Shanghai has just completed an historic EV-Grid Integration pilot program, the first project in China to make use of electric vehicles (EVs) as a flexible energy resource for the power grid system. The purpose of this innovative pilot was to explore how managed EV charging could improve the overall efficiency of the grid. The pilot conducted EV charging in a planned and orderly manner, with EV drivers responding to signals from utilities about when to charge. This process, called “demand response (DR),” allows utilities to coordinate EV charging with the availability of renewable energy, which might otherwise be wasted. Since China’s electricity system is still primarily coal-powered, this approach could yield enormous environmental benefits in terms of pollution reduction and lower CO2 emissions.
The Natural Resources Defense Council (NRDC), in partnership with China EV100, has just released an in-depth analysis of the pilot program results in a report, “Outlook on Business Models for EV-Grid Integration: Analysis on EV DR Pilot Program Results in Shanghai” (currently only available in Chinese). Key participants in the pilot included the Shanghai Electric Company (which is part of the State Grid Company, the world’s largest utility), as well as Chinese electric car maker NIO and several charging service providers, which acted as load aggregators.
My colleague Hyoungmi Kim, who helped to design and implement the DR program, tells us that over the course of Shanghai’s six-month pilot program, charging service providers and EV manufacturers showed increasing interest in participating in DR. The pilot resulted in several new learnings that will continue to shape the field. It demonstrated that different types of chargers, such as home chargers, public chargers and battery swap stations, could play different roles. While NIO’s battery swap stations enjoyed better economic returns than home and public chargers, battery swap stations are generally limited in number and capacity, given that they rely on spare batteries. The pilot also highlighted the potential use of home and public chargers, which will be further explored.
The Shanghai pilot program is just a start. The Shanghai Electric Company showed great initiative in exploring the potential of EV charging as a flexible resource for the power grid. Going forward, it is even more important to develop sustainable utility programs for EVs to participate in. We must also develop market mechanisms that incentivize EV charging as competitive with traditional power supply resources. These future directions are well in line with China’s years-long efforts to reform its power sector.
It may be difficult to imagine how managed EV charging could make a major contribution to cleaning up China’s power sector. Yet thanks to a combination of massive investments and strong policies, China has become the world leader in electric vehicles. It already has more than 3 million passenger EVs on the road, more than twice the number in the U.S., and was responsible for half of all global sales in 2019. In addition, China is home to over 500,000 electric buses—98 percent of the world’s total—and nearly 219,000 commercial EV trucks. Electric buses alone—nearly all in China—have already displaced a cumulative 270,000 barrels a day of diesel demand. This is more than three times the displacement by all the world’s passenger electric vehicles. As the number of EVs in China continues to grow, harnessing their sizeable charging demand and storage capacity could also have a substantial impact on reducing coal consumption in the power sector.
Passenger EV sales in China have been experiencing a bumpy ride since last year, when the central government cut EV subsidies by half and announced a plan to eliminate all subsidies by the end of 2020. This move was partly in recognition of the fact that EVs are likely to reach price parity with traditional internal combustion engine (ICE) vehicles within the next few years, due to plunging battery prices. China also realized that its generous subsidy program had led to a huge overcapacity in EV manufacturing, and hoped that eliminating subsidies would cull weaker companies and lead to industry consolidation. The drop in subsidies, exacerbated by the impact of the COVID-19 pandemic, caused a major slump in EV sales. The government’s efforts to revive China’s overall auto market, by easing restrictions on traditional gasoline vehicles and delaying new emission standards, also hurt EV sales.
In light of these developments, China is now moving ahead with new measures to support the development of EVs, which it considers crucial for meeting the country’s long-term economic modernization, energy security, and environmental goals. In April, China decided to extend its national EV subsidy program until 2022, though the total amount of subsidies for passenger EVs will gradually be reduced by 10 percent this year, 20 percent in 2021, and 30 percent in 2022. The revised subsidy program has been designed to promote further innovation and cost reductions. To be eligible, EVs must meet stricter requirements in terms of EV price, driving range, battery pack size, energy density and vehicle efficiency.
China will also invest $2.7 billion RMB (US$381 million) in EV charging stations as part of its “new infrastructure” program designed to cope with the economic impact of the pandemic. This will enable the State Grid Company to build 78,000 more EV charging stations in 2020. China is already home to more than 516,000 public charging connectors, over half the world’s total, as well as some one million private chargers.
In December 2019 the Ministry of Industry and Information Technology (MIIT) released for comment a draft New Energy Vehicle (NEV) Industry Development Plan for 2021-2035. NEVs include battery electric vehicles, hybrids, and hydrogen fuel cell vehicles. The draft plan calls for increasing the target for NEV adoption to 25 percent of all new vehicle sales by 2025, an enormous jump from their 5 percent share today. It also addresses battery supply chain and recycling issues, supports vehicle-to-grid integration, increases R&D in priority areas, and calls for a comprehensive strategy leading to the commercialization of hydrogen fuel cell vehicles.
According to Bloomberg New Energy Finance (BNEF), the draft plan “does not simply see EVs as a direct replacement for internal combustion vehicles. The plan sees EVs as part of a broader integrated strategy around shared mobility, autonomous vehicles, integration of renewables and power system flexibility, and aims to stimulate innovation throughout these areas.”
China is also moving ahead with plans for its energy and transportation sectors to join the fourth industrial revolution. This refers to transformational changes brought on by the connection between people, objects and spaces, using advanced information and communication technologies. The State Grid Company has launched an ambitious smart grid roadmap called the “Ubiquitous Power Internet of Things.” The plan calls for building a smart ultra-high voltage transmission system alongside urban and rural distribution grids to link the internet to the nation’s electricity supply and support the development of smart cities. Pilot projects will include:
- the integration of clean energy
- energy storage
- microgrid technologies
- smart demand management
- EV charging and battery-switching facilities.
EV-grid integration will become even more important as the number of EVs on the road continues to grow. Analysts expect China’s EV sector to recover from this year’s slump and begin to surge again in 2021, buoyed by supportive policies, tighter regulations, government and commercial procurement, and fleet electrification plans. China’s proposed EV sales target of 25 percent by 2025 would require sales of some six million to seven million vehicles a year. Once EVs reach price parity with internal combustion engine vehicles, EV adoption is expected to grow even faster. BNEF forecasts that more than half of China’s passenger vehicle fleet will be electric by 2040. Programs and incentives that encourage EVs to charge and discharge at optimal times would help avoid strain on the grid from high levels of EV penetration.
Advanced flexibility measures such as smart EV charging, DR, and electricity storage can also play a major role in decarbonizing China’s power sector. The International Energy Agency has found that these flexibility measures can enable China to reliably integrate extremely high shares of variable wind and solar generation by 2035 without any substantial curtailment. They will become critically important as China works to achieve—and perhaps exceed—its Paris climate pledges of peaking CO2 emissions by 2030 and increasing the share of non-fossil energy to 20 percent of the total energy mix.
NRDC looks forward to working with the government of Shanghai and other cities in China as they move forward with relevant policies and implementation of EV-grid integration programs.