An EV Future: Lights Out for the Grid

EV adoption, the demand shift

California (a beacon of clean living, which leads the U.S. in electric vehicle ownership and can run the entire state’s energy demand on 100% renewables¹), recently stated it would ban petrol-cars by 2030² (the first to do so). California also has a hugely ambitious goal to increase the number of EVs on its roads to five million by 2030³ (currently just under one million). 

However, less than a week after announcing its petrol-powered ban, residents were asked to avoid charging their EVs during
peak times, so as not to unbalance the grid. California uses time-of-use rates, where people are actively encouraged to charge their cars at night. Consumers are able to benefit from using off-peak power, loading activities into lower-cost periods via cheaper tariffs.

This issue isn’t limited to the U.S. either. The UK’s National Grid revealed that new EV charging points in homes and workplaces would automatically switch off in peak times to avoid potential blackouts and “protect the grid"⁴. And, perhaps more worryingly, blackouts across the country could occur in homes between 4 pm and 7 pm this winter if Europe cuts its gas exports to the UK⁵.

With the IEA predicting that by 2030 EVs will represent 60% of all new passenger vehicle sales in the U.S. (up from 10% today)⁶, all eyes are on the grid. Adding demand from an electrified transport sector will place the greatest pressure on electricity grids in a generation. So would the leap from 10 million EVs globally to 145 million by the end of the decade break the grid?

Research conducted by the Swiss Federal Institute of Technology found that if drivers do indeed utilise these cheap domestic off-peak tariffs, it could lead to a 25% surge in peak electricity demand⁷. In New York, by 2050, projections contained within the NY ISO report show that EVs, trucks, and busses will use 14% of the state’s total electricity output, equating to 50% of all electricity used in New York City in 2019⁸. Demand would increase by the equivalent of four million extra people (the current population of Los Angeles).

EVs vs Extreme Weather

However, EVs form only part of the grid puzzle. Modernising the grid so it can respond to the 21st century’s twin “threats” of electrified vehicles and extreme weather, should be an urgent global priority. With U.S. power outages jumping 73% in 2020 (see chart below), recording their worst year on record amid a sharp increase in extreme weather events, an ageing grid is acting as the handbrake to the world’s transition to an electrified future. As climate change speeds up, the weather gets wilder and the grid gets older. A recent Deloitte survey⁹ revealed that 63% of respondents expect EV infrastructure to become the main government focus in the next three years.

                            Average Duration of total annual electric power interruptions, US (2013-2020)




Source: EIA. Dates 2013-2020.

Solving the issue with Smart Grid Investment 

Globally the current grid infrastructure is outdated, meaning significant investments are needed across the grid landscape. Looking at the U.S., Marsh & McLennan estimates that more than 140,000 miles of U.S. transmission lines will need to be replaced by 2050, costing somewhere in the region of $700 billion. Smart grids, however, can help solve the issues presented by the intermittency of renewable energy. Not enough sun or wind can cause issues in terms of balancing the supply and demand equation - essential in keeping the grid functioning smoothly. Smart grids can also dial up demand at times of peak supply (i.e. when the majority of people are charging their EVs), if it’s a particularly windy night, signals can be sent to smart devices (washing machines, cars etc) to power up and charge. However, upgrading the grid won’t be cheap or easy.

Grid investments are poised to rise from $200bn a year to reach over $600bn a year, which is someway short of the $14trn a February 2022 report published by Bloomberg NEF revealed would be needed globally¹⁰.

Globally governments have already begun to tackle the grid modernising issue:

• In the U.S., recent legislation including the Infrastructure Bill and Jobs Act in November 2021 ($73bn) and the Inflation Reduction Act in August 2022 ($65bn) allocated towards grid investment.
• REPowerEU, the European Commission’s $315 billion package was revealed in May 2022, and is designed to accelerate Europe’s shift away from fossil fuels and reduce its dependence on Russia, with a specific $29bn allocation to grid modernisation.

Where might investors benefit?

The NASDAQ OMX Clean Edge Smart Grid Infrastructure Index (QGRD) allocates to companies globally that that are involved in power grid infrastructure, smart meters, energy management, connected mobility, and related activities. From a broad sector standpoint, QGRD’s largest allocations are to Industrials (48%), Information Technology (27%), and Utilities (18%)^11.
From a geographical standpoint, QGRD’s largest allocations are to Europe (52.9%) and the United States (32.2%)¹¹. 

In our opinion, modernising the grid should be amongst the most urgent global priorities. We believe that, over the long term, companies providing the products and services needed for the build out and modernisation of the grid are the likely recipients of billions if not trillions of dollars waiting to be deployed across the private and public sectors.