Big Oil well placed to accelerate transition to electric vehicles
The ability to manage flexibility in the energy system presents an opportunity for majors
By 2030, the EU expects 35m electric vehicles to be on the road, but that transition is not a done deal — especially if potential owners think the cost will be too high.
For the traditional oil majors, who are looking to accelerate their investments in the energy transition, this presents an opportunity, as they move from Big Oil to Big Energy.
The ability to manage flexibility in the energy system — how electricity is stored or supplied to the power grid and how demand is shifted to times when more wind or solar power is available — will be the key to their role.
Matching intermittent supply from renewables with growing demand in the ever-electrifying world is where the opportunity lies — and where the oil majors should focus.
The industry’s fleet card relationships — tie-ins with companies which offer staff cars — as well as ability to trade energy and offer incentives for EV owners will give them a bigger presence in the energy transition.
As soon as there are enough EVs on the road, batteries will be the best option to provide short-term flexibility to the grid.
If an EV is plugged in when parked (usually more than 85 per cent of the time), smart charging can shift power demand to when renewable supply is high and power prices low, or the battery can deliver electricity back to power grids — a significant contribution to flexibility and balancing.
Additionally, because EV batteries are generally replaced after 10 years, they can then be repurposed to serve as stationary storage for another 5-20 years in their second life at very low cost.
The sheer volume of projected EV batteries, used in a combination of smart charging, vehicle-to-grid, and second life, could contribute up to a third of all short-term flexibility needs projected by the European Commission in 2030, and up to 100 per cent by 2050 (with an anticipated 190m EVs on the road by then).
Additional capital expenditure needed to use these batteries for grid services is very low, as EV owners will have already paid for the batteries as part of the purchase price of their cars.
An average driver will use only 50 per cent of the battery capacity guaranteed by the manufacturer for driving; the other 50 per cent can be allocated for grid stabilisation, reducing the cost of EV ownership and the need for government subsidies.
But how do governments and industry ensure people buy EVs to projected levels? If the owners can economically use 100 per cent rather than 50 per cent of the most expensive part of the car — the battery — then electric mobility will become more affordable.
This makes it more likely that projected EV purchases will materialise, with the consequent increase in battery availability at low cost and making energy transition cheaper.
The oil majors are well positioned to contribute to this acceleration loop.
One way to seize an early advantage in aggregating EV battery usage is by leveraging off their fleet card relationships with customers like DHL or Microsoft.
As car fleets become increasingly electric, existing fuel card relationships will be transformed as the oil majors shift to provide servicing, power and management of EV batteries, rather than petrol or diesel at stations.
Using their powerful trading operations, the largest oil majors should look to aggregate EV batteries as a trading asset, not only using them to balance grids but to provide lower power prices to EV owners.
They could even fulfil the dream of “zero zero” for EV owners — driving with zero emission green power at zero cost — paid by revenues from making batteries available.
Big oil companies can further incentivise EV drivers by offering loyalty points to be spent at their service stations and convenience outlets — boosting high margin retail revenues.
Having pioneered the integrated trading units in the energy industry many years ago, this should give them deep institutional knowledge, experience and volume advantages.
They will face competition. Utilities who made earlier moves into new energy — the “renewable majors” — are often the default power suppliers to fleets. The oil majors will need to focus on smart investments using their core advantages, rather than trying to copy utilities by just building gigawatts of renewable power.
By helping EV owners to monetise the full battery capacity of their vehicles, Big Oil can help societies to transition to new electric mobility in a cost efficient way.