How much is the power for your EV fleet going to cost?
By Andrew Rees, Power, Flexibility & Optimisation Director at VEV
VEV can help you access and deliver the best price at all times so that you can focus on running your business.
If you are electrifying your fleet, or considering doing so, the chances are that the future cost of the electricity is a daunting and significant source of risk and concern. The millions you spend on diesel today will soon become the millions you spend on electricity, but how you access electricity and the associated commercial structures are complex and opaque by comparison.
VEV can help you get started and avoid setting yourself up for big costs and penalties.
For those outside of the electricity industry it is not widely known that the price of electricity varies significantly within the day, every day. Ranging from lows where price can be almost zero (or possibly even negative!) to highs of several hundred pounds for every megawatt hour (£/MWhr – this is the unit by which wholesale power is priced – divide by ten to get p/kWhr).
In simple terms, this means that at some points of the day the cost of the electricity to charge a fleet of 50 electric buses might be £3,000, while at others, the electricity could be almost (or actually) free.
Typically, the price of electricity varies by a factor of two between the peak price and the lowest price during any day, which is called the daily price spread.
If we extend this example to 10 depots, each with 50 buses then the owner is purchasing 55 GWhr of electricity each year. If we took a typical fixed rate supply contract price of 25 p/kWhr, then the owner will have an annual power bill of £14m.
But what does 25 p/kWhr mean, and how does that relate to the underlying electricity cost?
In simple terms a bundled fixed rate is something a power supplier provides customers to provide certainty with a single price. Often customers have day-night tariffs and so have two prices, but the logic is the same. This is great for consumers with fixed, predictable demand.
Within that 25 p/kWhr, roughly 40% directly relates to the cost of the electricity. The remaining 60% hides a range of other costs. This includes costs for transmission and distribution infrastructure, as well as fees and risk premiums for the supplier and assumptions about the time of day you will consume electricity.
These products come with strict rules around the amount of electricity you consume, called volume tolerances. These make sense for long-standing consumers where consumption is highly predictable, but create hidden risks for those electrifying their EV fleets. These have much more variable energy demands, and predicting exact times and usage volumes is very hard, particularly in the early days.
This exposes customers to unexpected penalties and additional costs, which can come as a surprise if not prepared for them as you start your EV journey.
Why does the underlying cost of the electricity vary so much?
There are a few reasons why the electricity price varies so widely throughout the day. The most obvious one is that demand varies a lot from day to night, as we use much more electricity when we are awake. We use the most in the evening (typically 4pm – 8pm) when people return home and cook meals and heat their homes.
Another driver is the growth in renewables like wind and solar, whose generation varies depending on weather, time of day and seasonality in a way traditional generation doesn’t. Solar is more predictable than wind and in the UK we typically see an early afternoon price low owing to solar peak production in summer months.
Wind is far less predictable and can massively influence price. When wind generation is high, prices can fall to zero or even go negative. However, wind can quickly fall away. This drives higher prices with expensive gas-generation needed to come on line to fill the gaps.
Both of these trends will become more pronounced over time as more and more of the UK’s energy mix is delivered by renewables. Battery storage is one of the possible solutions for managing this variance.
Why should I care about price variability as a fleet operator?
Variability is both an opportunity and a threat for Fleet EV operators.
The long-term forecast is that the wholesale cost of power (just the electricity) will fall over the coming years as markets continue to normalise following the supply shock of 2021/22 and the continued deployment of renewable energy at scale.
However, it is widely expected that the within-day volatility in price (the daily spread) will get larger as the cost of balancing the electricity system will increase. This is the cost incurred by the system operator (NESO) in ensuring that supply continues to meet demand everywhere across the national electricity grid. This becomes more difficult as more renewables are deployed.
In addition to the cost of the electricity, some of the costs related to the upkeep and investment in the transmission and distribution infrastructure vary throughout the day. These act as a mechanism for system operators to drive behaviours to minimise consumption during times of peak demand.
All together, this results in a complex optimisation problem that goes beyond a simple ‘day-night tariff’. However, fleets that can solve this problem by targeting charging to the time of lowest price stand to unlock significant value.
But isn’t a fixed price contract a good way for me to manage this variability?
Fixed Price contracts are good in cases where there is a high degree of predictability, but are not very suitable for EV Fleets. This is particularly true in the early days when the uncertainties of roll-out timing and utilisation are high. There is real risk of being exposed to volume penalties for either under or over consuming against the forecast in your contract.
Also, bundled fixed price contracts contain a lot of hidden costs and premiums. When your electricity bill moves into the millions of pounds per year, it is worth investing in the understanding and capability to unbundle these costs and start actively managing the risks, just as you do for diesel buying today. For our example fleet above, a saving of 1 p/kWh would save £550,000 per year.
So do I just apply my diesel buying approach to my power bill?
Unfortunately, it is not quite that straightforward. Power generation, transmission, trading, and distribution is a complex and regulated space. Unlike diesel it is hard to store in meaningful quantities for meaningful amounts of time, and so consumption has to be balanced with supply in real time. Imagine buying your diesel on the market every half hour of every day.
Getting the power strategy right for your EV fleet means building understanding across three key areas:
- Understanding where your energy comes from across power markets, solar and storage – including how to make the best use of the underlying commercial structures.
- Understanding the power needs across your fleet, including the variable performance and needs of each vehicle, charger, and battery.
- Understanding your business’ needs and the operation your fleet supports, including daily distances, variability and business continuity requirements.
The right strategy will ensure every vehicle in your EV fleet has the right amount of power, at the lowest possible cost, ready to depart when you need them, so that you can focus on running your business.
How can VEV help navigate this journey?
Here at VEV we bring these critical areas together, backed by our deep expertise, energy heritage and intelligent charger and energy management platform. We can support you with:
- Advisory to guide selection of routes to be electrified.
- Right sizing of infrastructure, anticipating the need for flexibility, and ensuring lifetime costs are optimised.
- Delivering smart charging to optimise your EV charging schedule to enable capture of lowest market prices.
- Dynamic control of EV chargers using VEV-IQ to ensure charging shape is met, and to adapt to changes in real-time.
- Guarantees related to the state-of-charge of EVs at the required departure times.
- Provision of bespoke power supply commercial models in partnership with Vitol businesses and licensed supply partners.
- Approach to risk management tailored to client needs, e.g. hedging strategy, PPAs, etc
Want more information? Please get in touch for an initial conversation.