Electrification is a key theme to Energize’s investment thesis. We invest in software and business model innovations, many of which directly contribute solutions towards decarbonization by means of electrification. In this blog series, we’ll explore this critical transition and the technologies driving and enabling it.
With shiny new electric vehicles boasting glamorous brand names like Tesla and Audi hitting the market at an increasing pace, it’s no surprise that electric vehicle (EV) charging infrastructure isn’t always the superhero of the EV transition saga. But maybe it should be! After all, electric vehicles would be dead without it. As the infrastructure scales and receives historic investment – including the Biden administration’s $5B commitment to assist states with deployment – we’re excited for what the next generation of EV charging will bring.
In the U.S. today, moving people is the largest source of greenhouse gas (GHG) emissions, accounting for nearly 30 percent of GHG emissions as of 2019. Significant progress has been made in recent years: the total number of new EVs sold globally has tripled since 2019, jumping to more than six million cars in 2021. Automakers with plans to phase out internal combustion engines (ICE) now account for 27 percent of the global auto market. Additionally, the carbon intensity of electricity generation has declined as solar, wind and other zero-carbon sources displace coal and natural gas. However, we still have a lot of work to do to achieve full decarbonization of transportation via electrification. Fortunately, we already have a playbook to address nearly two thirds of transportation emissions, primarily in passenger vehicles and short-haul heavy duty vehicles like buses and delivery trucks. We believe electric vehicle charging infrastructure is the unsung hero powering exponential EV adoption.
As OEMs chase after Tesla, much of the conversation around electrifying transportation today is focused on the race to build the best electric passenger vehicle. In the first half of 2021, 88 percent of all funding earmarked for clean transport went to electric vehicle companies commercializing new EV models or subcomponents like batteries. In comparison, the charging infrastructure that will fuel the world’s growing electric fleet has been somewhat overlooked. While it may be less sexy, charging infrastructure investments are the picks and shovels that will prove absolutely essential to broader electric vehicle adoption and decarbonization.
Electric vehicle charging presents a classic “chicken or the egg” problem: EVs cannot be widely adopted without the build out of accessible charging infrastructure, however this infrastructure is not economically viable without reasonably high EV penetration and utilization. This dynamic raises the age-old, or at least decade-old, question: which stop comes first on the road to electrification?
Cracking the challenge of mass decarbonization of transportation requires us to assess the key differences between fueling ICE vehicles and their electric counterparts. Conceptualizing an electric transport model that accounts for charging unit economics, driver behaviors, power grid implications and the required payments and billing infrastructure provides a clearer picture of the technological imperatives to achieve electrification at scale.
As demand for transportation fossil fuels is replaced by renewable electricity, we can expect the largest transformation the energy industry has seen in 100 years. In the U.S. alone, we could expect to see a 23 to 38 percent increase in electricity demand. This translates into an additional $132 billion cumulative EV charging infrastructure investment by 2040.
EV charging can be broken into three categories: Level 1, Level 2 and Level 3. Level 1 is the slowest method and primarily only practical for plug-in hybrids. Level 3, which provides the fastest charge, requires a significantly higher voltage supply and comes at a higher cost – at least for now. While Level 3 is considered the “future of EV charging” and is close to the convenience parity of filling up a tank at a gas station, the most common type of charger today is Level 2, which delivers between 10 and 20 miles per hour of charge, making it suitable both at home and among public networks.
The biggest and most notable change in shifting from gasoline to electricity is how we fuel – specifically location and duration. The large majority of EV charging currently takes place in the home—a major departure from where we’re used to fueling our vehicles. A Level 2 charger typically requires between four and eight hours to get to full charge, which is why home is the most convenient place to fully fuel up today. Whether the balance will shift to a more equal split of home and away in the future depends on how quickly we can improve cost and convenience of public charging infrastructure—particularly as it pertains to charge duration.
The physical fueling mechanism is only the beginning of what makes this infrastructure build out different from what we’re used to. Other disparities include:
If your head isn’t spinning from the complexity of a future fueled by EV charging, it should be. EV charging is a complex business. To date, EV charging has been a challenging market in which to turn a profit as “soft costs” have dominated the unit economic profile. What do fast growth, complexity, and soft costs scream to Energize Ventures? SOFTWARE!!!
Looking at the list above, it’s easy to see why hardware is just the tip of the iceberg when it comes to charging infrastructure costs. Just like manufacturing electric vehicles, building the physical charging infrastructure is only step one. There are also the costs of installation, electricity, and O&M costs such as chord replacement, cleaning, and repairs. Layer on top of that permitting processes, payment systems, and grid hosting capacity – and that still doesn’t even cover the soft costs of orchestrating and optimizing a system that meets the needs of utilities, drivers and network providers.
The buildout of EV charging infrastructure looks vastly different from the existing system in place for ICE vehicles. As we’ve seen before in the renewable energy transition, the shift to electric mobility will require a different playbook. And at Energize, we believe the winning play is software.
As the EV charging ecosystem scales, the winners will be those that achieve the highest utilization and keep soft costs to a minimum. That means meeting drivers where it’s most convenient and finding the right balance between speed and cost. Optimizing for location will be key to achieving high utilization, but networks will also have to optimize for other things like development costs, O&M, weather conditions, traffic, and of course, electricity markets. Software developers are beginning to leverage the plethora of data related to consumer driving patterns, climate data and grid operations to create innovative solutions focused on resource planning, utilization and energy optimization.
Volta Charging’s SVP of Network Planning, Karen Zelmar, shares how they use software and data to optimize utilization. “At Volta we are focused on building the most utilized charging network that matches the charging experience to the behavior of our drivers. We use our data tools to understand dwell times, vehicle capabilities, driving patterns and more and then align that data with the needs of our site partners,” she said. “The result is that we can deliver an optimal experience to our drivers with the right number and speed of charging stations and enable our site partners to grow their businesses at the same time.” As of 2021, Volta had installed more than 2,000 chargers nationwide.
Development of digital solutions requires a significant amount of data upon which models and platforms can be built. Luckily, there is no shortage of data being generated by electric vehicles and their drivers—the key is accessing it. Over the past five years, a suite of solutions has emerged enabling developers, consumers, and OEMs alike to access and utilize the data they’ve generated. These include API platforms like Smartcar, which enables customers to directly access and control vehicle functionality.
“Charging behavior can be overlayed with information related to price, emissions and grid capacity to create cost benefits as well as environmental benefits,” said Nick Woolley, CEO of ev.energy – a platform that optimizes for a greener, cheaper charge. “By leveraging the power of data, we can manage charging at peak load to help utilities reduce wholesale energy costs by 35 percent, peak demand by 50 percent and CO2 emissions by 10 to 30 percent.”
In addition to data, players in this space will need to optimize the flow of two of the network’s most critical inputs: energy and money. The promise of the energy transition hinges upon the integration of electric vehicles and the grid. EVs will lead to a 100 to 200 percent increase in electricity demand. Without managed charging, the increase in demand will wreak havoc on grid operations. Managed charging will be critical to better manage the flow of energy and improve outcomes for both charging networks and drivers. It will also help keep costs down—a major incentive for whoever is paying at the plug.
Payment is another area of the EV charging landscape that requires new solutions. Given the high number of transactions at the plug relative to transactions at the pump, EV charging networks will need smooth means of managing payments and the flow of money. Those that remain close to the flow of revenue will have a better chance at capturing more of it.
Just as both cars and chargers are needed to make electrification of mobility possible, both hardware and software must play together to deliver the innovation needed to scale EV adoption. A significant amount of capital has been invested into the physical assets of electrifying transportation, and OEMs have been making strides in the development and deployment of clean energy-supported transportation. Now, software is needed to leverage data to bridge the gaps between EV drivers, electric utilities and network providers. The software layer will prove critical in reducing EV charging infrastructure soft costs, optimizing EV charging economics and processing the massive volume of EV charging transactions that will emerge.