National Grid (NG.) have published a paper entitled “Future Energy Scenarios” which spells out the impact of future trends in energy consumption, and by implication how it might affect their business. For example, the forecast demand for electric cars might add 30% to peak electric power demand, thus requiring the equivalent of five Hinkley Point C nuclear plants. Even if people only charge their electric cars in off-peak periods, the additional demand could be very substantial.
If you live in London, you may not be surprised because the Mayor’s recently published Transport Strategy document suggests that by 2050 most cars will be electric – at least they will be if the Mayor has his way. Think that is a long time in the future? Think again – Mayor Sadiq Khan wants to have zero emission zones in central London and the suburban town centres by 2025. This means that unless you have an electric vehicle, it may be prohibitively expensive to drive around much of London in just a few years’ time. That’s much sooner than the vehicle population is likely to change en masse, but you can see it will be a very big incentive to switch to an electric or hybrid car.
Readers may be interested to know that I am planning ahead on this issue and recently had a test drive of a Tesla Model S as I am thinking of replacing my vehicle. A very impressive car altogether and obviously getting near the point where electric vehicles are practical for most car drivers. Somewhat costly in capital terms at present even if running costs are low as it’s obviously aimed at the luxury car market (I do tend to buy expensive cars) but Tesla announced the first production deliveries of the new Model 3 this week which will be substantially cheaper. One can see that in two or three years’ time, all electric cars will be a viable proposition for most drivers, particularly if the costs come down as expected. Volvo announced this week that all their new models after 2019 will be electric or hybrid so you can see the way the wind is blowing.
But that still leaves the problem of generating all the extra electricity, particularly when the wind is not blowing and the sun is not out. To meet the demand in the timescale required might simply result in more cheap gas power stations, not nuclear. I am yet to be convinced that this migration to electric vehicles makes much environmental sense because of the inefficient energy conversion involved in comparison with a modern petrol engine. We might end up with more air pollution rather than less, although the Mayor of London will no doubt ensure its not on his patch. But you can see that the pace of change in energy production and distribution could affect many other listed companies, not just National Grid.
Now it could be that National Grid did this analysis of future energy scenarios before they committed to dispose of a majority stake in their gas distribution business which recently went through. As I plan to attend the National Grid Annual General Meeting later this month, I may ask some questions on what the implications of their projected energy scenarios are for their business, but it might well be positive I suspect as electricity distribution will obviously grow substantially.
Roger Lawson (Twitter: @RogerWLawson )
This issue of load balancing in the emerging electric car era is an interesting one. Solutions that have been proposed include energy storage. It has even been proposed that the cars themselves could act as storage buffers! I.E. cars connected to the grid are charged when there is an excess of generation capacity relative to demand, but cars connected the grid that are already charged but are not required for driving could be drained when there is an excess of demand over supply.
A market mechanism could facilitate this, such that you are charged more money if you insist on charging your car at a time of high demand but you could earn a rebate if you allow the car’s charge to be drained at such a time, if you do not anticipate needing the car.
Tesla’s “Gigafactory” is also intended to produce batteries for home power storage banks: particularly useful for optimising the use of intermittent solar generation.
These issues certainly pose some challenges for the Grid’s current configuration!
…and then, overlaid on this, the concept and impact of autonomous vehicles needs to be considered. When that technology is perfected, some people may feel less need to own a car, if an autonomous vehicle can be called up on demand, Uber style.
Yes, its all very interesting and a brave new world awaits. Don’t forget that we also have the hydrogen fuel cell car rapidly approaching commercial viability. Hydrogen fuel cell cars can be refuelled more quickly than electric battery vehicles and don’t put any electrical load on the grid. But, developing a hydrogen infrastructure in the UK will be the main challenge. There are some experiments about to be launched in the UK to inject hydrogen into the gas grid which may be one solution to the distribution challenge and production is presently mostly from cracking natural gas which produces carbon dioxide as a byproduct so there are still environmental issues to consider. However, hydrogen may one day be produced from zero carbon processes such as electrolysis – the technology already exists. So, its a complex picture and anyone’s guess how this all works out 20 years from now. One thing is certain, that National Grid’s strategy and planning department are going to be kept busy for a good while yet.
I can’t practically have an electric car because I don’t have a driveway, and indeed of the various places I’ve lived in my adult life none had a driveway, so unless we get charging points at a similar frequency to lamp posts (maybe part of them?) the penetration of electric cars is going to be restricted. Even then there are plenty of places where the likely outcome would be having the cable cut or stolen on a regular basis. (I live in a quiet, low-crime area, but I once put a freestanding solar-powered lamp outside my front door and it was stolen after two days …)
On the general question of grid management, I think the way things work will need to change radically, but whether National Grid is up to the challenge and whether it will be a money source or sink I’m not sure. It’s probably a more complex problem than managing the rail network, and that hasn’t exactly gone swimmingly …
Interesting to read in Trakm8’s annual report (p12) that they have been involved (together with Shell) in creating the type of market based solutions to load balancing that I describe in my comment above.