Driving Change: Transportation And Electric Utility Industries Will Soon Collide – In A Good Way
Starting this coming year, energy pioneers in Toronto will wake up each morning, and jump into their gleaming new Nissan Leafs and purr quietly into the Downtown core of the city. They will navigate their way to designated parking garages, plug their vehicles into bi-directional EV chargers, and take elevators to their respective offices.
While these individuals grab their coffees, activate their computers and begin their daily tasks, their leased Leafs – owned and operated by start-up company Peak Power – will be primed and ready for their specific daily assignments as well. As part of the Peak Drive pilot program, the cars will wait for a signal that will activate their battery packs to feed energy into their local host buildings during the days of high electricity consumption on Ontario’s power grid.
By exporting electricity from their batteries, the cars will reduce overall facility demand from the grid during the peak, thereby slashing the buildings’ electricity bills. Although the cars do not feed any electricity directly into the grid, they are, in fact, virtual power plants on wheels, a sign of the growing mash-up to come, as our transportation and electricity ecosystems collide.
Growing interconnections between vehicles and the grid
As the electrification of transportation accelerates, impacts on the grid will be far-reaching and profound. Of course, it’s a given that electric consumption will increase. But what might happen when you integrate millions of battery packs into power grids? When will they charge? And can they offer services back to the grid? That’s what the Peak Drive pilot program is working to find out as it works to literally ‘drive change.’
The company began rolling out the first phase of its vehicle-to-grid (V2G) pilot program this summer in Toronto, offering a three-year $550 ($CDN) lease package that includes a discounted price for a Nissan Leaf, free daily parking in downtown Toronto (worth about $400 per month), home charging systems, and free maintenance during the tenure of the program. Drivers also committed to connect their vehicles to bi-directional chargers at two designated office buildings and to permit their vehicles to discharge power into the grid on specific occasions (with the understanding they would have enough juice left to get home). The first shipment of vehicles was delivered to drivers at the end of last summer, so the elements are now in place for next year.
I had a recent conversation with Peak Power’s COO and co-founder Matthew Sachs to understand the details of the Peak Drive program, as well as the company’s future aspirations.
Sachs notes that Peak Power has been around since 2015, and received its first funding from MaRS – a tech incubator in Toronto. Its current lead investor is the family investing office of David Thomson (Thomson Reuters). That group also makes loans to real estate developers, a tie that was helpful in introducing Peak Drive to the Toronto real estate community.
A pretty serious tariff: Ontario’s Global Adjustment Charge
To understand the economics of the program, it helps to understand the local utility tariff structure. The cost of electricity in Toronto is among the highest in Canada, on a cents-per-kilowatt hour basis. The most costly element on the bill is the Global Adjustment Charge (GAC) – meant to cover the cost of new infrastructure build-out, as well as pay for conservation programs. All customers pay the GAC, but customers with average peak demand exceeding five megawatts can pay based upon how much their peak demand contributes to the system peak demand, which is set based on the five highest peak hours (on different days) of consumption. According to Sachs, these charges can represent as much as 70% of the total utility bill. So Peak Power’s artificial intelligence platform anticipates when these five hours will occur and releases energy from car batteries into the building to offset demand from the grid, thereby reducing exposure to the GAC. Battery storage companies are also flocking to Ontario because of this attractive value proposition, but Peak Power is the only one harnessing the power of EVs to date.
Sachs estimates that in order to successfully hit all five hours, one must activate the vehicle batteries approximately 20 times. It’s somewhat like playing the game of Battleship, where participants shoot blindly at a small armada of ships on a grid: you have 20 shots to take out the aircraft carrier (which is five cells long – just as there are five peak hours in the GAC). The difference is that artificial intelligence is anything but shooting blindly; taking past history and weather forecasts into account, Peak Drive does a pretty good job of hitting its target.
This past summer, the Peak Drive pilot program began to roll out 20 cars and chargers at two buildings owned by Dream Unlimited, a Canadian real estate company with assets in North America and Europe and a large number of properties in Toronto’s downtown. Next year, the pilot will extend to additional buildings and will include participation from Starlight Investments, a large holder of residential properties and condominiums in North America. Sachs indicates that these companies jumped on board because they saw the potential to cut costs, show leadership and “connect with their tenants to offer a new amenity that other buildings don’t have.” He notes that other property owners are involved in discussions and “have gotten very excited about this idea,” both for the local market and more globally as well. Sachs has been in Germany, Japan and other countries to discuss the future potential of the concept. In addition to working with the host sites, Peak Power partners with Nissan, the only major automaker thus far to build bi-directional functionality into its vehicle.
The plan for next year is to expand to 10 sites and 100 chargers. That involves signing up the host properties – which the company is well on its way to doing – and recruiting more drivers (last year, that was done by setting up kiosks in the lobbies of the host buildings to communicate the value proposition to would-be participants).
Sachs indicates that the pilot’s core value is in demonstrating its software, which ultimately could also be used to integrate a variety of different assets at the grid edge, whether EVs, stationary batteries, water heaters or solar panels. He states that it’s really about the ability to utilize “big data and artificial intelligence to forecast electric markets and use that information to more efficiently operate distributed resources…We see ourselves at the intersection of the grid edge and electricity markets where users and consumers interact, and understanding the ups and downs of electricity markets and dynamic tariffs to manage all these energy assets.”
Sachs is the first to admit that this game is challenging, and notes that the experience of some V2G projects around the world hasn’t been that positive. In some cases, the money’s simply not there. He cites some projects where EVs have targeted frequency regulation (fast response, grid-balancing) services, and the revenues received have simply not been sufficient.
By contrast, he asserts, reducing consumption during the five peak hours of the GAC is quite lucrative, with the value being as much as 200 times greater than that of other V2G projects. “That’s why Ontario specifically is such a great market to test this technology. There’s a lot of value for little degradation of the battery.” The company intends to migrate outward from the Ontario beachhead as battery costs come down, and demand charges increase in other markets. Eventually, Peak Drive intends to open up the offering to potential partners with bi-directional chargers. Sachs says, “We want to get this as widely dispersed as possible,” and adds, “Our value-add is in our software.”
Addressing risks: warranties and tariffs
One issue Peak addressed head-on is that of the vehicle warranty. Nissan accommodates a limited amount of V2G activity and has embraced other V2G programs in Europe. However, Sachs says, Peak is discharging at much higher rates than most other projects around the world, which means the vehicles could run into battery warranty issues.
The company is willing to accept this trade-off in exchange for the associated revenue and the knowledge that can be gleaned. “We will be studying the degradation of this use case,” Sachs says. His company will conduct internal degradation studies, but also provide that empirical information back to Nissan so that they can conduct their own analysis. “Wouldn’t it be great if they said ‘oh, the damage isn’t as bad as we thought it would be,” and are able to approve higher power bidirectional use cases.
He’s also aware that the Toronto value proposition could disappear overnight with a stroke of the regulatory pen. Sachs acknowledges this as a risk and indicates that the GAC may not be the right long term structure for Ontario. At the same time, it’s what they have to work with today, and it allows the company to learn and generate critically important revenue while it grows the business and pursues a Series A fundraise from strategic investors.
The future: intelligent mobile storage
In looking out into the years ahead, Sachs paints an alluring picture. In a future grid hosting tens of thousands of autonomous EVs, perhaps one could send a signal to the fleet and move a designated number of cars and batteries to congested grid-constrained areas, delivering the needed energy and capacity for short, high-value episodes. “We envision a possible future of fleet of autonomous or Uber vehicles that act as transportation assets during rush hours and then move to where the grid needs them, based on predictive models…We feel this is coming and it’s inevitable and we are trying to stay ahead of the wave so we can adapt.”
Sachs acknowledges that there are many ways the grid could eventually evolve. The company’s goal is to understand those changes, and develop the appropriate software to thrive in that evolutionary environment, as the grid edge becomes increasingly vibrant. In the long-term, he says, Peak Drive’s goal is to help create a “stock market of energy in a fully transactive platform.”