demand, utilities will have a significant role to play as they move into an essential role in the transportation landscape.

While PEVs currently account for 1.5% of total vehicle sales in Canada, most estimates predict rapid growth toward 2030, with sales rising quickly starting in the middle of the next decade. Elsewhere, PwC Germany’s models project 55% of all new car sales in Europe may be fully electrified by 2030.

The evidence supports this growth, with countries like the United Kingdom moving to end the sale of conventional gas- and diesel-powered vehicles by 2040. Mercedes-Benz, Jaguar Land Rover, Volvo and General Motors have all announced plans to electrify their entire portfolio by various dates. And China, where more than 40% of electric vehicles are currently manufactured, is planning for annual sales of two million electric and gasoline-electric hybrid vehicles by 2020.
 

What does the automotive future look like?

The rise of electric-powered vehicles is significant in itself, but broader societal and technological shifts will also have a major impact on how people get around. A recent PwC Germany report on trends in the automotive sector, Five trends transforming the Automotive Industry, provides context for utilities. The report introduces a simple way to think of the issue—electrified, autonomous, shared, connected and yearly updated (EASCY):

Electrified

The move to PEVs takes us closer to a vision of greenhouse gas emissions-free transportation. This is particularly true in Canada, where about 80% of our electricity is generated from low-emission hydro, nuclear or renewable sources.

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Autonomous

Advancements in artificial intelligence are quickly redefining transportation and mobility, progressing from safety features in today’s cars, to vehicle command in controlled environments such as highways or specific neighbourhoods, to fully autonomous transportation everywhere. The PwC Germany study suggests autonomous vehicles may account for 40% of the personal mileage driven in Europe in 2030.

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Shared

Autonomous driving will make shared concepts more economically viable. It will no longer be necessary for someone to search for a shared vehicle nearby. Instead, users can order vehicles to come to where they are. In 2030, more than one in three kilometres driven could involve sharing concepts.

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Connected

This refers to the networking of cars with the outside world. It includes the networking of cars with other vehicles or transportation infrastructure, such as traffic lights. It also covers the networking of vehicle occupants to give them the ability to communicate, work, surf the internet or access multimedia services during their journey.

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Yearly updated

The EASCY approach will lead to a clear increase in the rate of innovation in the automotive industry. Model cycles of five to eight years, which have always been common in this sector, could soon be a thing of the past. Instead, the range of models will be updated annually in order to integrate the latest hardware and software developments. As customers won’t want to buy a new vehicle every year due to the high purchase costs, the short innovation cycles will enter the market primarily through regular upgrades of shared vehicles.

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How the shift plays out will depend on several factors, notably people’s attitudes toward the various forms of mobility and how they use them. For example, how important is car ownership to them? Where do they live, and what role do technological innovations play in their lives? We’ve summarized these scenarios into three personas:

Modern

Technical innovations are part of everyday life for this group, which tends to be more urban and uses smartphones and apps for transportation. This group puts less emphasis on vehicle ownership as a status symbol, while the focus on sustainable and healthy lifestyles suggests a more pragmatic view of cars and public transit as transportation options.

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Transitory

This group is open to different mobility options, depending on individual preferences and consumption. While many young urbanites will want to own a vehicle, they’ll also consider alternatives like car-sharing.

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Traditional

Car ownership is the norm, particularly for people in rural areas. In urban environments, this group will often choose public transportation to avoid congestion and parking issues.

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These personas help us understand PEV adoption rates over time and get a better sense of how demand will shift. For example, as the percentage of the population in the modern persona group rises, openness to PEVs and the technologies surrounding them will go up as well.

Preparing utilities for a shifting environment

For utilities, this transition will have a significant impact on their operations and future business. It’s important for utility companies to understand these trends and their impact on their business. In general, we can separate the discussion into impacts on the customer relationship and on the grid:
 

  1. Engaging customers: Road vehicles are only one mode of transportation being electrified. For example, Via Rail is planning to replace its core fleet of diesel trains with vehicles able to operate on diesel or electric power, and electric-powered aircraft are on the horizon. But with road vehicles accounting for the overwhelming majority of transportation energy demand, the growth of PEVs will have the biggest impact on customers’ consumption of electricity.

    Currently in Canada, almost as much secondary energy is used as motor gasoline as electricity in all uses. So the potential increase in electricity use is significant.

    What does the consumption increase look like for an average consumer? Assuming a daily commuting distance of about 40 kilometres, today’s common battery electric vehicles would require about six to eight kilowatt hours (kWh) of electricity to recharge. With a typical Canadian single-family home consuming about 30 kWh a day, PEV adoption could translate to about a 20% rise in a household’s consumption from adding one vehicle.

    The results of this increased consumption include greater customer expectations for reliability and service. Customers will use more of and pay more in total for the utility’s product and will expect better tools to easily manage this larger electricity bill. Customers may also look to their utility to understand and become engaged in electrified mobility. In this environment, electricity becomes essential for another important household purpose—transportation.

  2. Managing grid impacts: The real challenge for utility operations is more about managing peak demand than total consumption. A National Grid UK study estimated a 30% increase in instantaneous peak demand in a fully PEV environment. As a result, the industry will need to explore options for shifting and controlling charging habits.

    Options from the perspective of the utility industry include credits, rebates, rate plans to encourage off-peak charging and smart charging solutions that automate the response to price signals. Those are extensions of traditional ways of managing electricity demand.

    With electric vehicles, it’s also important to consider where on the network charging will occur, which is a challenge in a future EASCY automotive world. For example, will the move to shared autonomous transportation options reduce the need for home-based infrastructure as autonomous vehicles are able to drive themselves to more central charging locations overnight? Shared vehicles are much freer to stop at convenient charging locations, rather than returning to the owner’s home.

    Add to this the increased risks of cyber attacks arising from the large number of PEV grid connections. In a 2017 discussion paper, the International Energy Studies Group noted the potential for hacks of either a vehicle or charging stations, the effects of which could spread due to communication networks and the mobility of PEVs.

    On top of that are other issues that make the number of scenarios for charging amounts and locations daunting for grid planners. They include the expected deployment of distributed generation, local battery storage and other distributed energy resources (DER), as well as the promise of vehicle-to-grid technology that effectively turns a PEV into a DER (let alone advancements in wireless inductive charging while on the move).

The need to be agile

While PEVs will create new opportunities for utilities, they’ll need to be agile given the uncertainty surrounding government policies, changes in technology and consumer demand.

In Canada, many provincial policies have been supportive, but the environment is in flux. Some provincial governments, notably Quebec (with British Columbia about to rule), have given utilities a clear mandate on owning and rate-basing electric-vehicle charging infrastructure—but not Ontario or other provinces. Electric-vehicle purchase incentives vary considerably, with Ontario recently cancelling its program. The inconsistent and shifting policy environment in Canada creates uncertainty for companies looking to invest in electric-vehicle-related markets.

Other considerations include technological changes which, in the case of continually improving driving range and battery capacity, could reduce the need for public charging infrastructure. There are also questions about when and how Canadian governments will allow for autonomous vehicles. Ontario has been a leader on allowing for autonomous vehicle testing on public roads, creating questions about how the issue will play out in other provinces.

So for utilities, the electrification of road transportation presents opportunities for increased sales and new businesses and services, but it also creates risk in network operations and customer relationships.

Now is the time for utilities to get ahead of the uncertainties by building relationships and partnerships, developing their technical expertise and testing new service offerings to position themselves for the rapid shifts coming in the PEV market.

Contact us

James Strapp

Partner, Digital Operations Leader

Tel: +1 416 540 8211

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