This blog was co-authored by Dr. David Butcher and Dave Basson
Electric vehicles (EVs) are key pieces in a much larger fight against climate change and improving air quality. But in solving one problem we may inadvertently be creating another; one that will eventually be solved by distribution network operators (DNOs). The problems of climate change and air quality aren’t new and we first observed it in the UK when the Industrial Revolution gathered pace. In this blog, we explain why DNOs are bound to eventually become part of the problem. But with careful thought and by applying lessons learned from the past, they can instead be part of the solution.
In the beginning
William Stanley Jevons noted in 1865 that England’s consumption of coal increased after James Watt introduced the improved steam engine. Jevons stated that increased energy efficiency did not lead to a decrease in coal consumption. It did just the opposite; it increased our demand for coal and made the problem worse. The energy efficient steam engine was a victim of its own success. It drove economic success and increased our appetite for coal instead of decreasing it.
The work done by Khazzoom and Brookes after the OPEC oil crisis of the 1970s contextualized this phenomenon for the automobile industry and foretold where we are today. They noted that when demand for more fuel-efficient cars began to rise so did our appetite for crude oil. The rise happened for the same reasons first observed by Jevons – if the economic benefit is great, then it will be used a lot. The good news is that improved energy efficiency drives economic success for economies that embrace it. Therefore, by that logic, if Watt increased the demand for coal and if fuel efficient cars increased the consumption for crude oil, will our appetite for crude simply transfer into an enormous, and even greater appetite for electric?
Impact of change
The tipping point will come when vehicle manufacturers reduce the cost of purchase through technological improvements and economies of scale, putting EVs within the economic reach of the masses. Analysts predict that EV uptake will increase to a tipping point of over 50% by 2027. In addition, cost per mile will be below that of combustion engine vehicles, and so for the DNO, the cycle will begin. Decreased cost of transport will encourage more families and commuters to buy and use cars for transport needs in lieu of, say, trains where ongoing investment is causing fares to rise above inflation. This could cause the volume of carbon dioxide emissions to increase if power continues to predominantly come from non-renewable sources and the rise of a new set of problems, and the introduction of new regulations to counter them.
Are we just missing the point?
If we are serious about climate change, do we make energy more expensive rather than more efficient and cheaper? Or, does the answer to counteracting what Jevons and Khazzoom-Brookes saw require a more end-to-end energy strategy with the DNOs at the center? The problem is, that without the DNOs making a proactive intervention in the system, there will be increasing demand for electricity. According to UBS, $360 billion will need to be spent over the next eight years to implement global charging infrastructure in line with electric car sales.
Where, how, and when?
For DNOs to manage increased demand and increased frequency of spikes, they must understand the investment triggers and drivers. If we accept the Khazzoom-Brookes postulate as driving the uptake of EVs and the energy to power them, then we must also turn our attention to what’s more important for consumers and business – cheap or green energy? Answering this question will help DNOs understand behavioural drivers as they try to balance the ever-shifting equation of supply and demand for energy.
For private users, it is easy to suggest that cost is king and, for the majority, it probably always will be. Going “Green” is an affluent middle class nice-to-have, and EV statistics tend to bear this out with this demographic purchasing more EVs than any other. The demographic that was the early adopter of the EV (largely through tax incentives) took the opportunity to use it for bragging rights. And now, perhaps the best way for those middle-class early adopters to maintain their green credentials is to buy their energy from a green source or to generate their own. The behavior of commercial users is easier to predict and influence. The bottom line is and always will be cost, regulation, tax breaks, and brand recognition. For DNOs, getting the energy into the grid is one problem. But getting that energy out will be another, as further complications will arise with mass adoption.
The question will be where and when drivers and businesses will want to charge their EVs; which will be driven by usage, technology and cost that are spread differently across private, public, and corporate users, with their own different growth and usage patterns within even smaller sub-groups.
If we put together the many levers of customer demands, working patterns, the Khazzoom-Brookes effect, and technology; we begin to see how the DNO is becoming sandwiched in the center of a changing world, with a multitude of areas to place their investment bets. In our next blog, we will discuss the impacts on the DNO, what questions they need to answer and where they need to invest.
In the meanwhile, we’d love to hear your thoughts. Get in touch with us via social media.