Canada: Will Electric Vehicles Consolidate Ontario’s Fragmented LDC Sector?

On October 30, 2013, Gowlings hosted a roundtable discussion on "Powering up Electric Vehicles in Canada", an event where industry thought leaders from Tesla, Plug'N Drive, Siemens, Toronto Hydro, Electric Mobility Canada and the Centre for Urban Energy, among others, discussed the regulatory and technological barriers faced by this rapidly growing industry.   

Global automobile manufacturers such as Nissan, Toyota, Fiat and Ford have all launched successful EV's in recent years.  Pure players like Tesla are taking the industry by storm. Pike Research projects that annual global sales of EV's will reach 3.8 million by 2020, growing by 40% annually.1 President Obama has set the goal of having one million EV's on U.S. roads by 2015.

In this light, the question which naturally arises is: Will Ontario lead, follow or lag behind in the adoption of EV's?  Will Ontario be ready?

If there is an immediate road block for widespread EV adoption in Ontario, it will most likely arise from the highly fragmented nature of Ontario's electricity distribution system and the limited scope for innovation, investment and market response which is inherent in the present local distribution company ("LDC") structure.    

With only 13.5 million people, Ontario supports 80 licensed electricity distributors.  Fully 29 of these LDC's have fewer than 12,500 customers.  Some have less than 3,000 customers. Suchfragmentation in the distribution sector is quite unusual and represents a significant handicap for Ontario's electricity sector when it comes to the development or adoption of new distribution platform technologies.  As the Ontario Distribution Sector Review Panel said in its 2012 report to the Minister of Energy, "If Ontario was to set out to establish a new electricity distribution system from scratch, it is highly doubtful that it would choose to replicate the current structure."2

EV's are a convergence of the electricity system, the road network and the internet.  They change the game for both the automotive sector and the electricity sector and will facilitate the implementation of some incredible changes such as: dynamic electricity and transportation infrastructure use pricing; fully-automated (driverless) vehicles; load shifting and large-scale renewable energy storage; vastly reduced carbon emissions; advanced crash avoidance technologies which, in turn, will radically change motor vehicle insurance risk paradigms and vehicle design thresholds; reduced travel times and the virtual elimination of congestion; quiet cities; enhanced pedestrian safety; and, in general, radically lowered intrinsic and extrinsic transportation costs.

The millions who will want to drive EV's in the next ten years are not going to accept 'no' from their local municipally-owned electricity distribution system operator.

Is the System Ready?

Depending on the make and model, charging an EV at home currently draws three to five times the power of a typical home.

As readers will know, Ontario currently enjoys a surplus of base load power supply.  Depending on the region, Ontario's transmission grid also features healthy excess capacity and will be mostly capable of supporting increased load demand caused by widespread EV uptake.3  Unfortunately, it is at the distribution grid level that EV's have the potential to create widespread turmoil.4

The impact of charging an EV depends on where it gets plugged in and how it gets charged. EV's can be easily accommodated by the existing distribution system in most locations when slowly charged through conventional 110 volt outlets. Public fast-charging stations can also (usually) be accommodated as they are normally connected to the commercial portions of the LDC grid. The problem will arise when EV owners seek to install dedicated charging circuits in their home garages.  This problem will get worse as dedicated fast-charge units are disseminated and still worse as new ever-faster charging technologies evolve.

Slow charging an EV at home is the equivalent of adding 1-2 new houses to the neighbourhood transformer. A larger Ontario home might draw 2-3 kW of power at times of peak electricity demand. Adding a new electric vehicle on a dedicated circuit could draw 6.6 kW's. Adding the current version of a dedicated fast charge unit will add up to 20 kW of load.

If every motor vehicle owner seeks to do this, we have a problem. If technology evolves and consumer expectations drive the demand for rapid or even instantaneous at-home charging, that problem gets larger and significantly more complex.

The iPhone

Lessons can be learned from the telecom sector and the rapid adoption of the iPhone. Shortly after the launch of Apple's iconic iPhone in 2007, AT&T network operators and local area network operators, such as those on university campuses, were astounded by the demand being made upon their systems by the innocuous device. In 2007, the first generation iPhones generated 24 times the mobile data traffic of conventional cell-phones.  Between 2007 and 2010 AT&T's mobile data volumes surged by 8,000%. As a result, AT&T faced network capacity constraints more severe than those of any other wireless provider at the time.5

Mobile devices and EV's each offer state-of-the-art technology in highly competitive environments, driven by ever-increasing consumer demand. Both technologies make direct demands on a networked system of substantial complexity which evolves and operate independently of the consumer product engineering laboratories which will eventually make demands upon them.  Both technologies offer a radically new and superior user experience for consumers.

Why let slow internet or a bad cell-phone network ruin an excellent consumer electronics experience?  Why let an under-scaled distribution system stymie a revolution in the transportation sector?  

To sit idle or to advocate for a patch-work or public charging-station (gas station) solution will not only be suboptimal from a consumer (voter) perspective, it may have a disastrous effect on transportation and electricity sector innovation capabilities within the Province. The reason is that, as the natural and disruptive market forces of consumer demand drive innovation in jurisdictions where distribution sector participants have the scale to keep pace, and as the EV ecosystem participants in other more 'prepared' jurisdictions benefit from economics of agglomeration, the nascent opportunities of this industry will blow past any hamstrung LDC sector.

As now structured, Ontario's electricity distribution utilities are too small to accommodate current EV models and they are far too small to sustain the levels of innovation and expenditure necessary to fully take advantage of the opportunities which will present themselves.

As anyone who has driven a Tesla Model S understands: the experience is only going to get better. 

The Ontario Distribution Sector Review Panel recommended that Ontario would be best served by an energy market with eight to twelve LDC's – companies which would be large enough to deliver improved efficiency and enhanced customer focus. As EV's arrive in greater  numbers, some form of consolidation and/or highly integrated coordination between the LDC's is going to be essential in order to allow for the development of cost-effective strategies to meet consumer expectations and encourage local innovation.  In short, as EV's morph to become the fully-automated, web-connected vehicles which we envision, the ability of the electricity distribution system to support and prosper from the related technological ecosystem will be critical to the general economic well-being of the Province.

Footnote

1 "Electric Cars and the Power Grid: How Are They Coming Together?" Forbes, JAN. 28 2013, http://www.forbes.com/sites/peterdetwiler/2013/01/28/electric-cars-and-the-power-grid-how-are-they-coming-together/

2"Renewing Ontario's Electricity Distribution Sector: Putting the Consumer First" The Report of the Ontario Distribution Sector Review Panel.

3 Just recently, the province become the first jurisdiction in North America to completely wean itself off GHG-emitting coal. 

4 We should emphasize that this is not a problem unique to the Province of Ontario. All across North America, including in California where EV's have become most prevalent, the impact of EV's on the distribution grid is beginning to be felt and is becoming a matter of concern.

5 "AT&T Admits It Can't Handle The iPhone", APR. 21, 2011, 6:10 PM http://www.businessinsider.com/att-admits-its-network-wasnt-ready-for-the-iphone-2011-4

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