How battery storage can help charge the electric-vehicle market
People are reluctant to buy electric
vehicles because of concerns about charging. But public, fast-charging
infrastructure is not yet widely available or profitable. There is a way to
resolve that conundrum.
Electric
vehicles are beginning to win
considerable attention but are still rarely sighted on American roads. Through
the first half of 2017, fewer than 800,000 battery EVs (BEVs) had been sold in
the United States, or about 1 percent of all cars. But growth has been strong
of late due to rising consumer acceptance, improved technology, and supportive
regulation. McKinsey estimates that there could be ten to eleven million BEVs
on US roads by 2030.
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For this to happen, though, access to
charging infrastructure must improve. Although many BEVs are charged at home,
public charging is necessary for owners who are travelling or if they don’t own
homes with garages. Right now, there are only about 16,000 public charging
stations in the United States; there are seven times as many gas stations.
Fewer than 2,000 of these are fast charging stations because those are
expensive and currently unprofitable with too few transactions to break even.4
It is a classic chicken-or-egg situation.
People will be reluctant to buy a BEV if they worry that it will run out of
juice. But unless more BEVs are sold, the charging infrastructure will not be
built to serve them.
Two
problems, one solution
There are two major problems.
First, there is convenience. Most public
charging stations today are “Level 2,” meaning that they deliver 7 to 19
kilowatt-hours (kWhs) of energy every hour (think of kWhs as equivalent to
gallons of gas).5A
BEV sedan with a 60-kWh battery would take five to ten hours to “fill up” at a
conventional (as opposed to fast-charging) Level 2 station. Having so few
stations and such long service times turns off would-be buyers .
Second, there are the economics. Although
direct-current fast-charging (DCFC) stations with 150 kilowatts of power can
fill up a BEV sedan in about 30 minutes, they can cost up to $150,000 to
install; a 50-kilowatt DCFC station can cost $50,000. The kilowatt number
refers to the maximum amount of energy that can be drawn every hour; a higher
kilowatt delivers more electricity faster. DCFC stations are also expensive to
run.
One reason behind the expense is “demand
charge”. All electricity customers pay for the energy they consume, as measured
in kWh; this charge is like paying for gallons of water used. Nonresidential
customers, including charging stations, also pay a demand charge for the
maximum amount of energy used in any 15- to-30-minute period in a month.
Measured in kilowatts (kW), a unit of power, this charge is like paying for
overhead. It is assessed to recoup the fixed costs for power plants, power
lines, transformers, and so on that connect customers to the grid and supply
power even at times of high demand. Demand charges account for a significant
fraction of consumers’ electric bills and can make EV-charging stations
unprofitable.
In the specific case of BEV charging, as
soon as a car plugs in, the station owner must pay a demand charge. This is
based on several factors, including the number of chargers on the site, the
maximum power in kilowatts used by the car when it plugs in, and the number of
cars charging at the same time in any 15- to 30-minute segment.
Here is a hypothetical situation. A DCFC
station has four 150-kilowatt chargers. In an average month, two or three cars
a day show up to charge, none at the same time. Each car uses energy at a rate
of 150 kilowatts and charges for at least 15 minutes; the peak is therefore 150
kilowatts for that month. If two cars showed up during the same 15 minutes,
though, the peak energy used would be 300 kilowatts, which would double the
demand charge for the month.
Demand charges can be as little as $2 per
kilowatt all the way to $90 per kilowatt; paradoxically, they tend to be higher
in states where BEVs are more popular, such as California, Massachusetts, and
New York. In a high-charge state, with no cars charging at the same time, the
monthly demand charge could be $3,000 to $4,500. For the BEV owner, that could
translate into $30 to $50 per session, plus the cost of the actual energy.
Customers just will not pay that. Clearly, if there were more customers, the
cost per session would fall. But because current costs are so high, investors
have been slow to build stations, and because there are not enough charging
stations, consumers have been slow to buy BEVs.
There is a way to resolve this conundrum:
stationary battery storage. On-site batteries can charge and discharge using
direct current (DC) and connect to the grid through a large inverter. They can
then charge from the grid at times when costs are lower, store the power, and
release it when demand is higher (a practice known as peak shaving). When a car
arrives, the battery can deliver electricity at 150 kilowatts without drawing
power from the grid. If two vehicles arrive, one can get power from the battery
and the other from the grid. In either case, the economics improve because the
cost of both the electricity itself and the demand charges are greatly reduced.
In addition, the costs of batteries are
decreasing, from $1,000 per kWh in 2010 to $230 per kWh in 2016, according to
McKinsey research.7So
are the costs of the rest of the system, such as the inverter, container,
software and controls, site design, construction, and connection to the grid.
Here is how it could work. A station owner
installs a battery system capable of charging and discharging at a power of 150
kilowatts and builds in 300 kWh of battery cells to hold the energy. When no
vehicles are present, the battery system charges up to ensure that energy is
available and does not trigger a higher demand charge. When a car arrives, the
stationary battery delivers the needed juice without calling on the grid. When
two vehicles come in, the battery could provide power to one and the grid could
provide power to the other.
A battery with a 300-kWh capacity can
manage the peak demand through several two-vehicle charges and recharge in
between, thus keeping peak demand below 150 kilowatts. A system configured this
way could reduce demand charges to a minimum; that would be $3,000 a month that
would not need to be passed on to consumers, which would substantially cut
costs. Tesla has already said it is going in this direction, and others may
“follow suit.”8
When and if BEVs hit the roads in high
numbers, batteries will no longer be able to reduce peak demand efficiently
because there will not be enough time to recharge them as cars queue up for
power. At this point, though, economies of scale will kick in, and the demand
charge will be absorbed by the many cars coming through the station.
That does not mean that on-site batteries
will become obsolete. They can still be a source of value. Where costs vary
widely by the hour, such as in California, batteries can reduce the
per-kilowatt-hour cost of electricity. They can also generate revenue by
providing additional grid services such as frequency regulation and demand
response.
There is considerable optimism about EVs,
and for good reason, given rising concerns about the environment, volatility in
oil prices, and falling costs. McKinsey estimates that EVs, which now account
for less than 1 percent of the global fleet, could hit 20 percent by 2030 (for
cars) and 12 percent (for commercial vehicles).
But these are hypothetical scenarios. In
reality, it is consumers who will ultimately decide the destiny of EVs. Accustomed
to the ease of conventional cars, they want the same from EVs. For that to
happen, charging must become cheaper and easier. By helping cut operating
costs, enhance revenues, and improve reliability, battery storage could play a
crucial role in this evolution.
By Stefan Knupfer, Jesse
Noffsinger, and Shivika Sahdev
Article Actions
February 2018
https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/how-battery-storage-can-help-charge-the-electric-vehicle-market?cid=other-eml-alt-mip-mck-oth-1802&hlkid=c99e96f0cdab40a5aecf98a83bc9e8ae&hctky=1627601&hdpid=349c5acd-ebc5-4002-ac56-92e5e0102b1b
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