Electric Vehicles: The Tipping Point for the Smart Grid

We worry about electric vehicles the way Woody Allen worries about death. Nearly everything seems like a threat: their expensive batteries, excessive weight, and, scariest of all, their potential to leave us stranded somewhere we don’t want to be.

But let’s not leave all the anxiety to electric car owners. The rest of us need to start worrying about what will happen if enough people buy these things and try to charge them at the same time: The blackouts will start rolling faster than a Tesla at the race track.

While no one can argue that electric cars have the potential to do a lot of good for the air and the planet, they also push utilities toward a reckoning with the so-called smart grid. Electric grids as we know them today — many of which are already stretched to the limit — simply are not designed to handle the load.

As more governments encourage the use of electric cars through mandates, tax breaks, and other mechanisms, utilities will need to figure out how to deliver power to those cars reliably and efficiently — without cutting further into already razor-thin profit margins. Not an easy task when you consider that the utilities will need to do more than put power through a wire; they must also service (and perhaps create) an electric version of the gas station network that has been in place for 100 years.

Electric Cars: The Tipping Point for the Smart Grid

Clearly, the grid will need to get smarter. And not just because of electric cars. For example, in Germany the government has set a 2022 deadline for shutting down a nuclear power sector that, until recently, provided nearly a quarter of the country’s power generating needs. Similarly, in Japan, lingering concerns about the safety of nuclear power following the tsunami-related meltdown at the Fukushima Daiichi facility have resulted in the ongoing shutdown of almost all the country’s nuclear power sector.

The likely replacements for nuclear (and coal, oil, and natural gas) — namely, sun and wind — are as anxiety-inducing to the current electric grid as electric vehicles. Neither provides what the grid is designed for: predictable flow. With wind power generation, for instance, utilities may have only a day or even just a couple of hours’ notice to confirm whether generating capacity will meet or exceed power needs. Some of the time, the wind may blow when it is not needed, so utilities will need storage solutions for excess energy that they can feed back into the grid when the wind dies down and power demand picks up.

Sounds like a disaster in the making. However, renewables and electric vehicles also represent opportunities for new revenue and even for new business models for an industry that today is languishing in low-margin commodity land.

It’s unlikely EVs will take over the world, and we do not expect that e-mobility will completely replace cars powered by fossil fuels, but we do believe that EVs will eventually account for 10 percent to 15 percent of vehicle sales volume (governments in both Germany and Ireland have already set these percentages as goals). For utilities, these sales represent an opportunity to open a new market.

The most obvious potential new business opportunity may come from installing, servicing, and operating the charge points that EV owners will need to use to recharge their batteries. But the charge points aren’t exactly a free lunch. In Switzerland, for instance, it can cost €12,000 (roughly $15,500) just to install a single public charging station. And then there are the costs of maintaining and operating the charge points.

Energy companies are looking at a variety of strategies for defraying charge point installation costs or adding revenue streams. Here are four examples:

  • Collaborate with businesses where drivers don’t mind waiting. Restaurants and retailers are two prime possibilities. For example, North Carolina utility Duke Energy has partnered with Kohl’s department store chain to put charging stations in 52 store parking lots across 14 states. The business helps pay for the charge point, then benefits from EV owners who hang out while they top up their vehicle’s batteries.
  • Manage electric car fleets/provide car-sharing. Utilities could take on the management of corporate electric car fleets, just as some of them today provide a more holistic solution for power management. Utilities could also partner with car rental companies or develop their own fleets of rentals to compete in areas with sufficient charging infrastructure.
  • Partner with technology companies. Singapore Power has partnered with Bosch to install a network of charging stations. Bosch takes responsibility for installing and maintaining the charging stations, which reduces both cost and risk for Singapore Power, but the utility must accept a lesser role as a pure supplier of energy to the charging stations rather than an operator of the stations, thus reducing the potential upside as well.
  • Use charging stations to generate additional revenue. Charging station manufacturers are putting LCD displays on charging stations and selling advertising space on them. Utilities could get into the game, too.


Yet regardless of which business models emerge for utilities, an integral piece of the big picture will be the development of the smart grid. To cope with the demands of millions of consumers plugging their cars into the grid, either in their homes or at public charging points, utilities will need to manage demand with smart grid systems that can intelligently allow EVs to draw from the grid during periods of low energy demand, such as during the overnight hours. Or perhaps the utilities will allow users to recharge their EVs at any time, but provide financial incentives so that it is less expensive to recharge a car (or run any major electric appliance) during low-demand periods.

Answers to these and other questions surrounding EVs are still being discovered. But as battery technology improves to the point where EVs offer greater range at more affordable prices, and as governments boost incentives and mandates for EV/PHEV adoption, more and more utilities are pushing forward with pilot projects to test the logistics and economics of EV usage. This is a time for bold experimentation, as EVs, smart grids, renewable energy evolve together into a new and exciting utility-transportation ecosystem.


Maurizio Cattaneo is Global Lead and Joerg Ferchow is a solution manager in SAP’s Energy and Natural Resources Global Hub. Andreas Schulze is a solution manager in SAP’s Automotive Industry Business Unit.