by Julian Spector
January 14, 2020

The new year is upon us, and since I already wrote about resolutions for the grid storage industry, I’m taking this week to think about a related but different battery-based business: electric vehicles and their associated charging infrastructure.

This market depends on energy storage, but the competitive forces shaping it and the growth trajectory ahead look very different from those companies trying to plug stationary batteries into the grid.

By 2019, 1.7 million light-duty electric vehicles had hit the road in North America, just shy of Europe’s 1.8 million. China had more electric cars than both continents put together. Each market is expected to more than quadruple its total of electric cars by 2025, according to Wood Mackenzie data.

I’ve run into quite a few people making the career move from stationary storage to electric vehicles (mobile energy storage, anyone?), and they often speak excitedly about that massive consumer pull: market forces beyond the control of any one company will move millions of EVs in the coming years; that’s a refreshing shift from the state-by-state policy trench warfare required to break open energy storage markets.

Already, the annual global EV charger market has grown to $8 billion, with steady growth projected for the next five years.

In this week’s Storage Plus, we’ll dig into the storylines worth keeping an eye on at the intersection of electric vehicles and the grid, including the latest mergers and acquisitions, strategic pivots toward fleets and how resilience concerns affect this aspect of the grid edge.

Big capital needed for building EV infrastructure

The year ended with a major acquisition: Private equity energy specialist LS Power acquired public fast-charging developer EVgo just days before the Christmas holiday. This deal has a lot to do with the capital requirements of building EV infrastructure.

EVgo has staked out a niche constructing the public fast chargers that load up a battery in less than an hour, as opposed to multiple hours. The company owns its stations, making money by keeping them running smoothly and lining up lots of customers. Independent power producer NRG created EVgo back when the company's leadership thought there was a future in clean energy, but the subsidiary largely became a vehicle for compliance with obligations to the state of California that NRG picked up by buying gas plants from Dynegy.

From there, EVgo spun out in 2016 via acquisition by Vision Ridge Partners, which manages $1 billion in sustainable assets. The company brought in new leadership, got things shipshape, and then sold to LS Power, which has raised $42 billion for grid infrastructure investment (storage observers know it as a quiet but powerful developer of massive battery plants).

Creating the physical infrastructure needed to power the coming EV hordes will require considerable capital outlay, which pushes innovators in the space to find a low cost of capital one way or another. In the U.S. regulatory system, though, utilities typically can't own e-mobility ventures, noted Kelly McCoy, a WoodMac researcher covering electric vehicle infrastructure.

So entrepreneurs seeking capital for costly grid infrastructure investments must look elsewhere. EVgo has gone from private equity to even bigger private equity. Others have found buyers in European utility companies seeking to transform their businesses, like EDF Renewables, Engie and Enel X. Still others settle down with the mobility incumbents, oil majors like Shell and BP.

ChargePoint, the other major public charging company in North America, chose a different route. It raised more than half a billion dollars in equity investment to build the hardware and software that might underpin the EV revolution. The startup has maintained independence, but also set itself a high valuation bar to reach if it wants to keep those early investors happy.

ChargePoint arguably needed that money to build out its charging hardware business back when there weren’t many options on the market. But as a venture-backed company, it is not interested in owning stations; instead, it sells equipment and software to customers to run their own charging stations.

Patient capital allows for investing in real estate and owning that value; ChargePoint's venture-backed model needs to maintain margin in the hardware and software itself, which means staying a few steps ahead of that dreaded phenomenon, commodification.

Breaking it down to dollars per mile traveled

Visions of EV proliferation evoke a world where abundant charging stations serve the public. So far, though, most of the smart money is moving toward fleet charging, where near-term returns look more promising.

Fleet charging is attractive to investors because the driving and charging schedules are generally known and predictable, and the fleet operator constitutes a single customer to deal with. Plus, individual deals can reach a significant scale, if companies can crack into transit agencies and corporate fleets.

It’s telling that when Shell bought EV charging company Greenlots, its first instinct was not to put a charger in every gas station but to pitch existing fuel customers on fleet electrification.

Now a crop of startups is tackling fleet charging head-on through business model innovation. The trend follows the clean energy industry’s obsession with replicating what solar developers did with the power-purchase agreement: turning complicated energy deals into simple dollar-per-kilowatt-hour terms, which in this case become dollars-per-mile-traveled.

I recently profiled Amply, a young startup which promises to literally take over the utility bill for a fleet operator’s charging consumption, then finagle all the wonky grid details and deliver charging at a simple flat rate. Amply founder Vic Shao previously launched and sold Green Charge Networks, but he left the commercial storage business behind to bring simplicity to the fleet charging sector. As investor Abe Yokell of Congruent Ventures told me, "I actually think that this opportunity is much bigger."

Shao is not the only one betting on charging-as-a-service. Startup eIQ raised funding from Schneider Electric and is entering the market first by conducting analysis for fleet operators to help them go electric. But eIQ also advertises price-per-mile contracts, as does startup In-Charge.

EVgo’s bullishness on public charging contradicts analysts’ pessimism about the utilization rates and profitability of early public stations. But even EVgo chases a fleet-like customer: ride-share drivers. They’re not as cohesive a population as traditional fleets, but Lyft and Uber drivers crush mileage and need to charge up far more often than does the typical commuter.

Catering to these drivers — with convenient charging sites and special packages — helps them do their job and helps EVgo boost a charging station’s financial performance.

Resilience implications

We’ve spent the last few months asking what a string of natural disasters and accidental or intentional blackouts mean for solar, energy storage and microgrids. The same question should be posed to the electric vehicle industry.

PG&E’s preemptive safety outages prompted Californians to wonder if they could supply themselves with power from their electric vehicles; after all, such cars are just batteries on wheels, and the Bay Area holds quite a few of them.

The answer is definitely no. Though technically possible, consumer vehicles are set up for charging, not discharging. Even if warranties and functionality encouraged it, doing so would also require a two-way charging device, not to mention a household grid-forming inverter to prevent dangerous backfeeding onto the grid in an outage. Such equipment is not yet on the market in the U.S., though some companies hope to introduce it in the coming years.

Looking to electric cars to stay powered up in an outage actually inverts the proper inquiry:How do you keep electric cars charged when the grid goes down? This is not an idle question when PG&E is promising a decade of fire prevention shutoffs.

PG&E's new push for community-level microgrids could be crucial to consumer confidence in EVs during an era of recurring blackouts.

Dominion Energy's V2G approach that actually might work

The critical thing to know about the vehicle-to-grid dream — the term for using electric vehicle batteries to discharge to the grid during peak demand or outages — is that it won’t come to fruition in 2020, or anytime soon.

But this year might be the first when a utility pilot makes meaningful effort to turning vehicles into grid batteries.

So far, we’ve seen studies of this phenomenon that boil down to managed charging, a banal if potentially useful exercise.

PG&E worked with BMW on a project to delay individuals’ charging schedules by an hour based on a demand response call. It worked, but a battery bank at BMW’s headquarters actually delivered most of the capacity. A followup extended the calls to two hours and ditched the stationary battery training wheels.

Virginia utility Dominion Energy wants to push the genre forward with a school bus project that actually uses bus batteries for discharge to the grid when they aren’t driving tots to school. The utility will start by replacing 50 diesel buses with electric, then plans to expand to 200 conversions per year for five years.

It sounds too good to be true. Dominion will pick schools to maximize the grid value of the battery additions, then pay the cost of the upgrade and installing charging infrastructure on behalf of the school. The only ask in return is that, when the buses are sitting idle anyway, the utility can extract power from them for the grid or use them as mobile capacity sources in a blackout.

The logic of this ties neatly with the discussion of fleets above. For all the talk of prosumer economies where some random dude makes a few bucks by rearranging the charging of his $80,000 electric luxury car based on electricity market fluctuations, entrusting critical grid support to a scattered population of self-interested individuals has yet to be proven effective.

The school buses improve on that version markedly. It’s a centralized, professionally managed fleet, so Dominion actually has a chain of command to call upon when it needs things to happen. The buses have a fixed and therefore knowable schedule, which allows precise scheduling of their use as a grid asset.

And, at least in this generous program, the win-win is much clearer than the chump change an individual driver would earn. The schools get a shiny fleet overhaul for free, improving air quality for their children, cutting operations expenses significantly and modeling climate-positive behavior all at once.

As for the catch, here’s what local news source WTKR reported on the program’s funding: “The costs for the initial 50 buses will be covered by Dominion’s base rate, with full program implementation expecting to cost less than $1 per month for the average Dominion Energy customer.”

Giving gifts is even more fun when somebody else’s money pays for them. The long-term sustainability of this funding stream, then, will likely depend on Dominion’s ability to show that it’s cheaper to pay for school bus electrification than to build whatever other upgrades would provide the same grid services.

Or maybe the feel-good vibes of schoolkids in clean electric buses inoculates it from the usual cost-benefit analysis.

In any case, Dominion deserves recognition for realizing early on that vehicle electrification can be a crowd-pleasing means to expand its rate base. The controlled circumstances of this pilot enhance its odds of success, which could unlock even more EV investment.