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Energy suppliers have started launching V2G tariffs despite many believing it will only ever be a niche technology. Utility Week looks at how a focus on vehicle to home may hit better with consumers.
In February Octopus Energy launched the UK’s first vehicle-to-grid (V2G) tariff, which promises to save consumers more than £850 a year compared to charging on a standard variable tariff.
The Power Pack tariff uses connected electric vehicles (EVs) like plug-in batteries, charging them when electricity is cheap and exporting it back to the grid to help balance supply and demand at peak times.
The tariff, which has been launched in beta, can be seen as the first step in the journey towards the long-heralded future for EV charging; where network operators can access a nationwide pool of batteries on wheels to help them balance the electricity system.
But many in the industry believe most customers will never provide true V2G. They predict it will remain a niche technology with customers instead opting for smart charging to avoid peak prices or to run their homes off their cars when electricity prices are high.
Despite this, energy suppliers are expected to launch a raft of products focussed on how customers can help support the grid with their EVs to help push the technology on, even though smart charging and V2H are more realistic options.
However, this strategy risks alienating the mass market and confusing EV owners rather than helping V2G technology take off.
Limited potential
In its Future Energy Scenarios for 2023, the Electricity System Operator (ESO) set out its expectations for the contribution of V2G to the energy system in the future.
In Leading the Way, the most ambitious scenario, it expects V2G to contribute 20GW of demand-side response after the 2030s. But while 20GW of DSR would constitute a meaningful contribution, the ESO does acknowledge that the technology is likely to remain niche at best. It expects uptake to remain very low in the short term, with participation limited to households with home charge points and off-street parking.
Among this group, V2G participation is not expected to reach above 45% even in the ESO’s most engaged scenarios.
This means the ESO is only expecting up to 1 million EVs to engage with V2G in its System Transformation scenario, while the DVLA puts the number of cars on UK roads in September 2023 as more than 33 million.
However, the business model for V2G still remains to be proven, making the ESO’s predictions uncertain. One of the key recommendations in its Future Energy Scenarios was therefore that commercial trails of V2G business models should be held to explore their viability.
In 2021 the Centre of Excellence for Low Carbon and Low Carbon Technologies (Cenex) published a report on understanding the true value of V2G following its participation in the Innovate UK projects V2G-Britain, Scuirus and EV-elocity.
It found that at a plug-in rate of 28% without grid services, smart charging captured 80% of the value achieved by V2G. However, once grid services were included, this dropped to 40%. At this plug-in rate the annual import cost savings for V2G was £81 over a single rate tariff, with an additional £106 achievable from grid services.
Higher plug-in rates of 75% can increase revenue from grid services to £414, but in 2021 the average plug-in rate for EVs was just 30%, although Cenex’s experience from the trials is that V2G users do increase their plug-in rates significantly over straight EV users.
However, these grid service revenue calculations were based on Firm Frequence Response (FFR), of which the dynamic FFR service is currently being phased out by the ESO.
He points out that revenue opportunities would largely be focused on the morning and evening peaks when most EV drivers would be using their vehicles.
In comparison to V2G, Flexitricity’s founder and chief strategy officer Alastair Martin believes smart charging, when chargers are programmed to activate when electricity is cheap and stop when it is expensive, has the potential to be huge.
He believes the total volume of smart charging could top 100TWh once EVs are widely adopted, while the impact on consumers will be minimal and anyone with an EV charger can participate.
Cooper agrees: “The potential for smart charging is huge. The ability to delay taking charge over expensive peaks or to top up when cheap power is available is perfect for EV charging. The existence of API interfaces from a technological point of view minimises the impact that the one-to-many problem has for organisations like ours in accessing customers. The fact that this should have no real consequences for allowing people to enjoy the use of their vehicle makes this a win-win for everyone.”
While not likely to be a viable option for many until long after smart charging has become the norm, Cooper also sees some possibility in vehicle-to-home (V2H). This would see customers run their homes using their EVs to avoid importing electricity from the grid at times of peak prices.
“The ability for someone to discharge their EV’s battery for their own benefit and then complete the charge process cheaply overnight makes a degree of sense. It also vaguely corresponds to what we see in the market about demand for charge/discharge periods and if you are going to degrade the battery on your expensive EV then it might as well be for your own benefit,” he says.
However, Martin points out that using an EV battery in this way will lead to an unknown level of depreciation which will be critical to an EV’s resale value. “I am unsure why incurring this unknown cost is more attractive to homeowners than just getting a battery that isn’t on wheels bolted on to the garage wall,” he says.
Consultant Mark Coyle, of Coylenergy Ltd, also believes consumers are more likely to be motivated by the prospect of lowering their bills than supporting the grid. “I’ve worked with consumer groups and suppliers in recent years to explore energy technology adoption, consumers really want to save money on their bill first of all and then support the grid after, and I think that’s the right order.”
Breaking the stalemate
Despite V2G not being likely to be explored by customers until after smart charging and V2H have become mainstream, Octopus Energy has decided to introduce a V2G tariff to push the industry forwards.
“At the moment we see a lot of hype around V2G but it’s a bit of a chicken and egg situation, car manufacturers all see a potential for it, but we haven’t yet seen a raft of vehicles and there’s still standards to decide,” Alex Schoch, head of flexibility at Octopus Energy.
“We frankly got a bit bored by the chicken and egg situation, we know it works, so what’s the best offer we can put out there, and we went with V2G.”
Schoch says that the complexity behind how the tariff is enabled through power trades and markets and services, alongside the fact customers do not necessarily see the benefits of cheap green electricity due to how it is transported, presented a marketing challenge for the company.
It ultimately decided to offer free charging to customers as long as they are plugged in for six hours per day. As customers have complete control over when they choose to plug in, this means the company is earning money on some customers while losing it on others, but this does allow the company to offer a simple proposition to all of its customers.
“If simple value propositions do not flow down to end consumers then you will never see huge technology adoption. I don’t think there is a more compelling soundbite than ‘free’,” he says.
“It’s something that we obsess about; how do you take these really complex concepts and completely remove the complexity? I think we’ve done that really well with savings sessions, and I think that one of Octopus’ strengths is demystifying and not using jargon.”
Despite this, Octopus has not chosen to highlight that the Power Pack tariff actually primarily acts as a V2H tariff. Only when a customer has excess energy above what they use to operate their household will this be exported back to the grid.
Coyle says this confusion over terms has been an issue in the industry since V2G first became a buzzword a decade ago.
“There was excitement around a decade ago in the energy sector about V2G as a broad concept and when it was talked about people did not separate out specific uses at that time. They usually meant V2H, and V2G or a vehicle’s electricity being used direct to power appliances, but its only relatively recently that the industry is becoming more precise about the terminology”
While he believes that energy suppliers like Octopus Energy putting out innovative tariffs is a good thing, he voices a note of caution about them innovating too quickly.
“There’s a race to innovate competitively across energy suppliers both big and small, they are introducing multiple technology-specific tariffs to customers without necessarily focusing on their take-up and benefits achieved in use. Before consumers have much experience of cost saving with the tariffs, further ones are introduced continually which may be off putting to mass-market adoption.
“There’s extensive innovation but a risk that too much choice with unverified claims of benefit may confuse consumers. We need to keep in mind that this is still a new market, with only 16% of cars sold to date in 2024 being full battery EVs and that only around 1% of residential properties have battery storage although this is now growing quickly. The early adopters will keep experimenting which drives innovation, but the next opportunity is to create conditions for mass market adoption at scale.”
Octopus’ groundbreaking tariff is only a few months old but Schoch agrees that the company has likely opened the floodgates to innovative EV tariffs in the near future.
With the EV market shifting from ‘early adopters’ to ‘early majority’, these will either help prove the business case, or could alienate a market the energy industry desperately needs to harness.
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