Power Surge: Will The EV Revolution Overwhelm The Grid?

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 |  Includes: CCGI, ECTYQ, EV, ICE, TSLA
by: Market Exclusive

Editors' Note: This article covers micro-cap stocks. Please be aware of the risks associated with these stocks.

This article is the third in a series on the future of the electric vehicle ((NYSE:EV)) industry. Past articles include:

  1. Not your Father's Gas Station: The Future of Electric Vehicle Charging
  2. Beyond Range Anxiety: The EV's Next Challenge

It seems logical to argue that an EV merely shifts pollution from the tailpipe to the stereotypical pollution-belching, coal-fired power plant down the road. Much more than just an embarrassing bit of irony for the mobile environmentally-conscious, this argument raises the specter of EV-induced brown-outs, followed by an even more ironic rush to build more polluting power plants to keep up with the EV's power demand. Now that Telsa Motors' (TSLA) Model S has proven that an EV can achieve mass market appeal, this rather thorny argument needs to be objectively addressed.

Power Generation 101

To accurately assess the potential impact a substantial increase in EV charging would have on the power grid, we must begin with the understanding that power generation is a real-time business. Utilities do not possess a means of storing mass quantities of electricity that were produced at a time when demand was low so that they can be dispensed when demand is high. This means that a utility must maintain enough power generation capacity to meet peak demand year-round, 24 hours a day, all the while knowing that it may only need all of that power for a fraction of that time (say mid-afternoon on the hottest days of the summer when every residential and commercial air conditioning system is running full-tilt). Though every region is different, the typical utility runs its plants with the cheapest operating costs (coal and nuclear) non-stop to cover a carefully calculated "base load." As demand ramps up beyond this base load, marginal generation is brought online.

This is where the pollution stereotype starts to break down, because as more power is needed less polluting means of power generation are brought online. As the charts below illustrate, the most abundant source of power available to back-up coal on the U.S. power grid is natural gas, which is more expensive than coal but burns about twice as cleanly. After that, the alternatives get cleaner and cleaner (hydroelectric, wind, solar, and so on) but less reliable (even hydroelectric power ebbs and flows with seasonal run-off). The one exception is oil, but oil-powered generation is just a fraction of the overall power mix in the U.S. (it is the primary source of power generation in Hawaii).

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Though EV owners have a rapidly growing number of opportunities to recharge at home and away, home remains the primary place to plug-in. Of course, this assumes EV owners have a privately-owned garage in which to install an EV charger, which is not the case in 40% of U.S. residences. This, however, will not curb home charging for long, as companies like Car Charging Group (OTCPK:CCGI) are racing to build strategic partnerships with multi-family property developers (i.e., global real estate giant Related Properties) to provide home charging even for those who do not have a private garage. (Car Charging is an OTC-traded, microcap stock. Investors should carefully consider the risks of investing in such a stock.)

Regardless of who provides home-based EV charging, utilities already have plenty of marginal, off-peak power available to support a sizable increase in overnight EV charging. New models of home EV chargers, such as ECOtality's (ECTY) Blink HQ line, are programmable, allowing EV owners to coordinate charging start times with the off-peak rate schedules of their utilities (roughly between the hours of 9 pm and 6 am) which both saves EV owners money and allows utilities to use existing marginal generation capacity to meet additional demand without the need to build additional plants.

The bottom line impact on the power grid is simply nowhere near as scary as EV detractors would have us believe. For example, research published by the Institute of Transportation Studies at the University of California Davis shows that if 1 million of the 27 million cars on California roads were replaced by EVs, electrical demand would only increase by 1%. (An EV doesn't have as voracious an appetite for electricity has one might think. Adding EV charging to a household's power load is like adding a refrigerator.) If most of that charging were to be done at home after 9 pm (which could be encouraged through programs like Southern California Edison's EV rate plans) there would be no additional strain on the power grid at all. Even if utilities eventually did need to add power generation capacity to the U.S. power grid, 29 states have adopted renewable electricity standards which would likely result in any new capacity being supplied by sources other than coal (see chart below).

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Apples to Apples

If the assumption holds that EV owners will do the majority of their fueling at home during off-peak hours (and given that EV drivers in several studies have demonstrated a willingness to adopt a different driving style to maximize their cars' efficiency, it is reasonable to assume they will show the same flexibility in adapting their charging habits), it stands to reason that each time an EV replaces an internal combustion engine ((NYSE:ICE)) vehicle, greenhouse gas (GHG) emissions will be reduced. In fact, several "well-to-wheels" studies (the industry term for apples-to-apples comparisons of GHG emissions of ICE vehicles and EVs from fuel production all the way to fuel consumption ) of the U.S. market have found this to be true, not just for regions like the West Coast which are commonly perceived as having more alternative power generation, but across the country. A June 2012 study by the Union of Concerned Scientists found that on a well-to-wheels basis, the GHG emissions of an EV would be lower than that of the most fuel efficient ICE vehicles and comparable to the most efficient hybrid electric vehicles (e.g., a Toyota (NYSE:TM) Prius) for all but 17% of the U.S. population. (Notably, this study did not even rely on the off-peak charging assumption, but used average power generation emissions intensities in its calculations.)

Things Are Not Always What They Seem

Though concerns about overloading the power grid and shifting pollution upstream may sound a bit snarky, they are not easily explained away and thus merit careful consideration. Like any investment opportunity, the question of whether the EV is just a fad or a game-changer with mass market potential can only be answered through rigorous and objective research. In this series on the future of the EV industry, we are examining several obstacles to the mass market success of the EV, any of which could relegate it to the scrap heap of failed ideas. So far, we have found that a lot has changed in the 100 years since the advent of the EV, not the least of which is the make-up of the power grid upon which EV's depend. With global commitment to renewable power sources stronger than ever, perhaps the EV's time has finally come.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Market Exclusive is a team of analysts and writers. This article was written by Carlos Uribe, one of our Group contributors. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.