Electrification

1. Electrification Opportunities and Challenges Clean Energy Legislative Academy Jurgen Weiss September 13, 2017 Presented to Presented by

2. Disclaimer The views and opinions expressed in this presentation are strictly mine and do not necessarily represent the views or opinions of Brattle or any of its other employees.

3. The bottom line • A number of factors are making electrification (mostly of transport) more attractive • Climate change is one, but far from the only factor • Technological Change, Business model innovation also important • Electrification could happen significantly faster than most people think (especially in urban areas) • Mostly due to developments outside electricity industry • Disruption likely first in urban settings, but lots of non-urban opportunities • Electrification will have profound impacts • An alternative to the “death spiral” fear for electric utilities • Create the need for significant new (and different) investments by utilities as well as urban and transportation planners • This could well be a significant disruption – laws and regulations need to be prepared and likely significantly shape how/how quickly it happens

4. There are (at least) four primary drivers of electrification IOT Climate Change Risk PV, Wind, Storage Inductive Charging Technological Change Electrification New Modes of Transport (Bikes, E-bikes,...) Autonomous driving Changing Role of cars as status symbols Urbanization Business Model Innovation Changing demographics and consumer preferences Apps (Ride Sourcing) Sharing Economy

5. Climate Change Risk provides a solid reason to “buy” insurance through decarbonization • In the U.S. we have a IMHO relatively fruitless debate about whether or not (man made) climate change is a fact • Let’s say we are uncertain – we pay money to protect against uncertain bad outcomes • The non-trivial risk of much more catastrophic temperature increases means that decarbonization acts as insurance against this risk

6. The cost of greening the grid is declining quickly • Costs of major renewable technologies continue to decrease • Solar PV: $25/MWh (Abu Dhabi), <$50/MWh (US) • Wind: $28/MWh (Chile), under $20/MWh (with PTC, USA) • These costs are near/below wholesale prices and increasingly renewavbles beat new fossil generation • Costs will likely continue to decrease significantly

7. But electric sector decarbonization is not enough Without Electrification • BAU emissions (economy wide) actually increase slightly • Even a fully decarbonized electricity sector leads only to a 34% decline in GHG emissions • Very significant gap to 80% economy-wide GHG reduction goals (ultimate Paris target) • Less than 1% annual utility sales growth through 2050 U.S. Electricity Sales Economy-Wide GHG Emissions

8. Electrification of transport and heating has the potential to significantly change the story line Without Electrification With Electrification (Technical Potential) • A common (and possible) industry assumption is that this transition would take decades… U.S. Electricity Sales Economy-Wide GHG Emissions

9. Electrification would significantly increase total demand for electricity • Total electrification could result in approximately 3,600 TWh more than the Baseline case • 36% from Light-duty vehicles (EVs) represent the largest single opportunity • 22% from Freight • 41% from residential and commercial heating Electrification in 2050 (TWh) Freight Commercial Truck LDV AEO Baseline w/o electrification Residential and Commercial Heating

10. The Complexity of EVs

11. Mini Quiz: Who knows the total cost of driving a mile in their car (fuel, repair, amortizing upfront purchase price, insurance, taxes, etc.)??

12. Unfortunately, EV adoption is complex • Trying to forecast EV adoption based on the cost of driving an EV ignores that the purchase of personally owned vehicles is driven by many factors other than cost (upfront and “opex”) • EV adoption is a young phenomenon, so no obvious “historic sample” to use for empirical analysis • Technology, availability of models, availability and type of charging change rapidly and likely all influence EV adoption • There are significant opportunities to electrify non-personal transport • Also rapid change, but more “self-contained”

13. Technological change is rapid and likely has significant implications for infrastructure • Charging speeds have been increasing rapidly • E.g., Toyota announced recently that it will have a solid state battery EV with 300 mile range and 2-3 minute recharging time on the Japanese market by 2020 • Implies 2-3 MW instantaenous charging load per vehicle • Equivalent to 300 homes per EV!! 2022 Single EV charging Today 2020

14. Current assumptions about EV growth could be as wrong as earlier PV adoption assumptions IEA PV Projections over time EIA current EV Projections PV and EV share various factors that are relevant for adoption but hard to model/predict (rapid technological change, important non-economic drivers of adoption)

15. And the EIA may recognize that we might be approaching a tipping point

16. TaaS/Urban electrification

17. But focusing on individuallyowned EVs maybe missing a more fundamental (initially urban) disruption • Home-focused charging pyramid • Mostly overnight charging • Beneficial charging • Moderate incremental kWh • Slow change Prevailing Paradigm Prevailing Electrification Paradign Potential New Transportation Paradigm Potential New Transportation Paradign Urbanization EV Technology and Cost Progress 200 million homes Climate Change Individual car ownership 300 million cars Rapidly changing transport system Daily commutes to/from work Sharing Economy (Ride- and car sharing) Changing Role of cars as status symbols 12,500 VMT per car Slowly replaced by EVs, charged mostly at home, a bit at work (L1 or L2) Autonomous driving New Modes of Transport (Bikes, E-bikes,...) • A smaller number of (highly utilized) vehicles meet a significant portion of transport demand • Different charging needs with impact on grid and charging infrastructure • Move from individual to fleet ownership may make electrification the logical choice

18. Mini Quiz 2:How many you had used Uber/Lyft 5 years ago?

19. Mini Quiz 2:How many you had used Uber/Lyft 5 years ago?How many have used Uber/Lyft this year?

20. Electrification/TaaS could be more like smartphones than appliances Ride Hailing/ Ride Sharing? PALO ALTO, Calif., Aug. 16, 2016 – Ford today announces its intent to have a high-volume, fully autonomous SAE level 4-capable vehicle in commercial operation in 2021 in a ride-hailing or ride-sharing service. Bloomberg., Aug. 18, 2016 – Starting later this month, Uber will allow customers in downtown Pittsburgh to summon self-driving cars from their phones, crossing an important milestone that no automotive or technology company has yet achieved…Uber can use the data collected from its app, where human drivers and riders are logging roughly 100 million miles per day, to quickly improve its self-driving mapping and navigation systems. Sources: https://www.linkedin.com/pulse/part-2-megaproject-paradox-what-chances-barrel-oil-being-john-noonan and Brattle analysis Uber was launched in 2010: In 2016, 15% of Americans have used a ride-sharing app – 29% of under 30 year-olds (Source: Pew Research Center)

21. The companies benefitting from disruption have the capital to disrupt • Sources: Yahoo Finance, Google Finance (March 2017) Google’s market value alone is about equal to the global car industry!

22. Just one example of how quickly and fundamentally things might change • RethinkX claims that within 10 years of Avs being on the road 95% of VMTs will be as Transportation as a service and electric • Cites Tesloop as case study for quick emergence of transportation as a service (TaaS) • Tesloop is offering electric (shared) Tesla rides from LA to Las Vegas (e.g.) • Each Tesla drives over 20,000 miles PER MONTH!!! (TODAY!) Source: Tesloop

23. Some thoughts on non-urban electrification

24. There also seem to be opportunities for electrification in non-urban transport • Electric school buses, heavy duty trucks, Pickup trucks, tractors already exist and they are likely less complex than EVs

25. A number of obvious opportunites exist in less densely populated/rural areas • Agricultural (fleets) are off-road for most/all of the time and have limited driving radius, so centralized charging could make a lot of sense • Electric tractors already exist and Automated electric tractors are being tried • Fuel cells could be a more realistic alternative if/when waste heat can also be used. • School, transit bus and similar municipal fleets • Predictable driving radius, so no range anxiety issues • Provide much broader benefits than charging infrastrucure for Tesla owners • Central charging may provide opportunities for battery swapping (or hydrogen refueling), with opportunities for grid support • Water and space heating with heat pumps (ground and air)

26. Some of the challenges of rapid electrification

27. Even moderate electrification means building significant new (clean) resources • In 2016, US installed 23 GW of Renewable Capacity • 20% electrification of transport would require over 100 GW of new wind and solar capacity • About equal to existing wind and solar capacity (126 GW as of 2016) • 4+ years at 2016 pace • 100% electrification of everything would require over 1,200 GW of incremental renewable capacity • 50+ years at 2016 pace • In addition to “greening” the existing grid • Likely means that a continued and scaled-up effort would be needed (~75-100 GW p.a.)

28. Even “standard” (LD)EVs could have a big impact on peaks and infrastructure (hot spots) Effect of EV load on residential load profile Illustrative Example • Fast home charging would dramatically impact home load and peak, and potentially the bill (depending on rate design) • Even a few EVs on a single feeder could significantly increase substation and transformer load with fast charging • Think Tesla clusters in Palo Alto • How about the 2022 Toyota charging at 2-3 MW? EV Load, L2 charger Household Load Effect of Adding 3 EVs to a Distribution Feeder Illustrative Example Aggregate feeder load

29. Different transportation paradigms likely mean different charging patterns/load shape/charging infrastructure Individual Driving Pattern Individual Charging Pattern Aggregate Charging Pattern Scenario 1: Conventional Ownership Scenario 2: Shared Ownership, Moderate Utilization, Centralized Charging Scenario 3: Shared Ownership, High Utilization, Distributed Fast Charging

30. Planning for electrification involves multiple parties not typically working together City Planning DOT Sustainability Office Tech Sector (OEMs, charging, apps) Utility Local, State and Federal Gov

31. Regulated utilities need to act on multiple fronts to accommodate electrification

32. This likely requires new regulatory and legal frameworks • A new/modified framework for utility regulation is likely needed • Electrification likely leads to higher electricity bills • PUCs reluctant (and sometimes limited) to approve projects that increase electricity bills (even if they may reduce “energy bills”) • PUCs apply tests to approve projects (TRC, RIM, etc.) • Because of “market making” element of early electrification investments, they will often not pass those tests (even if beneficial) • Many early investments will have a high stranded asset risk due to rapid and unforseeable technological change • Evaluation based on “expected value” may not be enough • Robustness is an alternative • Smaller, less capital intensive projects • How to make the occasional “big bet” possible? • Electrification likely interacts with other infrastructure needs • Urban planning, transportation planning • All have very long lead times: We likely only have one turnover before mid-century (if that) • AV technology is coming quickly and requires new rules • It is also time to start thinking about ways to fund infrastructure other than through a gasoline tax (since it may well not bring in a lot of money in the future)

33. Questions/Discussion

34. Presenter Information Dr. Jurgen Weiss is an energy economist with 20 years of consulting experiences. He specializes in issues broadly motivated by climate change concerns, such as renewable energy, energy efficiency, energy storage, the interaction between electricity, gas and transportation, and carbon market design and the impact these changes have on existing assets, market structures, and long-term planning needs for electric utilities in North America, Europe, and the Middle East. Dr. Weiss holds a B.A. from the European Partnership of Business Schools, an M.B.A. from Columbia University, and a Ph.D. in Business Economics from Harvard University. Jurgen Weiss Principal│Boston/Rome Jurgen.Weiss@brattle.com +1.617.864.7900 The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group.

35. Scrapbook – Supplemental materials on potential economic impacts of electrification for utilities

36. The biggest potential losers are oil companies, and they have capital to fight! • Sources: Yahoo Finance, Google Finance

37. Electrification could also provide significant operational benefits: Example Water Heaters Load profile of Grid-Integrated Water Heater Source: Ryan Hledik, Judy Chang, and Roger Lueken, “The Hidden Battery: Opportunities in Electric Water Heating,” prepared by The Brattle Group for NRECA, NRDC, and PLMA, January 2016. An electric water heater providing load shifting and grid balancing services could provide up to $200/year in net benefits

38. Electrified appliances and vehicles could contribute significantly to RE Integration • 2016 PJM Total Frequency regulation market: 600MW • Could be provided by about 300,000 controllable electric water heaters • Rough estimation: 2% penetration of such water heaters would be able to provide all frequency regulation for US power system • Even if frequency regulation increases due to RE, ample flexibility from such resources technially available. • Assume average LDV battery size is 60kWh (new EV models) • 1 million EVs (~0.3% penetration) would represent 60 GWh of storage • Equivalent to 5-10 GW of Pumped Storage capacity (1-2 storage assumed) • Conclusion: Technical Potential for storage and flexibility from electrified sectors is enormous – but how much can realistically be used is an important question to study

39. Individual economics of electrified transport improve with autonomy and even more with sharing • Important to understand why “sharing” (multiple riders in a same car) will occur more in the future than in the past