change agent for the electric utility industry

The plug-in hybrid electric vehicles (PHEV) planned for the next couple years have an electric motor and a gasoline-fueled internal combustion engine, as well as a battery that can be recharged by connecting a plug to an electric power source. Already gaining in popularity despite higher prices than conventional automobiles and other hybrids, PHEVs will continue to penetrate the market as price points come down and battery technology improves. The President Elect has said he wants one million PHEVs on the road within 10 years, and indeed tax incentives are already in place, offering consumers thousands of dollars in potential rebates.

Plug-in hybrids have a significant impact on emissions and the environment. West Monroe Partners’ analysis found that consumers who use PHEVs, rather than conventional automobiles, for shorter trips—i.e., 95 percent of miles driven per year are trips of 35 miles or less—can expect to produce 69-percent less carbon dioxide (CO2) emissions. Choosing a PHEV over a standard hybrid can yield a 53-percent reduction in CO2 emissions under the same driving conditions.

Increasingly, PHEVs will have a major impact on the electric power grid. West Monroe Partners’ analysis of a Midwestern utility shows that every 10-percent increase in the number of customers with PHEVs will increase total energy consumption by two percent—a concern for electric utilities that must manage peaks in demand proactively to control electricity costs. It is anticipated that PHEVs will create between 1 kW to 4 kW of demand while they are charging their batteries. This can create a dramatic increase in the instantaneous energy demand, not only at the utility’s generation facilities, but also along the distribution feeder and at the substation, especially if consumers plug in their PHEVs at the same time, such as when the typical workday ends. The following graph shows an example of what a single home’s energy demand might look like if the PHEV is charged during off-peak hours.

Many utilities have embarked on the path toward adopting Smart Grid technology. Smart Grid and Advanced Metering Infrastructure (AMI) projects apply new information and automation technology, and communications to a utility’s existing grid, enabling the utility to manage operations remotely and dynamically. Among other benefits, this technology enables a variety of Time-of-Use (TOU) rate plans that can offer incentives, usually in the form of lower rates, to customers who shift electricity use to off-peak hours.

Because of both PHEVs’ power consumption needs and power management potential, some industry observers predict that these vehicles will accelerate the move to residential TOU rates in much the same way that the Internet drove computer adoption in the home. A residential TOU rate has the benefit to the utility of decreasing peak demand associated with charging PHEVs by incenting the consumers to use “cheaper” electricity during off peak times. For consumers, TOU rates can significantly decrease the cost of the electricity used to charge their PHEVs.

From “smart charging” to “demand response.”
Traditional power grids deliver electricity from the power plant to the consumer with limited control of delivery to the ultimate consumer. Smart Grids will improve utilities’ ability to manage power delivery dynamically and minimize or avoid situations in which demand exceeds supply or the capacity of the delivery grid.

One way they will do this is by encouraging “smart charging’ for electric vehicles. The combination of Advanced Metering Infrastructure technology and TOU rates will encourage and enable customers to control their electricity costs by choosing to charge their PHEVs when rates are lower (typically overnight). This strategy doesn’t just help consumers manage their energy costs; it does the same for utilities, which want to avoid having to purchase power in the open market to meet peaks in demand—a scenario that can be costly for utilities as well as consumers.

In addition to “smart charging,” Smart Grid technology can enable “demand-response” plans—that is, during periods of peak energy usage, when a utility is at risk of exceeding its capacity to supply power, the utility could temporarily limit the charging of PHEV batteries. The combination of Smart Grid technology and PHEVs can take “demand-response” plans one step further by allowing utilities to pull power from charged PHEV batteries to help manage demand, if the PHEV and home supported the PHEV discharging functionality. A customer who agrees to participate in such arrangement might allow the utility to pull up to a certain percentage of power from a PHEV battery—for example, 25 percent—in exchange for a discount on the electric bill. West Monroe Partners’ analysis shows that if enough PHEVs were available during a “demand-response” event, a utility may be able to reduce purchases of power on the open market.

Battery capacity and discharging technology available in the PHEVs being introduced to the market limits these opportunities; although, with the right technology in place in the home and PHEV, the PHEV batteries are sufficient to power some critical home appliances in the event of a power outage. Nevertheless, PHEV technology, batteries, and Smart Grid technology are evolving quickly. Improvements in battery technology are expected to double or triple battery capacity in the next two to three years.

Reinventing the industry’s career opportunities.
Maximizing the potential and benefits of a Smart Grid will require significant deployment of new technology. While costly, this may represent a key, long-term benefit for electric utilities by helping them counteract impacts from the industry’s aging workforce. According to the United States Department of Labor, the energy utility industry averages the second-highest average employee age among 54 industries studied, and nearly 20 percent of the industry’s workers are within five to seven years of retirement. The opportunities to apply new, state-of-the-art communication technology to build Smart Grids and deliver environmentally-sound solutions undoubtedly will help to draw younger, technology-skilled workers who traditionally have shunned the industry in favor of opportunities in more dynamic cultures. With PHEVs accelerating the adoption of a Smart Grid, the electric utility industry is now in a prime position to enhance its image as a dynamic and technology savvy employer.

West Monroe Partners helps energy and utility companies establish themselves at the forefront of building smarter, greener power grids. For more information, please contact Tom Hulsebosch or Fred Pammer.