Electric vehicle (EV) smart charging has the potential to avoid billions in electricity system costs over the coming decades. In practice, this requires EV charging to be actively managed in a way that 1) aligns with renewable generation and 2) avoids overloading infrastructure. Significant generation costs can be avoided by charging EVs when excess renewable energy is available. Transmission and distribution network upgrade costs can also be reduced by managing EV charging in a way that limits peak demands.
The challenge is that, by default, most EV drivers will simply plug in their vehicle when they arrive home in the evening and expect it to start charging immediately. In order to realise the potential cost and carbon benefits of EV flexibility, drivers must somehow be incentivised to smart charge, or at least, be disincentivised from charging in the default manner.
Over the last four years, Kaluza has powered numerous EV smart charging pilots, programs and propositions across the globe. We’ve seen what does and doesn’t work when it comes to incentivising smart charging at scale. In our experience, the most effective incentives are simple carrots, rather than complex sticks. Carrots are incentives that are rewarding – drivers should feel they are gaining value every time they smart charge, as opposed to avoiding a penalty. A carrot is simple if the value of smart charging is clear to drivers and easy to access. Well-designed incentives should also provide value and certainty for flexibility service providers who play an important role in connecting EVs to the energy system on behalf of drivers, utilities and network operators.
Here we’ll look at some real stick and carrot examples from Kaluza’s smart charging experience in Europe, the US, Japan and ANZ and compare:
- how they work
- how simple they are for drivers to engage with
- how they can reward drivers
- how effectively they support low carbon electricity generation
- how effectively they limit peak demands on electricity networks
All the examples we’ll discuss here provide an ongoing incentive for drivers to smart charge, though it is also possible to provide an upfront incentive when drivers agree to participate. We’ve tested this with propositions where drivers received a free EV charger that would automatically smart charge whenever they plugged in. This upfront incentive was successful in driving customer acquisition, but we found that engagement reduced over time with drivers opting to override smart charging more frequently. That’s why we recommend structuring incentives in a way that also discourages drivers from overriding smart charging more than necessary.
Time-of-use tariffs: a simple stick
Examples: PG&E time-of-use rates for EVs in California, EDF off-peak tariff in France
How they work: Many electricity suppliers offer time-of-use tariffs. These disincentivise customers from using energy during peak periods when it is generally more expensive for suppliers to procure electricity. Rather than paying a flat unit rate for electricity, customers typically pay a slightly higher-than-average rate during peak periods and a reduced rate during off-peak periods.
EV driver simplicity: Time-of-use tariffs are pretty easy for drivers to understand, though they can get more complex with peak, off-peak and super-off peak rate schedules that vary seasonally. To avoid charging at peak rates, drivers can simply delay charging until the start of their off-peak period through their EV charger or an app. However, this relies on their EV being plugged in at home during off-peak periods, which might not be possible for drivers such as night shift workers.
EV driver value: Provided drivers charge during off-peak periods, they should save money on their EV charging costs compared to a flat rate tariff. How much they save will depend on the difference between the flat rate and the off-peak rate. However, for other household electricity demands, costs could end up higher relative to a flat rate depending on when electricity is used. Savings on EV charging may therefore be partly offset by higher household electricity costs.
Effectiveness for generation: EV charging demand data shows that time-of-use tariffs are effective in shifting EV charging demand to off-peak periods. But while they’re beneficial, they’re not necessarily optimal. Taking an example from one of our recent pilots, Figure 2 below shows three charging profiles for a portfolio of EVs: a baseline in navy that would be realised if all EVs started charging immediately when they plug in; an alternative baseline in black if all EVs started charging at the beginning of the off-peak tariff period at 9pm; and the actual smart charging profile in aqua with EV charging optimised for supplier import cost. We see that off-peak charging does reduce supplier costs, but there’s still further value to be realised from smart charging.
Effectiveness for networks: Shifting demand to off-peak periods should also be beneficial for networks, though with large numbers of EVs there is a risk of creating secondary peaks if all vehicles begin charging at the same time. This is evident in Figure 2, with the maximum EV charging demand being ~50% higher in the off-peak charging scenario versus the default baseline.
Dynamic tariffs: a complex stick
Examples: Fortum’s spot price tariff in Norway, Eneco’s dynamic tariff in the Netherlands, Awattar’s hourly tariff in Germany and Austria
How they work: A growing number of European energy retailers are offering dynamic time-of-use tariffs that vary hourly based on wholesale electricity prices. These disincentivise customers from using electricity when prices are forecast to be high.
EV driver simplicity: With smart charging software like Kaluza’s that optimises charging based on wholesale prices, it can be quite simple for drivers to benefit from a dynamic tariff.
EV driver value: Depending on their charging schedule and how much their electricity price varies, we estimate that drivers on a dynamic tariff can save anywhere between 10-60% on their charging costs relative to a flat-rate tariff. However, as with time-of-use tariffs, there’s a risk that customers could end up paying more for their other household electricity unless they are able to monitor price forecasts and shift demand to lower price periods. Currently Octopus Energy is only recommending its dynamic tariff to customers who can shift large amounts of their energy use to avoid price spikes.
Effectiveness for generation: With the right optimisation software, dynamic tariffs should be more effective than time-of-use tariffs at shifting demand to lowest price periods.
Effectiveness for networks: Dynamic tariffs should also be more effective than time-of-use tariffs at limiting peaks on the electricity network, though again there’s a risk of creating secondary peaks if large numbers of EVs charge during the same low-price periods.
Event-based demand response programs: a complex carrot
Examples: OVO Energy Power Move challenge in the UK, National Grid ESO’s Demand Flexibility Service in the UK, CAISO’s Emergency Load Reduction Program in California
How they work: Demand response programs can be structured in all sorts of different ways. Event-based programs reward customers for reducing their demand during periods when demand on the electricity network is at its highest. The number of events called in a season or year is limited and will depend on the level of strain on the network. These types of programs tend to be offered by transmission system operators to reduce the risk of network outages.
EV driver simplicity: For an EV driver to participate in a demand response program, they first have to enrol and give access to the necessary metering data, often through their utility or via a third party. They’ll then receive a notification ahead of an event asking them to reduce their demand during a certain period, which could be done manually by drivers or automatically by smart charging software like Kaluza’s. Rewards could be issued through credits on their energy bill or separately through a third party.
EV driver value: The amount of demand response provided during an event is measured relative to a baseline – typically how much electricity was consumed during the same time period over the last 5 or 10 similar days. So if an EV wasn’t charging at this time in recent days its baseline will be zero, and drivers won’t be rewarded for avoiding charging during the event. This is a challenge we have encountered in pilots where EV charging is already being optimised according to a time-of-use tariff.
For example, from a recent pilot in California we found that we could achieve a peak turn down of 0.72 kW per EV when events were called between 12am-2am, whereas for events called in the evening peak from 4pm-9pm only 0.04 kW turn down could be achieved relative to the baseline. The other issue with event-based programs is that without knowing if and when events will be called, it’s impossible to accurately estimate how much demand response value is likely to be generated from smart charging. This makes it difficult for both flexibility service providers and drivers to judge whether a program is worth participating in.
Effectiveness for generation: Event-based demand response won’t incentivise cost-optimal EV charging on non-event days unless combined with a time-of-use or dynamic tariff. But as we’ve learned, baselining methodologies can mean that optimising EV charging for a time-of-use tariff reduces the value of providing demand response during events.
Effectiveness for networks: Compared to time-of-use or dynamic tariffs, demand response programs are more likely to achieve reductions in demand during periods of the year when networks are most constrained because they are explicitly designed to do so.
Low carbon energy standard programs: a simpler carrot
Examples: California Air Resources Board’s Low Carbon Fuel Standard (LCFS) and the Massachusetts Department of Energy Resources’s Clean Peak Energy Standard (CPS)
How they work: Another way of rewarding smart charging is through low carbon energy standards programs. These are government agency programs that require polluters to purchase credits for emissions above a certain level. The revenue from these credits is then used to incentivise emission reducing solutions like smart charging. Taking the CPS as an example, EV drivers can earn credits for reducing demand during seasonal peak periods when the electricity grid carbon intensity is usually higher.
EV driver simplicity: As with demand response programs, drivers must enrol in a program and give access to the necessary data to earn credits. Often this is through a third party who issues rewards to drivers separately from their energy bill. In the case of the CPS, drivers earn credits simply by charging outside of a four-hour daily peak period starting between 3pm-5pm depending on the season.
EV driver value: The CPS uses a static baseline that assumes 35% of charging would occur during the daily peak period. Drivers are guaranteed to earn credits provided that less than 35% of their EV charging demand in a day occurs in the peak period. The value of credits earned will depend on the credit value and the number of kWh charged – we estimate that a fully electric vehicle could earn between $100-$200 a year by avoiding charging during peak periods.
Effectiveness for generation: The CPS is specifically designed to limit the need for carbon intensive energy generation during peak periods. Figure 3 below shows how dispatchable gas, hydro and oil generation are used to meet demands during CPS peak periods. But while the program should successfully shift demand from high carbon periods to low carbon periods, it won’t guarantee that demand is shifted to the lowest carbon periods.
Effectiveness for networks: The CPS is also specifically designed to reduce peak demands on the electricity network – it does this by awarding additional credits during the hour of the actual system peak each month.
Type-of-use tariff add-on: the simplest carrot
Examples: OVO Energy Charge Anytime EV tariff add-on in the UK
How it works: Charge Anytime is the Kaluza-powered type-of-use tariff add-on offered by our UK energy retailer partner OVO Energy. The tariff applies only to EV charging, and can be added to any OVO tariff for household electricity. Drivers pay just 7p/kWh for electricity supplied to their EV provided they allow Kaluza to manage their charging schedule in a way that meets their requirements. If drivers need to charge urgently, they can do so at their standard rate – in practice we’ve found that only 3% of smart charging sessions are overridden. Savings from EV charging show as credits on their energy bill, so drivers feel rewarded for allowing their vehicle to be smartly charged. Kaluza measures the electricity demand for EV charging using telematic data from the vehicle or charger and subtracts this from the household demand measured by the smart meter.
EV driver simplicity: For Kaluza to smart charge their vehicle, EV drivers simply have to schedule when they need their vehicle to be charged by in the Charge Anytime app.
EV driver value: Compared to flat rate tariffs at around 30p/kWh, Charge Anytime guarantees savings of over 60% on drivers’ home charging costs whenever they smart charge. Because their home electricity rate remains the same, drivers don’t have to worry about their home energy costing more during peak periods.
Effectiveness for generation: Kaluza optimises charging based on OVO’s import costs, which include both wholesale prices and network charges. This ensures that EV charging occurs at the lowest price periods when grid carbon intensity and demand on the network are also most likely to be low.
Effectiveness for networks: Charging vehicles at the lowest price periods doesn’t guarantee that peaks on the network will be minimised. However, with vehicle charging already being optimised by Kaluza, it would easily be possible to also provide demand response services with drivers’ consent. If value was generated from doing so, this could be shared with drivers via an even lower EV charging rate.
From learnings to action
For energy suppliers looking to make the most of customers’ EV charging flexibility, a common question is where to start. Our suggestion is to work in stages – start small, gather data and build capabilities and partnerships as you evolve your solutions towards an end goal. Ultimately, a scalable and sustainable solution must be simple for drivers, provide ongoing smart charging rewards, and be adaptable for evolving energy systems.
Wherever you are on your smart charging journey, contact us for further advice on how to progress and unlock the full value of EV flexibility. Kaluza’s solutions can help you take the next step forward.
