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20 August 2020

Ofgem’s consumer obsession sidelines V2G for 2 years

The early uptake of vehicle-to-grid (V2G) chargers in the UK will be set back by policies designed to flatten the daily price variations in electricity. If such policies remain in place, or propagate across Europe, R&D companies like Indra will have to shift their focus to either smart charging or a vehicle-to-home offering.

The policies in question stem from Ofgem’s Targeted Charging Review (TCR), which will run for at least two years from April 2021. The consultation aimed to address the uncertainty in forward-looking charges for electricity on the country’s national grid, as well as ‘residual charges,’ which are essentially non-consumer related sunk costs. Any changes implemented, according to Ofgem, were to be “designed to remove any unintended distortions and improve fairness in a practical and proportional way.”

Ofgem’s outcome landed on introducing a fixed charge for transmission and distribution for all consumers. Domestic customers will be allocated a single residual charge, while non-domestic customers will be charged based on their specific band of operation. The consultation has also introduced a ‘partial reform’ to the use of balancing mechanisms within local electricity supply. Under the new scheme, demand will be assessed by its gross value, neglecting any smaller distributed generators or the opportunity for exporting electricity.

While this will theoretically see households paying less, at the expense of industry, the way that Ofgem has approached this will make it much more challenging for large companies to find an economically viable way of reducing emissions. Companies that are aiming to use onsite generation or onsite storage, including through V2G, will now find it difficult to generate value from these assets, and will similarly struggle to achieve load shifting.

To protect the average consumer, whose demand profile peaks solidly in the morning (around 8am) and in the evening (around 8pm) when prices are high, these proposals will see prices during peak demand fall, while they rise throughout the rest of the day. This means that daily variations in price will be lower, and the business case for V2G around buying electricity overnight when it is cheap and selling it when it is expensive in the morning will be significantly dented.

In conversation with Indra Renewable Technologies, which worked on Project Sciurus to deploy 1,000 V2G units across the UK, the company identified that as much as 70% of the customer savings from a V2G charging point could be lost. While the revenues from load shifting and selling electricity to the grid could have potentially brought £500 to the customer each year in the previous system, the figure is now below £200. The cost of installation of a V2G charger is normally in the range of £4,000 to £5,000, so the payback time of over 20 years is no longer an attractive pitch to consumers.

This is most probably the reason behind Nissan’s decision to move from the CHAdeMO protocol for charging, which facilitates the use of bidirectional flow of electricity, to CCS, which doesn’t, for its Ariya SUV. But the more infrastructure that’s built around one-directional charging, the smaller the near-term market becomes for V2G.

The market for V2G will still exist if price variations return in two years once the timeline for Ofgem’s measures expire, providing they aren’t extended, nor propagate into other European markets. But it’s important that the developers of the technology survive through a period where order volumes will be low.

For Indra, what this means is shifting towards smart charging, where rather than selling electricity back to the grid, the system purely selects the optimum time to charge the electric vehicles. While the new regulations still diminish margins, it is possible that consumers will still benefit from around £60 per year of savings. With smart chargers costing only around £500 to install, a payback time of 8 years is comparable to what customers are used to in sectors like residential solar.

Then there’s what Indra is calling Vehicle-to-Home charging, a way for the company to keep its keep its V2G technology going on the back burner. In Vehicle-to-Home charging, the EV battery effectively serves the same purposes as a residential storage system, by providing backup power and reducing grid demand at peak prices. Through utilizing the “Tesla Powerwall mindset,” where customers want to become self-reliant on clean energy, consumers can currently save up to £200 per year, which Indra estimates rise to £700 per year as the market develops.4