Ofgem proposes electricity reforms to facilitate uptake of electric vehicles

ELECTRIC VEHICLES

Britain’s energy regulator Ofgem is consulting on reforms to how consumers are charged for using electricity that would smooth the path to electrifying road transport. The consultation has been launched alongside a new report looking at the challenges electric vehicles pose for the electricity network.

Ofgem says two principles should drive the electricity industry’s approach to facilitating electric vehicles (EVs): system costs for all consumers should be minimised by making more efficient use of assets before considering reinforcing the network, and costs should be distributed fairly. 

“If EV users choose to charge during peak times, under current arrangements they will impose considerable costs, which will be borne by all consumers,” Ofgem explains. “EV users should face charges that are reflective of the costs (or benefits) they are imposing on the system. Vulnerable consumers, or those who are currently unable to share in many of the benefits of EVs, are likely to object to subsidising more affluent early adopters of EVs.”

Ofgem says there is great uncertainty about the scale and pace of EV growth and, worryingly for ministers,  points out that the sale of pure EVs has actually stalled (see panel). The Government currently incentivises EV uptake, including offering a discount of up to £4,500 on the purchase price of eligible vehicles, a discount of up to 75 per cent on installing domestic chargepoints, and various tax incentives. The Government’s Road to Zero strategy published last month pledges that a grant system for new vehicle purchases will continue until at least 2020 and “consumer incentives in some form will continue to play a role beyond 2020” (LTT 20 Jul). 

“Uptake will likely slow if incentives are removed too soon,” warns Ofgem, pointing out that, in Hong Kong, EV sales fell from over 2,000 in 2016 to just 89 in 2017 after a generous incentive scheme was removed.

Flexible charging 

Most EV charging currently takes place at home during peak demand hours for electricity, says Ofgem. “In local areas where EV concentration is highest, this may mean that some reinforcement will be required, potentially leading to higher costs for all consumers.” 

To minimise the need for reinforcement of the electricity network, the energy regulator wants to see “fully flexible charging” introduced. This requires ‘smart’ systems that communicate with the wider energy system in real-time to understand the optimal time(s) to charge EVs. 

“For domestic charging, this will require smart meters, half-hourly settlement and time-of-use tariffs, which allow for price signals that reflect the current flows on the network, and communicate them to EV owners,” Ofgem explains. 

It presents analysis estimating that smart charging could allow at?least 60 per cent more EVs to be charged by the existing electricity network before reinforcement needs to be considered. “If ‘fast’ charging is adopted, flexible solutions may allow up to six times more EVs to connect,” it adds. “Should the electrification of heat continue, there are still sufficient troughs in demand flows for EV charging to fill, rather than add to peak demand.” 

Nonetheless, the findings are “highly caveated”. “Rural and urban feeders differ considerably in their characteristics, flows across the low voltage network follow variable seasonal patterns, and half-hourly demand data does not capture the size of shorter peaks that may occur within the half-hourly period,” says Ofgem.

It also points out that experience from the retail energy market shows that consumers “do not always engage in the market even when there are financial benefits in doing so”. 

Ofgem lists a number of options to make flexible charging work, requiring different levels of consumer participation: 

• consumers could be actively incentivised through price signals to charge at off-peak times 

• consumers could opt-in to agreements for automated charging, within defined parameters, or other options for access such as off-peak or timed access 

• DNOs (Distribution Network Operators) could contract directly with EV users or aggregators for flexible services 

• flexible charging could be established as the industry ‘default’, where domestic charging would only happen at off-peak times, unless an override (requiring consumer action) was triggered 

• flexible charging could be bundled with the cost of vehicle purchase (e.g. a discount on the purchase price), on a fixed term or opt-out basis 

Says Ofgem: “In rare cases where flexible charging fails to prevent constraint issues, curtailment of EV charging might still serve a role as a last-resort backstop to avoid domestic outages. We envisage that this, however, would only be in extreme situations where adequate governance structures are in place and would be treated as a disruption.” 

Particular challenges may exist where large fleets of electric vehicles are charged, for instance bus or taxi depots. “Non-firm connection agreements may help, as may co-location with batteries or distributed energy such as solar PV [photovoltaic], reducing peak usage at times of local congestion,” says Ofgem. “However, the lack of capacity to upgrade connections may mean that in some circumstances, relocation will be the most economical option.” 

Ofgem notes that Transport for London’s battery-powered buses at Waterloo bus garage uses a flexible connection agreement, with timed connections so that vehicles are only charged when overall electricity demand is low, such as during the night. 

Smart Electric Urban Logistics, a collaboration between the courier firm UPS, UK Power Networks and the Cross River Partnership, provides smart charging for a fleet of delivery vehicles in London. “Through the adoption of smart charging infrastructure, UPS has been able to increase the number of EVs operating from its central London site from 65 to all 170 trucks,” says Ofgem. “This has been achieved without needing to upgrade its network connection.” The project uses a smart-grid, relying on intelligent chargepoints that can communicate with onsite storage and the national grid to determine optimal charging at lowest cost. “Prospects for using second-life batteries from older UPS vehicles as onsite storage represent further opportunities for reducing costs,” says Ofgem. 

On regulatory matters, Ofgem says network companies have obligations to plan for increasing numbers of EVs connecting to their networks, and have already received funding to do so under the current price control framework. “Looking to the future, particularly in designing our next round of price controls, we must consider how best to incentivise network companies to create the right conditions for flexible EV charging.” 

Ofgem says they “should not expect to use the EV transition as a mechanism to earn revenue for new assets when off-peak capacity can accommodate charging demand.” 

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Sales of pure EVs stuck in first gear

Sales of battery electric vehicles in the UK are static, with EV fleet growth entirely driven by rising sales of plug-in hybrid electric vehicles (PHEVs), Ofgem’s new report points out. 

The number of electric vehicles on UK roads has risen from fewer than 4,000 in 2013 to about 160,000 as of June this year. This represents about 0.5 per cent of the total market of 31.2 million vehicles. 

Of the 160,000, about 50,000 are battery EVs (BEVs) and the remaining 110,000 are plug-in hybrid EVs (PHEVs). 

Citing data supplied by the Society of Motor Manufacturers and Traders (SMMT), Ofgem says: “The number of new registrations of BEVs each year has not materially changed since 2014.” More worryingly, it adds: “March 2018 year-to-date figures hint at a potential slowing of new BEV registrations.”

SMMT data released on the 5 July shows that, in the first six months of the year, 7,441 BEVs were sold, down 3.3 per cent on the corresponding period of 2017. Sales of PHEVs were up 39.6 per cent at 21,922 (2017: 15,703). The total number of new cars registered in the first six months of the year was 1,313,994, down 6.3 per cent on the 1,401,811 in the first six months of 2017.

Ofgem’s report says: “In the long-term, efforts to decarbonise further will likely require a shift from PHEVs to BEVs.”