The most disruptive technologies are those that add value to a fundamental product—while simultaneously reducing cost. Predicting that increase in bang-for-buck, however, isn’t necessarily easy at the early stages of a disruptive technology trend.
Case in point: when Sony introduced the first CD player in 1982, it was heralded as an important step forward in audio recording technology. At $900 ($1,780 in today’s dollars), the CD-P 101 was expensive, and it could do just one thing—play a music CD on a stereo system. No one could’ve guessed this single innovation would begin the chain of events that has so radically disrupted the music industry.
By digitizing music files, Sony’s technology allowed music to escape the physical medium. When a new virtual medium emerged in the form of the Internet, music quickly became more valuable and vastly cheaper to distribute. Now, instead of going to a store to buy a plastic disc, we download digital music files instantly onto our pocket-sized media players and computers. We share and shuffle songs, and generate instant playlists based on the style and genre of a specific song. We use songs as ringtones for our cell phones, and background music for family videos we post on YouTube.
Sony’s CD-P 101 couldn’t do any of that, but it started the digital revolution that made it all possible.
In some respects, the electric vehicles (EV) now rolling off automakers’ production lines bear a family resemblance to that first CD player. They’re expensive and limited in range, but they mark a technological tipping point. By tapping into the smart grid, EVs promise to free transportation fuel from the physical medium—raising its practical value while simultaneously diminishing its cost.
At this early stage it’s difficult to see how EVs will add significant value or shave end-user costs. For example, this spring, automaker Nissan announced the $32,000 sticker price for its new Leaf EV. At first glance, that seems a fair price for a first-of-its kind, five-passenger vehicle that will never visit a gas pump, as contributor Steven Andersen puts it in this month’s cover story (“Tipping Point,” p.22). But when a prospective buyer kicks the tires on the Leaf, the first question likely will be “how far will it go on a charge?” Nissan’s answer—80 miles—will send all but the most determined early adopters running for the nearest hybrid.
But as happened with music CDs, tomorrow’s EVs will soon make us forget the costs and limitations that today seem so daunting. Money is pouring into battery research and development. Breakthroughs in nanotechnology promise exponential improvements in performance per dollar of cost (see “Solar Eclipse,” Frontlines, May 2010).
As interesting and important as battery technology might be, however, what’s more important is the way it will be used, and how it will change the business of fueling transportation.
Today’s drivers visit service stations to buy motor fuel, and when the tank nears empty they buy more—at a cost today of about 10 cents per mile, for a 29 mpg economy car. The exact fuel price rises and falls depending on multiple factors, including OPEC cartel actions. Consumers have no way of knowing how much fuel will cost this summer, and they have almost no control over their transportation costs. Their only options are to drive less, or to buy more fuel-efficient cars.
A decade from now, assuming battery technology matures as expected, EV drivers will almost never feel like a pawn in a game of global cartels. When they’re not driving down the road, cars will be plugged into the virtual service station—the smart grid—which will keep them charged in a way that maximizes the value of system resources and the battery’s storage capacity. Fuel prices will be highly predictable and even controllable. In some cases, the driver won’t own the battery, but instead will pay a third party to manage the battery as part of an ongoing service agreement.
And the cost? Already today’s EVs run much cheaper than gas-powered cars do, in the range of 2 to 3 cents per mile. In some possible future scenarios, EVs actually might run for free.
Of course there’s no such thing as a free lunch. However, in some cases the battery might prove to be more valuable to the smart grid than the cost of electricity to keep that battery charged. With a vehicle-to-grid (V2G) system, combined with time-of-use pricing, some users might get their batteries charged for free. Conceivably, some might even make money on the deal.
Last September, Delaware Governor Jack A. Markell signed Senate Bill 153 into law, requiring utilities to provide net metering for EV owners. And perhaps more than any other state, Delaware is getting ready to take advantage of that law. For the past few years, a pilot project at the University of Delaware has been testing the prospect of a V2G system, with a handful of electric cars and a large battery that simulates the behavior of a parking lot full of them. More than just testing the technical feasibility of V2G, the project is paving the way to integrate EVs into the wholesale electricity market.
As PJM CEO Terry Boston told Fortnightly (see “Dealing with Disruption – Electric Vehicles”), the system operator is compensating each EV driver $10 a day for the ability to tap into battery capacity for ancillary services—a handsome sum for a vehicle that on average will use less than $1 a day in electricity. The $10 figure is based on University of Delaware economic estimates of the value of the vehicle’s reactive power capacity for spinning reserve and frequency regulation. But eventually, as larger numbers of EVs roll onto highways, PJM expects the arrangement will evolve into a market approach, in which the ISO will call upon EV reactive power capacity based on market clearing prices. In other words, the PJM market will provide economic dispatch of EV storage resources in a liquid market to satisfy the grid’s reliability requirements—just as it does today for both supply and demand resources.
Electric vehicles are just the beginning. By raising the value of vehicle’s fuel, while simultaneously reducing the cost to the end user, the utility V2G application might turn out to be the really disruptive technology in the transportation industry.