With a little software and a few more electronic circuits, utilities can easily turn a homeowner's EV into a backup or evening source of stored power. I will discuss the potential ramifications of this, as it will eventually be a standard or optional feature on every EV sold. First, let's look at the effects that an increasing level of electric vehicles is going to have on the world's oil markets.

PEAK OIL … AGAIN

In 2010, I wrote and spoke about the concept of “peak oil.” Simply put, this theory states that global oil production will hit a maximum (peak) level before declining.¹ Oil prices had hit a record high of $147 a barrel in July 2008, and many analysts focused on the supply-demand equation and the topic of peak oil. Back then, peak oil was all about peak supply. The introduction of hydraulic fracking and horizontal drilling has since blown the peak oil supply argument right out of the picture. Producers have developed so much new supply during the last decade that the United States is now the world's top crude producer.

Fast-forward to 2018. Fuel efficiency is increasing as new technologies are reducing the amount of fuel needed in fossil fuel–powered vehicles. New carbon emission rules are continuing to go into effect in nations other than the United States. But there's one important change happening that could start to lower the amount of oil the world consumes every day. And that's the switchover to EVs from fossil fuel-powered cars and trucks.

EV adoption is close to its tipping point. When that happens, EVs will quickly become the dominant type of vehicles offered for purchase at car dealerships around the world. In Norway, every second car sold is an EV.² And that means we will approach “peak oil” once again. But this time, “peak oil” will mean something entirely different.

I'm talking about peak oil demand. With the introduction of EVs, we'll slowly start to see a reduction in the demand for gasoline and diesel. We'll also see a corresponding decrease in the demand for crude. A drop in oil demand and the timing of the peak will depend on when mass adoption of EVs starts. This will have far-reaching ramifications for the oil industry. In fact, hitting peak oil demand while the world economies are in growth mode will be the first time oil demand has dropped since the first well was sunk by Colonel Edwin Drake back in the 1850s in Titusville, Pennsylvania.

All the major oil companies are focused on getting the peak oil prediction right. They are sitting on trillions of dollars' worth of oil reserves. The big problem is that the peak of oil demand is due to disruptive forces. As a result, when the peak comes, it's going to be much more rapid than anyone realizes. And that's what makes it very difficult to predict. When the peak arrives, the global oil market will likely remain volatile for months or even years as the adjustments to the oil market take place. Prices will plunge because supply will exceed demand for some period. Many of the smaller independent producers will go out of business trying to resize.

In the 2018 edition of BP's Energy Outlook, the oil giant sees crude demand slowing and then plateauing in the late 2030s. It expects global passenger vehicles to double to two billion by 2040. That fleet would include over 320 million EVs. That's a 100-fold increase over today's EV numbers. In BP's latest (2018) scenario, it expects 190 million EVs by 2035. (That's almost double what BP predicted in 2017's Energy Outlook.)³ BP thinks US oil demand will peak around 18.7 million barrels per day (Mb/d) and finally start declining by the end of the next decade.⁴

Even back in 2017, shareholders of Occidental Petroleum Corporation voted in favor of making the company look at the long-term effects of climate change on its future business. That was the very first time shareholders of one of the big oil companies undertook this kind of vote.⁵

Some oil executives are kidding themselves. Most notably, the CEO of Saudi Aramco. Amin Nasser doesn't see EVs as a threat for at least several decades. Chevron and Exxon Mobil don't foresee a peak in oil demand at all. Shell seems to be getting the message. The company, which sees a peak in oil demand occurring in the years between 2025 and 2030, remains increasingly focused on natural gas as it moves away from oil. Total is doing the same thing, forecasting an oil demand peak in 2040. The exact date of peak oil demand isn't easy to predict. The important thing is that it's coming.⁶ And that means a lot of the world's oil is going to stay right where it is: in the ground. Expensive-to-get, offshore deep-water fields are particularly vulnerable.

But that's only part of the story. By 2040, autonomous vehicles will be widespread, and most of them will be EVs. That's because EVs have much lower maintenance costs than internal combustion engine (ICE) vehicles. Today EVs are only racking up about 2 percent of all passenger vehicle miles. Fast-forward to 2040: Autonomous EVs will account for at least 30 percent of passenger miles.⁷

I think crude oil demand is going to peak lower and decline sooner. Fessler's second law of technology states, “When it comes to technology, changes happen much faster than anyone expects they will.” All you have to do is look at how rapidly smartphones have become widespread. It took a decade or less for half the world's population to have one in their pocket. Why would the widespread adoption of EVs by the car-buying public take any longer?

Battery pack energy densities are rapidly increasing, and their costs are quickly dropping. I think we could hit peak oil demand by 2025. I think half the vehicles on our planet's highways could be EVs by 2040. That will bring down crude demand much faster than current projections. And it will be much faster than most of the scenarios being looked at by the big oil companies. But the decline of oil and the widespread adoption of EVs is good news for another group of companies: electric utilities.

EVS: THE STRATEGIC OPPORTUNITY OF THE TWENTY-FIRST CENTURY FOR UTILITIES

There's no question that Steve Jobs was a true visionary. His forward thinking started Apple, Inc. on its way to becoming the biggest company in the world. He had a knack for knowing what the public wanted before it did. He and his design teams went on to create and change thousands of different businesses, from music to personal communications.

Another visionary equal in brilliance to Jobs is Elon Musk. On April 8, 2016, one of his companies, SpaceX, successfully stuck the landing of a used Falcon 9 first stage rocket on a drone ship parked in the Atlantic. As if that wasn't difficult enough, high winds and heavy seas added to the drama. But SpaceX did it anyway. It was a fantastic display of technology. The second stage boosted the Dragon spacecraft into orbit to rendezvous with the International Space Station. But space isn't the only place Musk is displaying his advanced technology. He's also the Chairman and CEO of Tesla, Inc., the biggest EV company in the world. But Musk describes it as a sustainable energy company.

Now utilities are slowly starting to embrace EVs, and for good reason. For years, utilities were stable, income-producing machines for their shareholders. But with the advent of distributed energy resources (DERs), like solar and cheap battery storage systems, utilities are facing declining revenues. Enter the electric vehicle.

At first, utilities, along with many auto industry pundits, dismissed EVs as another passing fad. The thought was EVs would disappear as soon as oil prices dropped. But oil prices did drop, and EVs continued to sell. As of 2018, oil prices are double what they were just a year or so ago, and EV sales are strong and getting stronger.

On March 31, 2016, Tesla unveiled its long-awaited Model 3. Tesla billed it as its “EV for the masses.” It looks like Elon Musk had another home run on his hands. According to a shareholder letter issued in May 2018, Tesla had over 450,000 Model 3 reservations worldwide as of the end of Q1 2018.⁸ The expected sales price ranged from $35,000 to $42,000. The part that sold the car though is the range, estimated to be 210 miles per charge (standard battery) to as much as 310 miles (long-range battery).⁹

Tesla got the ball rolling with EVs, and its inexpensive Model 3 is receiving widespread adoption. Now manufacturers such as Ford, GM, BMW, and nearly all the other car and truck manufacturers, have EV models either in production or design. But why are utilities so interested in EVs? As I mentioned, utilities are now coming around to the fact that EVs are here to stay. EVs use a fair amount of electricity to recharge, and therefore represent an additional monthly income stream.

How much will an EV add to the average monthly utility bill? The number will vary widely and will depend on the cost of electricity where the driver lives, how many miles a month he or she drives, and the EV's energy consumption rate. The average cost of power in the United States is 12 cents per kilowatt-hour (kWh).¹⁰ Let's assume the EV owner drives 15,000 miles per year. His car is a Tesla Model S P90D with an energy consumption rate of 32.33 kWh per 100 miles.¹¹ To determine his monthly EV charging bill, we must calculate the total number of kWh used monthly: ((((15,000/100) × 32.33) × .12)/12). In the case of this example, the monthly EV charging costs are $48.50. For smaller cars with smaller motors and battery packs, monthly energy costs will be less.

The potential of wringing another $30, $40, or even $50 per month out of each of its customers is attractive to American utilities. That's “found money” for them. Right now Americans spend about the same amount for electricity as they do for fossil fuels, about $400 billion per year on each. Shifting $400 billion from the fossil fuel industry over to the electric utility industry will mean massive changes. Let's say utilities could capture all of the electricity used to charge light-duty EVs through the EV charging stations in their territories. That would increase electric sales by about $100 billion annually. EV drivers would save about $300 billion per year in fossil fuel costs. That's because EVs are four times as efficient as fossil-fuel vehicles.

Higher electricity sales will increase the pressure on utilities to lower rates. That would benefit all utility customers. Most EV charging takes place in the wee hours of the night when electricity use is at its lowest levels. Utilities can rake in more revenues without building new generating plants. By flattening out electricity demand curves, utilities can get more revenue to cover existing assets. That means they can charge less to recoup their costs.

A NEW SOURCE OF POWER GENERATION FOR UTILITIES: V2G

While it's not in place yet, the ability for a utility to control its DERs means it potentially has a large, dispatchable, and growing baseload source of power. This is the concept of vehicle-to-grid (V2G) power. The idea is that EVs can provide power back into the grid when not in use. It can then recharge its battery pack during periods of low electricity demand.

A V2G system must have three components: (1) a connection (through its charging system) to the grid, (2) a control connection necessary for communication with the grid Independent System Operator (ISO), and (3) EV onboard software for control and power metering. Figure 16.1 shows the connection between fleet EVs, an individual EV, and the power grid. Electricity flows one way from large generators through the transmission and distribution grids to customers. Electricity can flow back into the grid via individual EVs or fleet EVs. Also depicted is the ISO that is broadcasting control signals (request for power) to numerous EVs available to provide power to the grid.

At today's adoption rates, it's not unreasonable to assume that within 20 years, 25 percent of today's US fleet of 253 million¹² cars and trucks will be electrified (63.25 million). The average EV battery pack is 75 kW. These battery packs are capable of producing peak bursts of power in the 50 to 100 kW range. But I'm going to conservatively assume the average EV is capable of sourcing just 15 kW of power, taking into account building wiring capacity limits. Owners use their EVs an average of 17,600 minutes per year, or 48 minutes per day, just like fossil fuel vehicle owners.¹³ That's only 3.3 percent of the time. That means 96.7 percent of the time an EV can plug into a charging port.

The total amount of available system power from the US EV fleet is 948.75 GW (63.25 million × 15 kW). With proper control software, all of that power would be available to utilities within milliseconds to seconds. Compare that to the total system power of America's conventional power generation system. It consists of 1,080 GW of utility-scale power¹⁴ generation from all sources. Note that at a 25 percent EV penetration rate, the amount of power available from them to US utilities is nearly equal to the entire capacity of today's generating fleet. The capital necessary to tap EVs as a power source is one to two orders of magnitude less than building new fossil-fuel power plants. Add another order of magnitude or two if we're comparing EVs to nuclear power plant costs.

There are four power markets in which V2G could participate. They are baseload, peak, spinning reserves, and frequency regulation. Baseload power is “on” all the time. Baseload provides the bulk of all power generated. Peak power is necessary for periods of high demand, and usually occurs in the morning and evening hours. Peak power is also needed during periods of high temperatures when maximum air conditioning load is present. Spinning reserves (sometimes referred to as operating reserves) are synchronous generators in standby mode. They are ready to connect to the grid at a moment's notice in case of an existing generator fault. Spinning reserves are generally only required one or two times per month and then only for 10 minutes to one hour. Frequency regulation is only necessary for a few minutes at most but may be needed 400 times in any given day.¹⁵

Both spinning reserves and frequency regulation providers are paid just for being available to use, whereas baseload and peak are paid based on the number of kWh generated. V2G is not suitable for baseload requirements. The length of time it's available is too short. It is, however, usable for peak power generation in some circumstances. V2G is very competitive for spinning reserves as well as frequency regulation.

The central issue that planners need to address for a viable V2G environment is balancing the requirements Of EV owners/drivers and the utility grid operator. EV drivers must have enough battery power available to meet their daily driving requirements. The grid operator must have a power source that is available at precise times during the day. There are three ways to mitigate potential conflicts: (1) increase vehicle battery pack size, (2) use power from EV fleets with scheduled usage (municipal EV buses, etc.), and (3) use intelligent control software that compliments both parties.

Increasing the EV battery size adds cost and weight to the vehicle and would not generally be acceptable to the EV owner. The reason V2G is viable in the first place is that the EV sits idle 96.7 percent of the time. Using fleet vehicles for V2G is a perfect example. A fleet of electric UPS trucks that are in use from 8:00 a.m. to 5:00 p.m. can predictably be used for V2G power purposes for the other 15 hours of the day during the week, and all day Saturday and Sunday. The entire V2G market, however, is much larger than that which could be realized with just fleet vehicle participation.

That brings us to the third strategy: using intelligent software to complement the needs of both parties is the primary V2G application. It turns out that the needs of EV drivers and grid operators complement each other. They need the power of the battery pack at different times, and these times are predictable. Their needs also differ in one other respect: one needs energy and the other needs power. Most driving times are predictable. But spinning reserve and frequency regulation power requirements are unpredictable. EV drivers need the stored energy in their particular vehicles at the start of a trip. The grid operator, on the other hand, needs power, possibly at numerous times. And that power is generally required instantaneously. The grid operator could care less what EV or EVs the power comes from.

How can the V2G needs of the EV driver and grid operator be managed? With today's increasingly smart artificial intelligence (AI) software, the vehicle could easily “learn” the driving patterns of the owner. After a short time, the software could allow the EV to offer V2G services to the local utility. Drivers could have a single button on a touch screen menu that would override V2G participation at any given time.

A second complementary scenario is between the grid operator and the owner of the home where the EV resides. When the grid operator doesn't need spinning reserves or frequency regulation and the grid power goes down, the homeowner is generally in need of backup power. Traditionally, backup generators provide this. The lag time of getting a seldom-used generator running and connected to the home “grid” must be considered.

Backup power from an EV is available nearly instantaneously (within a few milliseconds) and could serve the homeowner for a few hours or even a few days if restricted to just lighting and refrigeration.

Powerful software can look at the status of all the EVs in a utility's territory. Additionally, it would create a database listing the available EVs at any given instant. When additional power is required, the utility could instantly tell any number of available EVs to start sourcing power onto the grid to meet that specific need. Automatic billing would compensate the EV owners. They would then receive credit for the power used by the utility. For utilities, it's a huge cost avoidance, in the form of not having to build, operate, and maintain a new power generating plant.

Now utilities are just starting to consider all of this in a favorable view. Let's face it: This is entirely disruptive to the 100-year-old way of doing things, from a utility's perspective. But utilities and the bodies that regulate them are both like a big ship. It takes time to turn it around. This is the direction in which we are going, however. And as with most advances in renewable energy, California is leading the way in the United States.

In 2015, the electric grid in California needed 10,091 MW of quick-responding generating resources to satisfy a load spike that lasted as long as three hours. It typically started in the late afternoon and continued well into the evening. Getting power during the day isn't a problem in the Golden State, as its abundant rooftop solar keeps demand flat during the day. By 2019, however, continuing widespread adoption of EVs in California could send its power demand spike to 14,000 MW.¹⁶

Natural gas peaker plants could easily meet that demand. But that flies in the face of California's plan to greatly reduce its greenhouse gas emissions. And utility-scale battery storage would not provide enough electricity. Enter EVs. California utilities have long known about the benefits of EVs as a revenue source. But now they are looking at them as a potential source of power that could help deal with California's growing afternoon/evening power demands. According to the California Public Utilities Commission (CPUC), EV battery storage could be the answer.

Its proposed framework looks at what it refers to as Vehicle-Grid Integration (VGI). It expects customer vehicles would be compensated for VGI benefits provided to the utility for several different charging and sourcing arrangements. As was mentioned earlier, California's afternoon/evening peak demand could spike to 14 GW by 2019. If all EV owners were to charge during California's evening peak demand, additional generating capacity and major grid upgrades would all be necessary. But most EV owners are asleep in the early morning hours. That's when EV charging can take place if programmed to do so. In the afternoon/evening peak demand time, EVs could be programmed to source power back onto the grid. VGI changes EVs from a problem that utility grid operators have to deal with to a generating asset that can be used to mitigate afternoon/evening peak demand.

It's clear that EVs connected to charging stations that have the ability to both charge an EV battery and source power back onto the grid are a valuable resource for utilities. Utilities can use EVs' flexibility as a group in lieu of natural gas peaker plants to meet peak power demands. We have the technology, and it's a simple matter of implementation. My bet is California will solve the problem first. This will provide the model for other states to follow.