Three reasons investors should take a closer look at bidirectional charging technology

Personal cars are not a great investment. According to MIT, they sit parked for about 95% of the year, collecting dust and losing value. What if that asset could be used to generate monetary returns, while supporting a smarter, cleaner, more reliable electricity grid?  

‘Vehicle-to-home,’ ‘vehicle-to-building,’ and ‘vehicle-to-grid’ technology, enabled by bidirectional chargers, allow electric vehicles (EVs) to act as mobile energy storage assets, capable of providing power back to homes, buildings, and the grid. All stakeholders benefit:  

• EV owners enjoy a lower total cost of ownership and have an emergency backup power source.  
• Utilities benefit from auxiliary grid services, reduced grid congestion, and fewer costly utility-scale storage investments.
• Manufacturers sell EVs with added value, which accelerates adoption and drives sales. 
• Communities benefit from a lower-carbon, more resilient grid.

Despite all the benefits of bidirectional charging, many investors have shied away from the technology as real and perceived barriers make adoption timelines tough to predict. Vehicle-to-grid (V2G) deployment is complex to implement. Feeding small amounts of distributed energy back to the grid requires real-time communication that depends on a smarter, more responsive electricity system. However, vehicle-to-home (V2H) and vehicle-to-building (V2B) applications, that do not require communication with the grid as they happen ‘behind-the-meter’, are ready for the spotlight. Bidirectional charging technology for V2H and V2B applications are ripe for investment in the short-term, and will support future V2G-enabling upgrades when grid connection processes are simplified and interoperability technology is more advanced. 

There are three key points that make the case:  

1) Market tailwinds and emerging policies are improving the business case 

The IEA expects renewables to account for almost 95% of the increase in global power capacity through 2026. This rapid penetration will demand massive utility-scale energy storage needs for when the wind is not blowing and the sun is not shining. Bloomberg NEF projects that utility-scale energy storage installations worldwide will require more than $262 billion in investment by 2030, reaching a cumulative 1,027-gigawatt hours. As the world seeks to decarbonize all sectors of the economy by electrifying everything, electricity demand is set to triple by 2050, implying that energy storage demand will continue to snowball. 

The IEA’s Global Vehicle Outlook predicts that 145 million EVs will be on the road by 2030, representing 8,100-gigawatt hours of mobile battery capacity. This means that if V2G connection is enabled for 95% of their time, just over 13% of the world’s EVs would be able to satisfy global requirements for utility-scale energy storage by 2030 – highlighting V2G’s enormous market disruption potential. V2G can help utilities avoid costly redundant energy storage infrastructure buildout. 

On the policy side, the Ontario government recently proposed an “ultra-low” overnight electricity rate, which will support the business case by offering electricity at 2.5 cents per kilowatt-hour, 70% lower than the current off-peak rate. Across the border, the US Department of Energy recently announced a vehicle-to-everything (V2X) memorandum of understanding to support the advancement and adoption of bidirectional charging technologies. 

These factors create favorable market conditions for bidirectional charging technology to flourish. When I spoke to industry expert Mabel Fulford, Director of Innovation at Peak Power (one of TAF’s portfolio companies), she highlighted that as enormous amounts of capital are deployed to decarbonize the economy, we have a timely opportunity to futureproof charging infrastructure and save on costly long-term upgrades by incorporating bidirectional charging into electrification plans now. 

2) High potential to reduce carbon emissions and accelerate broader decarbonization

Bidirectional charging technology can substantially reduce carbon emissions from electricity generation. For example, based on Ontario’s hourly electricity emissions factor, an EV charged from 2:00 am to 4:00 am and discharged between 6:00 pm and 8:00 pm would reduce emissions from electricity generation by 31%. This reduction is because polluting natural gas “peaker” plants come online to meet peak electricity demand during the day, while zero-emission baseload hydro and nuclear power can meet most off-peak demand at night. By charging at night with zero-emission energy and discharging during the day to help the grid meet peak demand, bidirectional charging technology can significantly reduce the province’s carbon emissions from electricity. This is particularly important for Ontario as electricity demand rises and emissions are forecast to triple by 2030.  

Innovative energy storage solutions that reduce peak electricity demand will play an instrumental role in reducing the need for new or expanded natural gas peaker plants. Bidirectional charging technology’s ability to lower businesses’ indirect emissions from electricity generation, also known as scope two emissions (which public companies may soon have to disclose), makes adoption of the technology look very attractive for companies with net-zero commitments. 

Furthermore, with widespread V2G adoption, battery manufacturers could maximize resource efficiency by prioritizing critical minerals like lithium for EV battery production rather than utility-scale energy storage. This prioritization would reduce the chances of mineral shortages that may slow EV adoption, and decrease the ecological and humanitarian strains created by greater extraction. 

3) Consumers, utilities, and EV manufacturers will all benefit 

The increasing frequency and severity of natural disasters make electricity system resilience a pressing public priority. An exciting aspect of bidirectional charging technology is the emergency backup power capabilities – if you lose power during a storm, your Nissan Leaf could power your home for around two days. In addition to emergency preparedness, EV owners can generate anywhere from a few hundred to a few thousand dollars a year, depending on rate structures, battery size, grid service types, and utilization rates. As EV battery capacities advance, so does the bidirectional business case. A great example of this is V2G-enabled school buses’ potential to generate a colossal $7,200 in annual savings. Moreover, V2H technology complements residential solar projects in locations without net-metering, enabling owners to capture additional savings without costly stationary storage investment. 

Energy storage and grid services provided through V2G applications can improve the electricity grid’s efficiency, stability, and reliability. For example, V2G-enabled EVs can reduce energy distribution congestion, decreasing the need for system operators to invest in costly grid upgrades. One study has estimated that by 2030, V2G could provide the state of California with up to $1 billion in annual grid benefits. Utilities could allocate additional savings towards much-needed grid expansion and ‘smart’ connectivity upgrades. V2G also enables renewable energy assets to be used more efficiently – last year in Ontario, 12% of wind and solar generation potential was wasted as a result of underbuilt energy storage capacity.  

Major EV manufacturers have begun to see the value proposition of bidirectional charging and its ability to advance EV adoption. Many key players like Ford, Volkswagen, BMW, and BYD have recently announced that they are working diligently to bring bidirectional EVs across various vehicle types to the market. For example, BYD’s ‘Type A’ electric school bus and Ford’s ‘F-150’ truck boast their bidirectional charging capabilities as key selling points. As total cost of ownership, reliability, and resilience become increasing concerns for consumers, we can expect a rapid acceleration of bidirectional-capable EVs from manufacturers looking to gain a competitive edge in the marketplace. 

What are the barriers to adoption?    

Bidirectional charging technology has a strong value proposition, but like all emerging solutions, it comes with a few tradeoffs and caveats that need to be addressed before widespread adoption is achieved. For starters, only around eight EV models on the market today have bidirectional capabilities, and charging standards are not uniform across manufacturers. For example, Tesla hasn’t enabled bidirectional capabilities because it would compromise sales of their Powerwall but is expected to look deeper into the technology as competition in the EV market heats up.  

The primary tradeoff is the battery degradation that comes with increased battery use. The jury is still out on this matter – some studies have found slight impacts, others have found virtually no impact, and some have even found that it slows the aging process. However, as battery density improves, costs decline, cycle counts increase, and durability enhances, degradation concerns will become increasingly negligible. 

High bidirectional charger hardware costs are also an obstacle as they are around two times the cost of a standard unidirectional charger. However, costs can be expected to decline as technology advances and manufacturing capacity scales, following solar and battery cost trajectories, which have fallen by 82% and 88% over the past decade. 

V2G and V2B may not yet have a strong business case across all geographies and electricity rate structures. Therefore, enabling policies like Time-of-Use electricity rates are critical for incentivizing widespread deployment.  

What keen investors should keep their eye on

• The number of new EVs with bidirectional capabilities and their portion of total market share. A wide range of EVs across an array of different price points, vehicle types, manufacturers, and geographies will be essential for bidirectional technology to get off the ground.
• Real-world business case outcomes and project deployment learnings will be important to evaluate the technology’s true potential – over 106 pilot projects are currently in action across 25 countries.  
• Adjacent ‘smart grid’ technology that streamlines grid interconnection will play an integral role in supporting V2G applications, so sector progress and new innovations should be followed closely.  
• Policy changes across key geographies, evolving electricity rate structures, and net metering regulations all significantly impact the bidirectional business case and will play a large role in shaping future market dynamics. 
• Self-driving technology (level 4/5 autonomy) has the potential to significantly disrupt the business case for bidirectional charging due to the technology’s ability to dramatically increase vehicle utilization rates – technological and regulatory progress towards widespread adoption should be closely monitored. 
• V2H and V2B adoption rates, as they will be foundational stepping stones to broader V2G adoption. 
• The utility-scale energy storage space; new stationary energy storage innovations that reduce reliance on critical minerals and drastically drive down costs could adversely impact V2G’s business case. 
• Anticipating what bidirectional hardware and software EV manufacturers plan to develop in-house will be important for minimizing exposure to segments of the bidirectional charging market that will be tough for new entrants to penetrate.   
• Emerging zero-emission power sources to assess V2G and V2B’s long-term relevance. For example, a major technological breakthrough, like nuclear fusion or super-advanced geothermal, would provide the world with a low-cost, high-capacity baseload power source that would diminish the need for further utility-scale energy storage capacity. 

During our conversation, Mabel Fulford emphasized that large-scale pilot projects like Peak Power’s ‘Peak Drive Pilot Project‘ are important for engaging stakeholders and driving the conversation on how to best plan and implement interoperability standards, policy frameworks, and rate structures to ensure that bidirectional charging technology is leveraged effectively to streamline decarbonization efforts. Companies with more pilot projects under their belt will benefit from bolstered strategic partnerships, valuable real-world data, and implementation insights. In 2021, TAF invested in Peak Power because of the shared belief that energy storage and corresponding software optimization solutions will play a vital role in decarbonizing our energy system. TAF is excited to support Peak Power’s vision of “driving the clean energy future that all generations deserve.”  Connect with us for co-investing opportunities.