EVs: a curse or a cure – how to unlock the energy markets for EVs

Electric Vehicles (EVs) will drive the demand for electricity up. While the estimates on the additional demand are wide ranging, one fact is clear – they are putting increasing pressure on existing infrastructure and arrangements.

While increasing demand for electricity, EVs can also become a new source of energy storage and flexibility services. So, whether EVs are a curse or a cure for the energy system depends on how quickly and efficiently they can be integrated into the energy infrastructure and market arrangements.

Adapting the energy system for additional demand from EVs requires a collaborative approach with many industry stakeholders. The Government, Ofgem, network operators, the energy industry, EV manufacturers and innovators are already putting significant amount of work into this area and must continue to work closely together to ensure effective whole-system solutions are implemented. 

As the body responsible for administering the Balancing and Settlement Code (BSC) – one of the key industry ‘rulebooks’ underpinning the electricity wholesale and retail markets – ELEXON is contributing to solving the future challenges presented by EVs.

Looking at the transition to EVs from the electricity markets’ perspective, we believe the following whole-system initiatives will play a critical role:

1. Smart meters and half-hourly settlement – two pre-requisites for integrating EVs into a smart and flexible energy system

One of the fundamental principles of electricity market design in the UK is half-hourly settlement. It specifies that suppliers buy energy to meet their customers’ demand on a 30-min (half-hour) basis. Electricity settlement is the ‘behind the scene’ industry process of reconciling the difference between the energy purchased by energy suppliers from generators and the energy actually consumed by customers. There is always a discrepancy between energy purchased and energy consumed as forecasting electricity is imperfect and electricity can’t be cost-effectively stored on a large scale just yet. Half-hourly settlement is already rolled out to industrial and commercial customers; however, residential customers are still settled based on profiled meter advances or estimates.

Smart meters will enable more granular half-hourly measurement of consumption and generation of electricity at the household level. When the settlement process is updated to integrate hour-hourly residential meter data, suppliers and new service providers can develop and take to the residential market a number of new offerings. These include: smart or time-of-use tariffs, bundled services (e.g. provision of electricity by the manufacturer to specifically power a new EV), and vehicle-to-grid (V2G) offerings as a few examples. All of these opportunities rely on accurately measuring and attributing metered volumes and energy imbalances between different service providers, which smart meters and half-hourly settlement will enable.

2. ‘Multiple providers’ and EVs - enabling positive changes to benefit consumers faster

Consumers should have more choice in how and from who they buy (and sell) their energy. Ofgem is starting to re-assess another fundamental principle of the electricity market design – the ‘Supplier Hub’. Under the supplier hub principle, a licenced supplier is the primary interface between the electricity industry and customers. This means that customers, for example, can’t buy energy from their neighbours (peer-to-peer trading) or from a car manufacturer (a bundled deal, eg. EV + electricity) in addition to their primary supplier. Ofgem’s review, launched in November 2017, is in its scoping phase and may take several years to complete. 

While Ofgem is assessing the fundamental market design principle, ELEXON published a proposal that could quickly unlock new business models enabling innovation and customer choice. Our White Paper, ‘Enabling customers to buy power from multiple providers’, suggests a practical solution to introduce tactical changes to the central market rules and arrangements. These changes can enable the industry to realise the benefits of a multiple provider world much sooner.

Following Government’s Road to Zero Strategy, the take-up of EVs is well-underway and they are already a more common sight on our roads. ELEXON is collaborating with Government and industry on the design and implementation of whole-system solutions that will ensure EVs are a cure, not a curse.

 

By Alina Bakhareva, Strategy and Market  Analyst, and Nicholas Rubin, Market Architect, ELEXON

Read more from our #Supercharging18 campaign week, click here.

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