61259 APRIL 2011 The China New Energy Vehicles Program Challenges and Opportunities Prepared by Table of Contents Preface I References and Other Relevant Reports III Acronyms and Key Terms IV Executive Summary 1 1. Introduction 3 2. The Megatrends Behind Electrification of Transportation 5 3. Observations on China's New Energy Vehicles Program 11 3.1 A Policy Framework 11 3.2 State of Technology 13 3.3 Commercial Models 15 4. Discussion and Conclusions 17 4.1 Comparison with Other Programs Worldwide 17 4.2 Challenges for China Going Forward 29 Acknowledgements This report has been prepared for Mr. Shomik Mehndi- Disclaimer ratta (smehndirtatta@worldbank.org), in the World Bank Any findings, interpretations, and conclusions expressed Transport Office in Beijing, and under his guidance, by a herein are those of the authors and do not necessarily consultant team consisting of PRTM Management Consul- reflect the views of the World Bank. Neither the World tants, Inc. with the assistance of Chuck Shulock and the Bank nor the authors guarantee the accuracy of any data Innovation Center for Energy and Transport. or other information contained in this publication, and The purpose of the report is to disseminate information on accept no responsibility whatsoever for any consequence the implications of electric vehicle adoption in China. of their use. The authors would like to thank Messrs. O. P. Agarwal, Liu Zhi, Gailius J. Draugelis, and Paul Procee for reviewing the draft report and offering comments and insights. © 2011 World Bank, in part, and © 2011 PRTM Management Consultants, Inc., in part, subject to joint copyright ownership by World Bank and PRTM Management Consultants, Inc. Preface Preface Urban Transport and Climate Change Urban Transport and Climate Change efficiency of the urban economy which accounts for over 80 percent of the national economy. A car-oriented Reducing CO2 emissions is a growing challenge for the city particularly affects the mobility and safety of those transport sector. Transportation produces approximately who do not have access to a car--and who often have to 23 percent of the global CO2 emissions from fuel combus- contend with slow public transport and a road system that tion. More alarmingly, transportation is the fastest growing is inconvenient and unsafe for pedestrians and cyclists. consumer of fossil fuels and the fastest growing source Excessive conversion of farmland for urban development of CO2 emissions. With rapid urbanization in developing wastes scarce land resources and threatens the country's countries, energy consumption and CO2 emissions by ecological systems. Excessive investment in urban trans- urban transport are increasing quickly. port through off-the-book borrowing by the municipal These growing emissions also pose an enormous chal- governments incurs heavy financial liabilities and threatens lenge to urban transport in China. As a recent World Bank the country's financial stability. Rising fuel consumption study of 17 sample cities in China indicates, urban trans- endangers the nation's long-term energy security, even as port energy use and greenhouse gas emissions (GHG) growing CO2 emissions from urban transport adds consid- have recently grown between four and six percent a year erably to the difficulty of national CO2 reduction. in major cities such as Beijing, Shanghai, Guangzhou, and Xian.1 In Beijing, CO2 emissions from urban transport Opportunities for Low-Carbon Urban Transport reached 1.4 metric ton per person in 2006, compared to 4.6 metric ton CO2 emissions per capita in China in the same This recognition of the alignment between local and year. The numbers could be considerably higher in 2011. global concerns was reflected in a strategy that sought a comprehensive approach to sustainable urban transport A World Bank operational strategy for addressing green- development. Figure P1 illustrates how a similar set of house gases from urban transport in China (World Bank interventions both saves energy and reduces CO2 emis- 2010), noted a strong alignment between the challenges sions, and also addresses the important local problems associated with reducing such emissions and the other related to urban transport. This figure provides a sche- challenges faced by the sector. In many Chinese cities, matic of the drivers of emissions from urban transport and there is an immediate need to address localized urban indicates entry points for urban transport policy interven- transport problems--congestion, accidents, and pollu- tions to save energy and reduce CO2 emissions. tion. A slow and congested transport system stifles the Figure P1: Entry Points for Energy Saving and CO2 Reduction ECONOMIC ACTIVITY TRANSPORT ACTIVITY MODAL SPLIT VEHICLE FLEET ENERGY INTENSITY BEHAVIOR OF FUEL USE Economic structure & spatial Volume Modal shares in freight & Size Load factor distribution of economic - Total tone-km passenger transport Type of fuel activities - Total passenger km Type Speed Fuel economy Residential decisions Location AGGREGATE TRANSPORT ENERGY INTENSITIES (MJ/TKM & MJ/PKM) I Preface The six entry points in Figure P1 all relate to the fact that, in essence, greenhouse gases from transport are emitted from the fuel used on motorized trips. The figure shows that increases in the level of economic activity in a city usually result in an increase in the total number of trips (i.e., the aggregate level of transport activity). These trips are distributed across the range of available modes (referred to as the modal split), depending on the competitiveness of the alternatives for any given trip maker. Every motorized trip emits GHG emissions and the amount of emission depends largely on the amount and GHG intensity of the fuel used, or the efficiency of the vehicle fleet and the energy intensity of the fuel used. Finally, driver behavior impacts the fuel use--after certain threshold speeds, fuel consumption becomes signifi- cantly higher. Further, activity location, modal choice and behavior are interlinked via often complex feedback loops. For instance, a common assumption is that location modes and lower their carbon emissions per trip. Such of activities drives the choice of mode--someone making actions would also increase the mobility and accessi- a trip to work may choose between driving, using public bility and address the concerns of the poor and others transport or taking non-motorized transport. At the same without access to a car. At the same time, a city can time, there are also trips for which the choice of mode adopt demand management measures that would is fixed--a person may want to drive--and the choice of make the use of automobiles more expensive and less destination, for instance for a shopping trip, may be based convenient. Such measures would have the impact on this choice. While this complex and distributed nature of reducing automotive travel, and address concerns in which GHG emissions are generated makes transport relating to congestion, local pollution, and safety. a particularly challenging sector in which to dramatically · Affecting the kinds of vehicle and fuel used: Finally, reduce emissions, there are several strategy options for government authorities can take a range of measures a city seeking to reduce the carbon footprint of its urban that directly influence what vehicle technologies are transport sector, all of which are highly relevant to Chinese being used and the choice of fuel being used. This cities today: could include pricing policies that favor particular · Changing the distribution of activities in space: For kinds of cars--such as differential tax rates favoring any given level of economic activity, a city can influ- cars that have a higher fuel economy, as well as adop- ence the distribution of activities in space (e.g., by tion of technological measures and fuels that reduce changing land use patterns, densities, and urban the carbon emissions of motorized vehicles per unit design) if it can have an impact on the total level of travel. Such actions have the potential to directly of transport activity. Better land use planning and lower not only greenhouse gas emissions but also compact city development can lead to fewer or local pollutant emissions. shorter motorized trips and a larger public trans- port share of motorized trips. It would also serve to This Report address concerns related to excessive conversion of This report is one of a series developed as part of an farmland and concerns related to the level of invest- ongoing multi-year World Bank initiative focusing on this ment demanded by this sector. agenda. While this report focuses on the particular issue · Changing the relative attractiveness of different of electric vehicles, the overall initiative has supported a modes: A city can also influence the way transport number of analytical studies, policy analyses, and pilots activity is realized in terms of choice of modes. that have addressed other aspects of this challenge. Other Improving the quality of relatively low emission modes reports in this series are listed below and can be accessed such as walking, cycling, and various forms of public at the web site for the East Asia transport group at the transport can help a city attract trip takers to these World Bank (www.worldbank.org/eaptransport). II References and Other Relevant Reports References and Other Relevant Reports Strategy and Institutions Accessibility and Land Use Darido, G., M. Torres-Montoya, and S. Mehndiratta. 2009. "Urban Jiang, Yang, P., Christopher Zegras, and Shomik Mehndiratta. (in Transport and CO2 Emissions: Some Evidence from Chinese Cit- review). "Walk the Line: Station Context, Corridor Type and Bus ies." World Bank Working Paper, World Bank, Washington, DC. Rapid Transit Walk Access in Jinan, China." [E] [E, M] Torres-Montoya, Mariana, Li Yanan, Emily Dubin, and Shomik Mehndi- World Bank. 2010. "CHINA: Urban Transport in Response to Climate ratta. 2010. "Measuring Pedestrian Accessibility: Comparing Change. A World Bank Business Strategy," World Bank, Washing- Central Business and Commercial Districts in Beijing, London, ton, DC. [E] and New York City." World Bank Working Paper, World Bank, Washington, DC. [E] Papers published in Urban Transport of China, No. 5, 2010: [E, M] Agarwal, O. P. "Dealing with Urban Mobility: the Case of India." Public Transport Chiu, Michael. "A Brief Overview of Public Transport Integration and Terminal Design." Allport, Roger. 2008. "Urban Rail Concessions: Experience in Bang- kok, Kuala Lumpur and Manila," EASCS Transport Working Paper Fang, Ke. "Public Transportation Service Optimization and System No. 2, China Sustainable Development Unit, East Asia and Pacific Integration." Region, January 2008. Translated into Chinese as part of this Liu, Zhi and Shomik Raj Mehndiratta: "The Role of Central Government initiative. [E,M] in Sustainable Urban Transport Development." Beijing Transport Research Committee. 2009. "Beijing Rapid Com- Liu, Zhi. "Urban Transport Infrastructure Financing." muting Bus Transit Study." Final Report. [E, M] Zimmerman, Sammuel. "The U.S. Federal Government and Urban Beijing Transport Research Committee. 2011. "Beijing: Metro-Bus Inte- Transport." gration Study." Final Report. [E, M] Gwilliam, Ken. 2007. "Developing the Public Transport Sector in Chi- Carbon na." World Bank Working Paper, World Bank, Washington, DC. ALMEC. 2009. "Guidelines for Preliminary Estimations of Carbon http://siteresources.worldbank.org/INTCHINA/Resourc- Emissions Reduction in Urban Transport Projects." Final report es/318862-1121421293578/transport_16July07-en.pdf [E, M] and calculators. May 2009. [E] World Bank. 2009. "Urban Rail Development in China: Prospect, Issues and Options." World Bank Working Paper, World Bank, Washington, DC. [E, M] Walking, Cycling, and Participation Chen, Yang and Shomik Mehndiratta. 2007. "Bicycle User Survey in Technology Fushun, Liaoning Province, China." Proceedings of the Transport Research Board Annual Meeting 2007. [E] World Bank. 2009. China ITS Implementation Guidance. World Bank Working Guide, 2009. [E, M] Chen, Wenling and Shomik Mehndiratta. 2007. "Lighting up Her Way Home: Integrating Gender Issues in Urban Transport Project Clean Air Initiative­Asia. 2010. "Guangzhou Green Trucks Pilot Project: Design through Public Participation. A case study from Liaoning, Final Report for the World Bank­Truck GHG Emission Reduction China." World Bank Working Paper, World Bank, Washington, Pilot Project." [E] DC. [E] Zheng, Jie, Shomik Mehndiratta and Zhi Liu. Forthcoming. "Strate- Chen, Wenling and Shomik Mehndiratta. 2007. "Planning for the Lao- gic Policies and Demonstration Program of Electric Vehicles in baixing: Public Participation in Urban Transport Project, Liaoning, China." [E] China." Proceedings of the Transport Research Board Annual Meeting 2007. [E] Training Courses (Presentation Slides) Tao, Wendy, Shomik Mehndiratta and Elizabeth Deakin. 2010. "Com- Public Transport Operations, 2009. [E,M] pulsory Convenience? How Large Arterials and Land Use Affects Pedestrian Safety in Fushun, China." Journal of Transport and Urban Transport: Seoul's experience [M] Land Use. Volume 3, Number 3. https://www.jtlu.org/. [E] World Bank. 2009. "Inclusive Mobility: Improving the Accessibility of [E] ­ available in English Road Infrastructure through Public Participation." Short Note, World Bank, Washington, DC. [E] [M] ­ available in Mandarin III Acronyms and Key Terms Acronyms and Key Terms Acronym / Term Definition AC Charging Used to refer to the charging method when a vehicle is recharged by connecting to a vehicle charging point that provides the vehicle with one of the standard alternat- ing current (AC) voltage levels available in a residential or commercial setting (e.g., 240V AC). Battery Cell The individual battery units that are then combined with multiple cells into a battery pack which is then installed in an electric vehicle (EV). Battery Pack The combination of many individual battery cells to provide sufficient energy to meet the needs of an electric drive vehicle. Battery Management System The electronics required to monitor and control the use of the battery to ensure (BMS) safe, reliable operation. C-Class Vehicle The term C-Class vehicle is used to refer to a vehicle that is similar in size to a BYD e6 or VW Golf. It is also sometimes referred to as a compact vehicle. Charge Point Used to refer to a special electrical outlet with a special plug that is designed to al- low safe and reliable charging of an electric vehicle. DC Charging Refers to a vehicle charging method where the vehicle is plugged into a battery charger that provides a direct current (DC) voltage to the vehicle rather than the typical AC voltage. DC charging is the emerging approach being used for high power "fast charging" of vehicles. Discharge Cycles Refers to the number of times that the battery in an electric drive vehicle provides the full amount of energy that it can store. Drivetrain The drivetrain consists of the components in the vehicle that convert the energy stored on the vehicle to the output to deliver power to the road. In a conventional gasoline powered vehicle, the drivetrain consists of the engine, transmission, drive- shaft, differential, and wheels. In an electric vehicle, it consists of the motor, drive- shaft, and wheels. Electric Vehicle (EV) In this document, an EV is a vehicle that is powered completely by an electric motor with the energy being supplied by an on-board battery. Grid to Vehicle Interface Used in this document to refer to the communication link between an electric drive vehicle and the power grid when the vehicle is connected for charging. It is intended to enable vehicle charging while minimizing the potential of electrical overload when vehicles are charging. IV Acronyms and Key Terms Acronym / Term Definition Hybrid Electric Vehicle (HEV) Refers to a vehicle that uses both an electric motor and a gasoline engine to power the vehicle. Internal Combustion Engine An internal combustion engine in this document refers to a gasoline engine used in (ICE) conventional vehicles today. Inverter Part of the electric drivetrain, the inverter is a high power electronic control unit that supplies the voltage and current to the electric motor in an electric drive vehicle. Kilowatt Hour (kWh) Unit of energy commonly used in electricity. Load Management Means of controlling the amount of electrical power being consumed on the power grid to prevent overload conditions. New Energy Vehicles (NEV) China's program to foster the development and introduction of vehicles that are Program partially or fully powered by electricity. Plug-in Hybrid Electric Vehicle The PHEV refers to a Hybrid Electric Vehicle that is capable of storing energy from (PHEV) the power grid in the on-board batteries. This differs from an HEV, which does not have the ability to connect to the power grid to store additional energy. Power Grid The network of electrical transmission and distribution equipment that delivers elec- tricity from the power generation plant to the individual consumers. Smart Battery Charging Used to refer to EV battery charging where the time and speed of charging is man- aged to ensure that grid resources are used efficiently and that the electric power capacity of the grid is not overloaded. Smart Grid Used to refer to a power grid with the ability to electronically communicate with individual electric meters and electrical devices that consume electric power. Electric Drive Vehicle (xEV ) Used to refer to any vehicle that is driven either partially or fully by electric motors. This includes HEV, PHEV, and EV. V Executive Summary Executive Summary The China New Energy Vehicles Program Challenges and Opportunities The Driving Forces universities, focusing primarily on batteries and charging technology. The new EV value chain is beginning to Within the last decade, the emergence of four comple- develop new businesses and business models to provide mentary megatrends is leading vehicle propulsion toward the infrastructure, component, vehicle, and related electrification. The first of these trends is the emergence services necessary to enable an EV ecosystem. of global climate change policies that propose significant reduction in automotive CO2 emissions. The second trend is the rising concerns of economic and security issues related Identified Challenges for China Going Forward to oil. A third driver for vehicle electrification is the increase By comparing the observations on China's New Energy in congestion, which is creating significant air quality Vehicle Program with other global programs across issues. The fourth trend--rapid technology advance- several dimensions--policy, technology, and commercial ment--has resulted in battery technology advancements models--the World Bank team has identified several chal- to a point where electric vehicles are now on the verge of lenges for China going forward in the vehicle electrifica- becoming feasible in select mass market applications. tion program. The industry forecasts suggest that the global electric Policy. The implemented policies related to EV in China vehicle sales will contribute between 2 percent and 25 mainly focus on the promotion of vehicle adoption by percent of annual new vehicle sales by 2025, with the way of introducing purchase subsidies at a national and consensus being closer to 10 percent. As a result of such provincial level. Meanwhile, policies to stimulate demand a transition, there will be a significant shift in the overall for EV, deploy vehicle-charging infrastructure, and stimu- value chain in the automotive industry. late investment in technology development and manu- facturing capacity also need to be developed. China's Observations on China's New Energy Vehicle Program recently announced plan to invest RMB 100 billion in new energy vehicles over the next 10 years will need to include In June 2010, the World Bank organized a team of interna- a balanced approach to stimulating demand and supply. tional experts in urban transport, electric vehicle technolo- gies, and policy and environment to carry out a survey Integrated Charging Solutions. Since the early vehicle study of China's New Energy Vehicle (NEV) Program. The applications have been with fleet vehicles such as bus/ team met Chinese government and industry stakeholders truck or taxi, charging infrastructure technology develop- in Beijing and Shenzhen to acquire a better understanding ment in China has focused on the need for fleets. However, of the Program. The preliminary findings of the study indi- as private cars will be fully involved eventually, integrated cate that the scale of China's Program leaves the country battery charging solutions need to be developed to cover well poised to benefit from vehicle electrification. Vehicle three basic types: smart charging, standardized/safe/ electrification is expected to be strategically important to authenticated charging, and networked and high service China's future in the following four areas: global climate charging. change; energy security; urban air quality; and China's Standards. China has not yet launched its national stan- auto industry growth. dards for EV. The first emerging standard is for vehicle In 2009, the Chinese government initiated the Ten Cities, charging. The full set of such standards should not only Thousand Vehicles Program to stimulate electric vehicle govern the physical interface, but also take into consider- development through large-scale pilots in ten cities, ation safety and power grid standards. To facilitate trade focusing on deployment of electric vehicles for govern- and establish a global market, ideally standards would ment fleet applications. The Program has since been need to be harmonized worldwide to minimize costs. expanded to 25 cities and includes consumer incentives Commercial Models. The EV value chain is beginning to in five cities. Significant electric vehicle (EV) technology develop new business models to provide infrastructure, development in China is occurring in industry as well as 1 Executive Summary component vehicle, and related services. It is essential to build a commercially viable business model which bears the cost of charging infrastructure, as the industry cannot indefinitely rely on government funding. It is also likely that revenue collected from services can help offset the cost of infrastructure. Customer Acceptance. In the long run, consumers will only commit to EVs if they find value in them. Even when the lifetime ownership costs become favorable for EVs, the upfront vehicle cost will still be significantly higher than a conventional vehicle with a significantly longer payback period than most consumers or commercial fleet owners are willing to accept. While leasing could address this issue, a secondary market for batteries would have to be established, in addition to a vehicle finance market, to enable the leasing market to be viable. GHG Benefits. The biggest challenge faced by China is that the current Chinese electricity grid produces relatively high greenhouse gas (GHG) emissions and is projected to remain GHG-intensive for a significant period of time, due to the long remaining lifetime of the coal-fired generation capacity. A new framework for maximizing GHG benefits in China has to be developed to fully realize the low emission potential of electric vehicles. 2 Introduction 1. Introduction The China New Energy Vehicles Program Challenges and Opportunities The last 200 years have seen a disproportionate growth public transport has been declining. Today, many cities in human mobility when compared to GDP and popula- have to battle traffic congestion and air quality in parallel tion growth. The early 21st century has also experienced as urban air quality has deteriorated from the increase marked acceleration in the urbanization of the world's in travel demand and an increase in the use of personal population centers, particularly in the developing world. motor vehicles. For many countries that depend on imported petroleum Figure 1: Historic Mobility Growth Factor (1800-2000) fuels, energy security has also become an important issue. The non-renewable nature of petroleum fuels has Mobility resulted in concerns on the long-term availability of oil as km/person/day 1000x (40 km) well as its price. More recently, climate change concerns are becoming GDP 100x ($30 trillion) of primary importance. This is placing further pressure on cities, where a significant portion of transportation- Population 6x (6bn) related GHG emissions emanate, to find alternatives to public and personal vehicles that are based on the Source: Diaz-Bone 2005, after Nakicenovic, 2004 internal combustion engine. At one level, efforts are being made to bring about a modal shift toward sustainable forms like walking, cycling, With rapid urbanization, travel demand in the cities has and public transport. Meanwhile, at another level, attention grown considerably. This travel demand is increasingly has been focused on using alternative sources of propul- being met by personal motor vehicles while the share of sion that have lower emission characteristics, both GHG sustainable modes like walking and cycling or the use of Figure 2: Challenges Facing EV Commercialization Worldwide Supply Side Demand Side · Large investments will be required in new R&D, indus- · The high cost of the battery can make an EV 1.5X-2.0X tries, and facilities; some by the private sector, some by the price of a gasoline vehicle--but the operating cost the public sector is 3-4X less, as electricity is cheaper than gasoline · Power distribution and generation capacity increases · EVs need frequent charging and most can travel ~100 and "smart charging" will be required miles or less on a single charge · Industry segments that have not traditionally worked to- · Charging requires hours not the few minutes required gether will now have to forge partnerships (e.g., utilities, for fuel gasoline vehicles auto makers, battery makers) · Not clear whether EVs will be accepted by broad cus- · New standards will be required (e.g., charging, safety, tomer segments or remain a niche disposal of batteries, etc.) Policy · Government incentives required to achieve financial viability and break-even volumes/prices for users to shift to EVs 3 Introduction and criteria pollutants such as particulate matter, than discussions and workshops with government and industry conventional vehicles. The EV has been gaining worldwide representatives in China. It details the measures China has momentum as the preferred solution for addressing many adopted in meeting these challenges and identifies future of these concerns. Electrification of vehicle propulsion has challenges and possible new opportunities associated with the potential to significantly ameliorate the local pollution a well organized and executed EV program. caused by automobiles, and address both energy security Based on this report, possible areas for further strength- and the GHG concerns--albeit not as fully or as quickly ening China's EV program have been identified. This as may be needed. Accordingly, China has launched report is also intended to help guide other countries in possibly the world's most aggressive program to transi- developing similar strategies for a more sustainable future. tion its public and private vehicle fleet to fully electric and The following sections are organized in three areas. The electric-gas hybrid vehicles. first section discusses megatrends that are driving the Despite significant global activity toward vehicle electrifi- global trend toward vehicle electrification. The second cation, commercialization of EVs faces a number of supply, section addresses the policy, technological, and commer- demand, and policy dimension challenges (Figure 2). cial implications of the NEV program currently being deployed in China. The last section draws comparisons to In June 2010, a World Bank mission consisting of experts other programs being implemented around the world and from the Bank's Transportation sector, and outside the challenges for China going forward. experts in EV technology, policy, and environment visited China to better understand the Chinese NEV program. This report reflects the learning from several weeks of 4 The Megatrends Behind Electrification of Transportation 2. The Megatrends Behind Electrification of Transportation Over the last 100 years, the dominant form of automotive of electric vehicles. These policies include the elimina- propulsion has been the internal combustion engine. While tion of congestion tax for EV owners, providing dedicated battery electric vehicles have been piloted several times parking spots for EVs, and investing GBP 20 million for in this period, technology has not historically been able to recharging infrastructure. meet the needs of the mass market consumers and fleet In addition to their beneficial effect on air quality, elec- customers. However, within the last decade, the emer- tric vehicles reduce or avoid many other environmental gence of several complementary megatrends has begun to impacts caused by conventional vehicles and their fuel. drive a change toward the electrification of automobiles. Petroleum production, refining, and distribution create the The first megatrend toward vehicle electrification involves risk of environmental contamination. For example, in July the economic and security issues related to oil. Oil prices 2010 a pipeline explosion at Dalian Xingang Port resulted are expected to rise to approximately US$ 1102 per barrel in China's biggest oil spill in recent history, leading to new by 2020 up from the 2010 price of approximately US$ 75 safety requirements at the nation's ports.4 Refineries also per barrel.3 While a sustained increase in price certainly are estimated to generate 20 to 40 gallons of wastewater has an impact upon national economies, the greater risk is for every barrel of petroleum refined.5 the volatility in oil prices, which has a significant economic Refineries generate petroleum coke and other waste impact, as was experienced during the oil price run-ups materials such as spent catalyst. Nuclear and coal-fired in 2010. Meanwhile, several governments have rising electric plants also generate waste. Lithium batteries have concerns regarding the national security implications of the potential for reuse as stationary power storage after importing greater than 50 percent of their oil consump- they have exceeded their automotive service lifespan, and tion. As a result, countries are adopting policies favoring lithium batteries can also be recycled. new vehicle technologies that reduce fuel consumption. For example, energy security was one of the objectives of The third trend is the emergence of global climate change the recent US$ 2.4 billion in U.S. stimulus grants targeting policies. For example, as a result of the Kyoto Protocol, alternative propulsion technologies. significant automotive CO2 emissions reductions have been proposed around the world. In the EU, the goal is for A second driver of vehicle electrification is the potential the average CO2 emissions for the new vehicle fleet to be to reduce local pollution caused by vehicles. Reduction below 95g CO2 / kilometer by 20206, which represents a in local air pollution in urban areas is a primary benefit in 30-40 percent improvement from today's emission levels.7 this regard. Electrification shifts local pollution away from Existing analyses of GHG emissions suggest that actual distributed mobile sources, which are difficult to regu- savings from electric vehicles will depend on a combina- late and control, and toward point sources, which can be tion of many factors, mainly future improvements in the located to minimize human exposure and are more suscep- GHG performance of the conventional internal combustion tible to policy and technological fixes. In addition, electric engine and the carbon intensity of the power generation drive vehicles are not subject to emission-related deterio- mix. Issues related to the efficiency of the vehicle and the ration or tampering, which can dramatically increase in-use impact of EVs on the generation mix also have an impact. emissions as vehicles age. To realize these significant air Preliminary analyses (see Box 1 for results) all suggest that quality benefits in California's polluted urban areas, the significant GHG savings can accrue from the electrification California Air Resources Board has maintained since 1990 of the vehicle fleet, particularly with improvements in the a "Zero Emission Vehicle" (ZEV) regulation. Under this carbon intensity of the underlying generation mix, but real- regulation the major automobile manufacturers, beginning izing these benefits will require a deliberate and consistent in 2001, have been required to place increasing numbers of policy framework combined with a consistent measure- battery electric and/or fuel cell electric vehicles in Cali- ment and monitoring system. In this regard, electrification fornia as a means to accelerate technology development is also in a position to take advantage of the momentum toward commercialization. Similarly, a series of policies within China, in terms of targets, policy incentives, and have been enacted in London to reduce the air quality consequent investments to decrease the carbon intensity impact of vehicles in urban areas by driving the adoption of power generation. 5 The Megatrends Behind Electrification of Transportation Box 1: Electric Vehicles and Green House Gas (GHG) Benefits For many years, electric vehicles have been viewed Figure B: U.S. ICE Tailpipe Emissions vs. xEV as an important element in combating local pollution [Upstream and Tailpipe] Emissions caused by automobiles. However, as climate change has grown in significance in the sustainability debate, electric vehicles are also increasingly considered to U.S. Avg. Light Duty Vehicles Actual 2009 Levels 262 be crucial elements of a climate change mitigation Tailpipe U.S. Avg. Light Duty Vehicles Target 2016 Levels 155 Emissions strategy for the transport sector. However, despite Current US Standards do not include Upstream CO2. If it did, ~40g/km would this, the estimated GHG impacts of electrification vary be added to the tailpipe values. significantly across available analyses--most of which EV 122 are based on U.S. data and assumptions. Figure A PHEV 1 (Electric operation 50% of time) 130 summarizes the results of a joint study by EPRI and the NRDC in the United States that found that even with PHEV 2 (Electric operation 25% of time) 135 Upstream a heavy coal generation mix, there are still CO2 emis- Toyota Prius HEV 139 & Tailpipe sions improvements from plug-in vehicles compared Emissions to conventional vehicles in 2010. This study, which Honda Civic HEV 165 evaluates a typical U.S. sized vehicle weighing approxi- Honda Insight HEV 170 mately 1,600 kilograms, assumes fuel economy perfor- Ford Fusion HEV 178 mance of 10.6 liters/100 kilometers8 for the conven- Grams CO2/km tional vehicle while the electric drivetrain energy efficiency performance is approximately 5.2 kilometers per kWh. The assumed GHG emissions for the "Old Source: Light Duty Automotive Technology, Carbon Dioxide Emis- sions, and Fuel Economy Trends: 1975-2009, EPA Coal" power plant are 1,041 g CO2 / kWh. Federal Register: Light Duty Vehicle Greenhouse Gas Emissions Standards and Corporate Average Fuel Economy Standards Final Figure A: 2010 Emissions by Vehicle Technology Rule, May 7, 2010, EPA and NHTSA Federal Register: Revisions and Additions to Motor Vehicle Fuel PHEV--Renewables Economy Label, Proposed Rule, Sept 23, 2010, EPA and NHTSA PHEV--2010 Old Combined Cycle Upstream CO2 levels based on a US national average electricity GHG emissions PHEV--2010 Old Gas Turbine EXPECTED TREND PHEV--2010 Old Coal Figure B summarizes the results of analyses Conventional Vehicle conducted by the United States Environmental 0 100 200 300 400 500 600 700 800 Protection Agency and the Department of Transpor- Grams of CO2/KM tation in connection with the recently announced Gasoline Well to Tank Gasoline Tank to Wheels Electricity Well to Wheels 2012­2016 vehicle emissions laws. Their studies indi- Source: EPRI, NRDC cate that the current ICE dominated U.S. light duty vehicle fleet average in 2009 had significantly higher In all cases, there is an improvement in CO2 emis- tailpipe CO2 emissions than both EVs and PHEVs of sions per mile: "well to wheel." While a PHEV that more than 260 grams of CO2/km. The target set in the uses renewable electricity (e.g., wind or solar energy) new laws for 2016 is a value of 155g of CO2/km for the affects a CO2 reduction of two-thirds, a coal intensive fleet average, a significant reduction. power generation source reduces the well to wheel CO2 As upstream CO2 for ICE fleets is not included in the emissions by one-third. current U.S. 2009/2016 standards, the values exclude 6 The Megatrends Behind Electrification of Transportation them. If they included them, it is estimated that approx- Power Grid Lbs CO2/MWH at plug Leaf g/km imately 40g/km would be added to the tailpipe values. By comparison, xEVs offer a distinct advantage when North China 2723 261.0 compared to the ICE fleet average ranging from ~15 percent better than the 2016 target for EVs to some 15 Northeast 2712 260.0 percent worse than the average for Hybrids. This study assumes that the electricity generation CO2 emissions East China 1960 188.1 are equivalent to the 2005 U.S. average of 642 g CO2 per kWh and that the electric vehicle efficiency is 8 Central China 1810 173.5 kilometers per kWh. An analysis with Chinese data9 suggested that, in Northwest 2022 193.8 China, as elsewhere, the GHG benefits of EV vehicles depended on the energy efficiency of coal-fired South China 1863 155.3 power plants and the coal share of the generation mix. Assessing the current generation mix and plant Hainan 2124 178.6 efficiency, the study suggests that currently EVs are likely to realize carbon benefits relative to conven- Source: iCET Analysis tional vehicles in the south, central, and northwestern regions of China, where coal accounts for 65 percent to 77 percent of the mix. However, as plant efficiency Based on calculations from iCET, the Chinese fleet (the study uses 32 percent nationwide) and the average GHG emission rate for 2009 for major renewable share of the generation mix increase (and domestic and multinational car manufacturers was there are considerable policies, investments, targets, about 179g/km or about 219 g/km assuming that and programs in place toward these ends), the study upstream emissions account for 18 percent of total suggests that the GHG benefits of vehicle electrifica- GHG emissions. Thus, in five of the seven regions tion could be considerable. shown above, the Nissan Leaf GHG emissions are lower than the 2009 Chinese fleet average. In general, the assumptions underlying this analysis are similar to the U.S. studies. However, there are differ- ences in the assumptions for vehicle efficiencies. For example, the 2008 gasoline vehicle fuel efficiency of approximately 9.2 liters/100 kilometers is higher than the first U.S. study above, while the electric vehicle energy consumption of approximately 4.2km per kWh is lower than the first study above. Taken together those assumptions tend to reduce the estimated GHG benefits of electrification as compared to the U.S. study. Building on the Tsinghua University work noted above, the Innovation Center for Energy and Transportation (iCET) has calculated, for seven electrical grids in China, the GHG emissions per mile that would result from operation of a Nissan LeafTM. Their results are as follows: 7 The Megatrends Behind Electrification of Transportation The first three trends create a need for clean, efficient Figure 3: Forecast Mix of Vehicle Technologies vehicles. Meanwhile, a fourth trend of rapid technology through 2030 advancement has resulted in battery technology progress- ing to a point where electric vehicles are now on the verge MEGATRENDS AND DRIVERS... of becoming feasible in select mass market applications. Global Climate Oil Price & Urban Congestion Technology Advance The advent of lithium-ion batteries has driven a significant Change Policies Independence & Air Quality (Battery) increase in energy density from the Lead Acid batteries ...WILL CAUSE ELECTRIFICATION OF THE VEHICLE PROPULSION... used in the first generation of EVs in the 1990s. As a result, 100% a Nissan Leaf battery at 24 kWh and 218 kilograms has 90% more capacity and less than half the mass of the Gen1 EV 1 battery at 19 kWh and 595 kilograms. Furthermore, the 80% Other ICETech (BioFuel, Clean Diesel, DI, etc.) cost of batteries is expected to drop by more than 50 per- 70% cent by 2020, which will enable electric vehicles to rival 60% gasoline vehicles on a total cost basis. 50% As a result of these trends, the growth of electric vehicles over the next 10 years is expected to be significant. The 40% HEV industry forecasts suggest that global plug-in vehicle sales 30% will contribute between 2 percent and 25 percent of new 20% vehicle sales. The consensus is that it will be closer to 10 PHEV/EREV percent but, while the forecasts vary widely in magnitude, 10% 9-10% EV they all represent a significant shift from the current indus- 0% 2010 2015 2020 2025 2030 try powered almost exclusively by fossil fuels (Figure 3). Source: PRTM Research, OICA (International Organization of Motor Vehicle Manufacturers), various analyst reports, interviews Figure 4: The Value Chain Displacement from Oil to Electric Power (2020) Energy Gen & Fueling/Grid Components EV Vehicles Service Distribution ELECTRICITY-BASED +11 +3 +4 +2 $ VALUE SHIFT Oil > Electric BASE* ($000 Over Vehicle -1 Lifetime by 2020) -3 Incl. Battery -3 -13 OIL-BASED Source: PRTM Analysis 8 The Megatrends Behind Electrification of Transportation As this transition to vehicle electrification occurs, there will be a significant shift in the overall value chain. In the traditional automotive value chain, as shown in Figure 4, the majority of the value is created upstream in the energy generation and distribution element of the value chain. The lifetime value capture for a typical C-Class vehicle sold in 2020 will be about US$ 13,000 from sale and dis- tribution of gasoline. For the same vehicle with an elec- tric drivetrain, the lifetime energy and distribution costs reduce significantly to approximately US$ 3,000 over the life of the vehicle. In this case, the value capture will shift to the drivetrain components where there will be approxi- mately US$ 11,000 per vehicle spent on the battery, motor, and inverter. The amount of change electrification will cause in the en- gineering of vehicles will go beyond the creation of a new value chain (Figure 5). Vehicles that are 70 percent mechanical and 30 percent electronic in value today will likely become the inverse--20 percent mechanical and 80 percent electrical/electronic. Primarily, steel structures will undergo large-scale substi- tution of composite, aluminum, or other lightweight mate- rials. Vehicles will become more networked and connected while intelligent transportation systems will become the foundation of sustainable transportation solutions. These shifts in technology and the overall value chain will likely have significant impact on the industry structure and pos- sibility for mobility paradigms in future cities (Box 2). Figure 5: The Automotive Industry Changes Driven by Vehicle Electrification TODAY 2020+ 70% Mechanical/30% Electrical and Electronic 20% Mechanical/80% Electrical and Electronic Primarily Steel Structures Composite and Lightweight Materials Limited Vehicle to "X" Communications Significant Vehicle to "X" Communications - Navigation - Vehicle to Grid - Telematics (Accident Notification/Concierge) - Traffic Management/Vehicle Guidance - Car to Car Accident Avoidance - Interactive Entertainment and Productivity Systems 9 The Megatrends Behind Electrification of Transportation Box 2: Sustainable Electric Mobility: a Paradigm Shift for Vehicle Technology and Urban Mobility The widespread introduction of electric vehicles will and the energy for these vehicles could be generated address a number of problems related to current auto- with solar-friendly, wind-friendly, fuel-cell-friendly mobile-dependency in cities, such as excessive fossil smart electrical grids. There are a number of attrac- fuel and energy use, local air and noise pollution, and tive business models being proposed and the current carbon emissions contributing substantially to climate socio-economic climate is increasingly promising for change. However, a number of problems related to the introduction of an integrated electric vehicle and urban congestion, peripheral sprawl, and inefficient sustainable mobility systems in cities. land-use will not be addressed without a more radical Variations range from GM's "electric networked reinvention of urban personal mobility systems. vehicle," 10 a small lightweight future vehicle showcased The shift from combustion to electric vehicle technolo- at the Shanghai 2010 Expo, conceptually envisioned gies provides a unique opportunity to rethink mobility to be integrated with public transport and neighbor- issues within cities and foster the introduction of a new hood mobility constraints, to a vision developed by generation of mobility options that reflects innova- researchers at the University of California11 of devel- tion both in terms of technology and business models oping a stand-alone lightweight mobility system on a relative to the current dominant mobility paradigms. city-wide scale with both infrastructure and vehicles While very much speculative at present, academics completely separated from the traditional, heavier as well as corporations are investigating the possibili- weight automobile and heavy vehicle infrastructure. ties of an EV powered world. Small electric vehicle In all cases, the prospects for change rest on a combi- parking facilities could be developed at transit stations nation of technological and business innovation-- and other major destinations around an urban area. building mobility-on-demand systems using smaller, Vehicles automatically recharge while at these facilities well-designed, and more efficient lightweight electric and could be easily picked up with a simple swipe of a vehicles, such as mini cars, scooters, and electric bicy- card and dropped off at locations close to any destina- cles that are effectively integrated with mass transit tion. Information on vehicle availability could be shared systems and focus on providing neighborhood-level through widely available wireless networking systems access to key services and destinations. 10 Observations on China's New Energy Vehicles Program 3. Observations on China's New Energy Vehicles Program A significant amount of activity is focused on EVs in China. · Impact on other public infrastructure. Electric vehi- From policy development, to technology development, to cles will interact with regulated (and, in many cases, new business models, China is very well advanced in the publicly provided) infrastructure in ways that will deployment of electric vehicles. The following summary of require careful planning and management. In partic- China's status in EV deployment is based on a World Bank ular, there are significant opportunities and issues mission undertaken to better understand China's New related to the interaction between electric vehicles Energy Vehicle program. A team of experts commissioned and the electric grid. On one hand, there is poten- by the World Bank in transportation, electric vehicle tial for significant benefits: For instance, off-peak technologies, policy, and environment visited Chinese charging of EVs could smooth out the overall demand government and industry stakeholders in Beijing and for electricity, thus increasing efficiency of the grid. At Shenzhen in June 2010. The two-week mission concluded the same time, there are significant risks associated with a workshop attended by many public and private with not planning the transition carefully. In the worst sector stakeholders. As such, the study reflects the under- case, if significant numbers of EVs charge during peak standing gained by the mission team and is not intended periods, it would stress the electric grid, and reduce to be a comprehensive summary of all EV related activity grid efficiency by exacerbating peaking. in China. · Transformative effects on public infrastructure. EVs also offer an unusual opportunity to potentially trans- 3.1 A policy framework for considering public support form the manner in which urban mobility is config- for electric vehicles ured. As Box 2 discusses, EVs offer a rare opportunity Many would consider the development of electric vehicles to transform urban street and road infrastructures a completely commercial phenomenon, akin to the evolu- --facilitating the development of specialized, lower- tion of color or high-definition televisions and query why impact vehicle-street systems for neighborhoods, governments or institutions like the World Bank should commuting, and so forth--with associated benefits for focus at all on this sector. Undoubtedly, private commer- safety, mobility, and accessibility. cial players motivated by market interests will be critical In addition to these kinds of public benefit rationales, to any meaningful deployment of such vehicles. However, governments may take into account other considerations, there are at least three kinds of reasons to consider policy, such as energy security policy and automotive industrial and possibly financial support to accelerate and support policy. In China, such considerations are particularly rele- the deployment of electric vehicles: vant given the combination of a large, fast-growing market · External "Pigouvian" benefits. Substituting internal for automobiles combined with the sizeable and increasing combustion vehicles running on fossil fuels such automotive manufacturing capability in the country. as diesel or gasoline with electric vehicles has the potential to reduce the emission of local pollutant 3.1.1 Strategy and green house gas emissions. Economic theory China has indicated that vehicle electrification is a stra- suggests that vehicles generating pollution should tegically important element to its future development in be charged with a "Pigouvian" 12 tax to the equiva- four areas: (i) global climate change; (ii) energy security; lent of the local and global pollution burden they (iii) urban pollution; and (iv) auto industry growth. generate.13 To the extent that electric vehicles do not generate these costs, public support--ideally an · Global Climate Change: China is committed to policies appropriately lower Pigouvian tax (or an equivalent to address climate change and has announced a target level of support)--would not be unreasonable under to lower its carbon intensity, the amount of carbon such circumstances. Ideally the support should be dioxide emitted per unit of GDP, by 40-45 percent by structured in ways that promote the development of 2020 compared to a 2005 baseline (Figure 6). markets, address market failures, and complement rather than substitute for private initiatives. 11 Observations on China's New Energy Vehicles Program Figure 6: China's Carbon Intensity Reduction Plans While high barriers to entry will likely prevent Chinese automakers from developing a significant global position in an industry where internal combustion engines are the dominant propulsion source, electric propulsion will intro- No action since 2005: duce a value chain shift that could favor China from both a -22% technological and supply chain perspective. No action after 2010: -36% China is likely to benefit in the EV drivetrain components Lower pledge: value chain. This is largely due to China's strength in -40% Upper pledge: -45% batteries and motors. For example, as one of the major GREATER REDUCTIONS players in lithium batteries for cell phones, China has established the production capability and value chain to 450 ppm: cost-effectively produce lithium batteries in scale. -47% In addition, China also possesses an advantage in elec- tric motors, which is partly due to its position as the dominant producer of rare earth, as shown in Figure 7. Source: CHINA NDRC Rare earth materials, specifically neodymium, contribute approximately 30 percent17 of the material cost of perma- nent magnet motors, one of the key motor types used in · Energy security: Half of China's oil is imported. In electric propulsion systems. This raw material dominance, 2007, China's oil consumption was 7.6 million barrels along with China's relative labor cost advantage, has of oil per day. By 2020, this is expected to increase to resulted in an emerging extended supply chain in motor 11.6 million barrels of oil per day. In this same period, technology and production. global oil consumption will increase from 85 million to 92 million barrels per day.14 Figure 7: Global Rare Earth Material Production · Urban pollution: While power generation accounts for a large portion of the CO2 emissions in China, large 250,000 cities such as Beijing have significant transportation- related air quality issues. For example, in Beijing, it 200,000 Demand TPA--REO has been estimated that more than 70 percent of 150,000 CO and HC emissions are caused by transportation.15 This issue, which put significant restrictions on motor 100,000 vehicles in the city during the 2008 Olympic Games, is expected to worsen as the number of vehicles in 50,000 Beijing increases. 0 · Auto Industry Growth: Chinese automotive produc- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 tion in China in 2009 was 13.6 million vehicles,16 making China the largest auto producing nation in the China Supply ROW Supply Adjusted Global Demand China Demand world with continued production growth expected to reach 30 million vehicles per year by 2030. While Source: D. Kingsworth, Industrial Miner this production growth is significant, its bulk currently feeds domestic demand. Although there have been recent acquisitions of niche global brands such as The result of these advantages in batteries and motors Volvo and Rover by Chinese automakers, it is unlikely could provide an overall advantage for Chinese compa- that these brands will transform China into a large- nies in electric drivetrain components and may position scale exporter. Due to the significant technological Chinese automakers to assume global leadership in elec- and scale advantages that the established global tric vehicles. automotive manufacturers have in internal combus- tion engines, it is also unlikely that Chinese auto- makers will be able to organically establish a strong global presence. 12 Observations on China's New Energy Vehicles Program 3.1.2 Program Scope The local approaches that were developed are beginning to be evaluated for the development of national standards In 2009, the Government of China initiated the Ten Cities, with the first to emerge being the standard for vehicle Thousand Vehicles Program. The intent of this program charging. Led by the Ministry of Science and Technology, was to stimulate electric vehicle development through infrastructure companies, automotive component suppliers, large-scale pilots in ten cities that would identify and and automakers are collaborating to develop a national address technology and safety issues associated with standard for the charging method and connector. While not electric vehicles. The ten cities included in the initial yet finalized, State Grid has joined with industry to develop program rollout were: Beijing, Shenzhen, Shanghai, a seven-pin vehicle/charger connector that will enable both Jinan, Chongqing, Wuhan, Changchun, Hefei, Dalian, and AC and DC charging. Other standards for battery cells and Hangzhou. In this program, each city was challenged with network communications are yet to be developed. rolling out pilots of at least 1,000 vehicles. To manage the early driving range and infrastructure issues of EVs, the initial focus for the program was on government 3.2 State of Technology fleet vehicles with predictable driving patterns such as Significant EV technology development in China, focused buses, garbage trucks, and taxis. Following the rollout of primarily on batteries and charging, is occurring in the initial ten cities, the program was expanded twice-- industry as well as universities. However, technology is first to Changsha, Kunming, and Nanchang and then to also being developed for motors, power electronics, and Tianjin, Haikou, Zhengzhou, Xiamen, Suzhou, Tangshan, overall vehicle integration. and Guangzhou. Building on the Ten Cities, One Thousand Vehicles 3.2.1 Battery program, which was focused on deployment of electric As one of the global leaders in lithium-ion batteries for vehicles for government fleet applications, the program cell phones, China has a strong foundation for lithium- was expanded to include consumers in Shanghai, Chang- ion battery technology, which is being used to generate chun, Shenzhen, Hangzhou, and Hefei in June 2010. To solutions to the key issues in the application of lithium-ion encourage EV adoption by consumers, the central govern- batteries in EV traction drive systems. The primary issues ment of China has also introduced purchase subsidies being addressed, as in the rest of the world, are battery of RMB 60,000 per vehicle for Battery Electric Vehicles cost and life. (BEV) and RMB 50,000 per vehicle for Plug-in Hybrid Electric Vehicles (PHEV). These subsidies are being Based on the industry stakeholder discussions held in enhanced for consumers by additional subsidies at the June 2010, the 2010 production costs for lithium-ion state level. For example, in Shenzhen, additional subsidies battery packs in China appear to be between RMB 3,400 of RMB 60,000 for BEV and RMB 20,000 for PHEV are and RMB 5,000 per kWh. For a typical C-Class vehicle being offered, resulting in total consumer purchase subsi- with a 25 kWh battery, this will result in new vehicle dies of RMB 120,000 for BEV and RMB 70,000 for PHEV. battery costs between RMB 84,000 and RMB 125,000-- close to the cost of a typical C-Class car with a gasoline The New Energy Vehicles program continues to grow engine. Since this upfront expense will be a significant and evolve virtually daily. Most recently, it has been purchase barrier for most consumers, emphasis is being announced that these programs will be backed by RMB placed on reducing battery costs through material 100 billion in central and local government investment. development and operations optimization. Through these This is a significant increase from earlier statements and developments, battery manufacturers in China expect sets a new threshold on the world stage. costs in 2020 to be reduced by approximately 60 percent to between RMB 1,300 and RMB 2,000 per kWh. This 3.1.3 Standards will reduce the cost of a typical new vehicle battery to Development of common national standards for between RMB 34,000 and RMB 50,000. charging infrastructure, vehicle charging methods, Due to the high cost of batteries, battery life is also a vehicle/charger connectors, battery cells, charging critical consideration. In-vehicle battery life is currently network communications, charging network billing, expected to be approximately three to five years, or and standards development were not initial areas of around 160,000 kilometers. Since the typical life expec- focus during the Ten Cities program. In the absence of tancy of the major components in conventional vehicles is national standards, local approaches were developed in more than 240,000 kilometers, battery life will likely need the different pilot implementations. to be improved by approximately 50 percent to meet the needs of most vehicle owners. 13 Observations on China's New Energy Vehicles Program 3.2.2 Vehicle One example is the BYD E6 (Figure 9). While most electric vehicles being developed globally have a driving range of One of the key areas of vehicle technology development, approximately 160 kilometers, the E6 has a driving range as a result of the Ten Cities program, has been electric of 300 kilometers.19 This driving range, which approaches transit buses (Figure 8). These buses, which are currently the 480 kilometer range of a typical gasoline car, will operating in cities such as Beijing and Shanghai, have enable use for many taxi applications as well meet the been developed to meet the high energy and high duty expectations of a large number of consumers. The enabler cycle requirements of the transit bus market. For example, for such a driving range is the vehicle's large 62 kWh the 50 buses operating in Beijing, produced by Zhong- battery. While such a battery is cost prohibitive for most tong Bus Holding Co., Ltd., have seating capacity for 50 vehicle manufacturers, it is likely that BYD is leveraging passengers and a 200 kilometer nominal range with a its cost position as a large volume lithium-ion battery maximum speed of 70 kilometers per hour. To meet the producer to provide a vehicle that addresses one of the needs of this application, the buses have 171 kWh lithium- biggest EV consumer concerns--range anxiety. ion batteries.18 3.2.3 Infrastructure Figure 8: Beijing EV Bus Since the early vehicle applications in China have been with fleet vehicles, the charging infrastructure technology development has focused on the needs of fleets. Due to their high utilization rate, many fleet applications will drive more than the standard range that the current batteries will allow on one charge. For example, the EV buses in Beijing have a maximum driving range of 200 kilometers on a full charge. However, with a safety margin they are currently limited to driving 100 kilometers on a full charge. As a result, since many of the buses exceed this on a daily basis, they need to be recharged throughout the day. To ensure that the buses maintain a high operating up-time, these buses must be recharged quickly. Source: Zhongtong Bus Holding Co., Ltd. One approach being utilized in Beijing to achieve high operating up-time is a rapid battery exchange system whereby the bus pulls into a battery swap station and Figure 9: BYD E6 robotic battery removal systems locate and remove a battery pack on each side of the bus. Next, the system locates and returns the batteries to an open spot in the vertical battery charging banks positioned along walls facing each side of the bus. Following this, the next available fully charged battery pack is located from the charging bank, removed, and placed in each open battery bay on the bus. The entire battery exchange takes approx- imately 12 minutes from the time the bus enters the station to the time it can return to service. To ensure that fully charged batteries are always avail- able when a bus returns to the battery swap station, the supply of extra batteries maintained at the station equals Source: BYD 60 percent of the number of the batteries in the field. For example, for 50 buses, 80 batteries are needed in the swap stations. To charge these batteries, the battery swap Another area of vehicle technology development has been station consists of 240 9 kW chargers to simultaneously the development of passenger cars targeted for use by charge the batteries returned from the field. To manage consumers as well as use in fleets such as taxis. the large amount of power consumed by the chargers 14 Observations on China's New Energy Vehicles Program and the impact on the electrical grid, a load management points have network communications to allow authenti- model has been employed to optimize charging speed cation, billing, and diagnostics. Currently, they are being and balance load power. installed in clusters at charging stations. Figure 10: 180kW Fast Figure 11: 220V Charger in 3.3 Commercial Models Charger in Shenzhen Shenzhen To accomplish the Ten Cities, Thousand Vehicles Program, there has been a significant level of development and coordination across the value chain. This is beginning to develop new businesses and business models to provide the infrastructure, component, vehicle, and services necessary to enable an EV ecosystem. In order to deliver electric vehicles to the market in China, new vehicle value chains are emerging to address the technology and manufacturing gaps that the existing automotive value chain holds for EVs in China. One example of such an emerging value chain is being devel- oped by China's fifth largest automaker, Beijing Auto- motive Industry Holding Corporation (BAIC). To drive the development of electric vehicle technology, BAIC has created a separate company, Beijing New Energy Vehicle Company, focused solely on electric vehicles. This company, which has plans to build 150,000 EVs and HEVs by 2015, has established relationships with global compa- In addition to rapid battery exchange, another approach nies and is developing new local companies to enable being utilized to meet the needs of fleet applications is these plans. For example, the company's announced fast-charging. In Shenzhen, for example, there are two acquisition of vehicle platform designs from Saab is now public fast charging stations in operation with plans for an serving as the basis for its mid- and high-level EVs. Beijing additional station to be completed by the end of the year. New Energy Vehicle Company is internally developing the Each of the two stations currently operating has three control and electric drive systems and has formed a sepa- chargers, each with a power capacity of 180 kW, which will rate company, Beijing Pride Power System Technology be capable of recharging a taxi in 10-30 minutes (Figure Co., for the development of battery systems. Beijing Pride 10). Plans have been announced for similar charging Power System Technology Co. is responsible for devel- stations across the country, with 75 charging stations to oping the integrated battery systems, including the full be installed in 27 cities by the end of 2010. 20 pack and battery management system. There is also deployment of slower, lower power charging In parallel with the development of the vehicle and infrastructure suitable for overnight charging. In Shen- component value chain elements, it is essential that a new zhen, 100 charge points with standard 220V outlets have value chain be built for the development, deployment, been deployed around the city (Figure 11). These charge and operation of the vehicle recharging infrastructure Figure 12: Extended EV Value Chain POWER EV SMART GRID COMPONENTS EV VEHICLES SERVICE GOVERNMENT INVESTOR Generation · Transmission Load · EV Grid · Charge Battery · Electronic · Motors Integration · PHEV/EV Provision · Delivery Federal · State 15 Observations on China's New Energy Vehicles Program (Figure 12). Such a value chain requires involvement of Figure 13: Beijing EV Bus Exchangeable Battery Pack many stakeholders. First, the utility is required to ensure that the introduction of new electrical loads on the grid does not create disruptions. Second, smart grid tech- nology providers need to be involved in the development and production of the new recharging equipment and network backbone. Additionally, the original equipment manufacturers (OEMs) and battery management systems suppliers need to manage the tradeoffs between the infrastructure and vehicle battery system necessary to optimize the battery charging system. An example is the Beijing bus battery exchange stations, which included multiple value chain stakeholders. A bus operator, Beijing Public Transport, was involved in determining the new operating modes for the EV bus fleet. A utility, State Grid, Source: Lithium Force Batteries managed the overall impact on the grid from charging the large bus batteries. A battery supplier, CITIC Guoan MGL Battery Co., assessed the overall impact on the battery life of different charging methods. Battery manage- In addition to the vehicle and infrastructure, new service ment systems architect, Beijing Technology University, business models will emerge in the value chain. The Beijing determined the approach for charging the batteries that bus pilot also serves as an example of such new service balanced the local grid load constraints with the operating models. Due to the significant upfront cost of the batteries requirements for bus up-time. Finally, bus manufacturer for buses, a leasing model was deployed by the battery Zhongtong Bus Holding Co. determined how to package manufacturer, CITIC Guoan MGL Battery Co, in conjunction the batteries in the bus so that they could be removed with the bus operator, Beijing Bus Group. The batteries automatically and be packaged to allow the bus safety are leased from CITIC Guoan MGL Battery Co, based on and comfort requirements to be achieved (Figure 13). the distance driven. In addition to the battery supplier and the bus operator, this model also requires the involvement of other value chain stakeholders. For example, since the battery management and recharging systems are critical determinants of how the battery will age over time, collab- oration with the technology provider, Beijing Technology University, was required to determine how the battery would age and the likely rate of depreciation. 16 Discussion and Conclusions 4. Discussion and Conclusions 4.1 Comparison with Other Programs Worldwide several national and local governments are implementing policies providing government subsidies or tax credits Arguably, the scale of the New Energy Vehicles Program toward the purchase of such vehicles. In addition to leaves China well placed in the context of worldwide monetary policies, several non-monetary policies are vehicle electrification. Yet, significant efforts underway emerging targeting vehicle manufacturers and consumers. elsewhere have put many electric vehicles on the road These policies include extra credit for vehicle manufac- around the world. This section details some of those turers in calculating fuel economy for meeting national competing initiatives across several dimensions, including requirements as well as preferred parking and driving lane policy, technology, and commercial models, and compares access. them with the Chinese program to help define areas of opportunity. The United States provides one example of a comprehen- sive set of such policies. As shown in Figure 14, more than 4.1.1 Policy US$ 25 billion in loans for advanced auto manufacturing and more than US$ 2 billion grants for batteries have From a policy perspective, China is very developed in been deployed. the implementation of policies to drive electric vehicle adoption. However, there is now strong momentum in Additionally, US$ 100 million is being distributed for policy development in many other countries to stimulate infrastructure deployment in a five-city electric vehicle demand for electric vehicles, deploying vehicle recharging pilot program. Furthermore, federal subsidies of up to infrastructure, and stimulating investment in technology US$ 7,500 per electric vehicle are in place with additional development and manufacturing capacity. These policies incentives available in some states. are emerging in several forms. One form involves govern- In the United States, a large portion of the policymaking ment spending for manufacturing and research through has been at the national level with some additional policies grants, loans, and tax credits. A second emerging form at the state and city level. The focus of these policies has consists of infrastructure deployment with governments been to stimulate consumer demand, provide a catalyst providing grants and loans for the deployment of charging for infrastructure deployment, and to drive U.S. auto infrastructure. To stimulate demand for the vehicles, industry investment to maintain global competitiveness. In Figure 14: U.S. Government EV Policy Summary (2010) Non- Incentives Financial Financial Manufacturing/ · $25 billion for an Advanced Technology Vehicle Manufacturing Incentive X R&D program to technology that achieves 25% higher fuel economy Investment · $2.4 billion in grants for electric vehicle development in March 2009 · $400 million for demonstration projects and evaluation of plug-in hybrid X and electric infrastructure Infrastructure · $54 million for tax credits on alternative refueling property, including Investment charging · $100 million grant for 5-City "EV Project" infrastructure deployment · $7,500 consumer tax credits for new purchase of PHEV/EV X Vehicle · Additional state level purchase incentives up to $5,000 for PHEV/EV Purchase · Many states provide HOV lane access, designated parking space programs X 17 Discussion and Conclusions Figure 15: UK EV Policy Summary (2010) Incentives Financial Non-Financial Manufacturing/ · Ł350 million for research and demonstration projects X R&D Investment Infrastructure · Planned Ł20 million procurement program, 25,000 charging X Investment points in London · Private electric vehicles are exempt from annual circulation tax · Company electric cars are exempt for the company car tax for first five years after purchase · Starting from 2011, purchasers of electric and PHEVs will receive X Vehicle Purchase a discount of 25% of vehicle list price with a cap of Ł5,000; the government has set aside Ł230 million for the incentive · Electric vehicles are exempt from congestion charging · Planned dedicated bays for electric cars in London X other countries, such as the UK, there is a much stronger 4.1.2 Technology policy emphasis at the city level (Figure 15). In London, for China's relative position in EV technologies, as compared example, there have been a number of policies deployed to the United States, Europe, Japan, and Korea, parallels that are developed to drive EV adoption and fund the its overall position in the global automotive industry. local infrastructure deployment. London has announced a plan to invest GBP 20 million for deployment of 25,000 Battery Technology. China has clearly become the leader charging points within the city. To drive consumer demand, in Li-ion battery manufacturing for consumer products. London has waived the congestion charge for EVs driving Probably more than half of the world's supply of Li-ion within the city. phone, smartphone, and laptop batteries are manufac- tured in China. Policies aimed at reducing GHG and criteria pollutant emissions from electricity generation are also important In large form factor automotive batteries, the challenge is in order to fully realize the potential of NEVs. Here the greater in the "upstream" materials, such as the cathode global track record is mixed. The EU has in place an emis- materials and the process controls in preparing the mate- sion cap covering GHG emissions from the power sector. rials (Figure 16). That technology has historically been There is no similar comprehensive GHG policy in place in perfected by the Japanese and, more recently, the Korean the United States, although individual regions and states chemical industries. have moved forward with power sector emission caps Higher levels of quality in the upstream materials have or requirements for increased use of renewables. 21, 22 As a large bearing on the life of the battery, as represented noted above, China has announced a target to lower its by the number of discharge cycles a battery can tolerate carbon intensity by 40-45 percent by 2020 compared to before losing its ability to fully charge. In automotive a 2005 baseline. Achieving this ambitious goal will help applications, the goal is ~1,500-2,000 discharge cycles to reduce the carbon intensity of the electricity used to to support 8-10 years of use in a typical car. The Chinese power NEVs. battery manufacturers aim to achieve these targets and there are not yet sufficient vehicles on the road to validate these levels. While Li-ion battery technology is progressing, achieving OEM battery life targets of 10 years/240,000 kilometers (~3k battery cycles) will likely take further development and it could require another decade before those levels are achieved (Figure 17). 18 Discussion and Conclusions Figure 16: Upstream Li-ion Battery Advanced Materials Supply Chain RAW MATERIAL ADVANCED MATERIALS CELL COMPONENTS CELL ASSEMBLY BATTERY ASSEMBLY LIFECYCLE MANAGEMENT UPSTREAM ADVANCED MATERIAL MANUFACTURING Mixing and Preparation Precursor Processing Calcination/Sintering Cathode Material Raw materials primarily consist of Lithium Carbonate and other metal oxides such as Iron Oxide and Manganese Oxide. Source: PRTM Analysis Figure 17: Outlook for Li-ion Battery Life The next issue to be addressed after battery life is battery Cycle Performance costs. As discussed earlier, battery costs currently may be 50 percent of the cost of a vehicle. China has been among the leading sources of competitive cost batteries as the industry scales up for mass production of large form THEORY: REALITY: factor batteries for EV applications. CYCLE LIFE > 10K CYCLES CYCLE LIFE ~ 1.5-2.0K CYCLES Though there is much debate, there is growing consensus that Li-ion battery costs should be 50 percent lower than - Single cell lab tests - Cells combined in arrays of 90-300 cells they are today within the next decade. Some sources - Capable of withstanding high power - Exposed to extreme temperatures, argue that the cost reductions will in fact be closer to 70 fast charge with no impact on high vibration battery performance percent. As shown in Figure 18, this cost reduction will - Wide range of customer operating and charging patterns come from a combination of improvements in production - Fast charging resulting in self-heating processes, materials, design standardization, and supply chain actions. These forecasts are corroborated by the cost-down curves that have been experienced in the last 20 years in FORECAST BATTERY LIFE CYCLE the photovoltaic sector for solar applications, as shown 5,000 in Figure 19. Photovoltaic technology costs have been 4,000 # Battery Cycles reduced by 70 percent in the last 20 years as volumes 3,000 have scaled, with some two-thirds of the cost reductions 2,000 occurring in the first 10 years. Target Cycles 1,000 Cycle Life 0 2008 2010 2012 2015 2020 Source: PRTM Analysis, OEM Interviews 19 Discussion and Conclusions Figure 18: Battery Cost Forecast ~$800/KWh ~$160/KWh 20% Pack (20%) 5% 10% 5% ~$100/KWh 100% 60% ~$325/KWh Production Material Design Sourcing 2020 2010 Optimization Improvements Standardization 2020 2010 Pack Cell (30%) (80%) ~$640/KWh 25% 15% (Scale, yield, etc.) 10% Cell 15% (70%) 100% (Increases in ~$225/KWh energy, density, etc.) (Standard cell sizes, less product complexity) (Volume, SC management, etc.) 35% Battery Cost Production Material Design Sourcing 2020 Battery Cost 2010 (per KWh) Optimization Improvements Standardization (per KWh) A number of industry players have full battery pack at $550-$450/KWh already in line of sight. Note: All figures in 2010 dollars Source: PRTM Analysis, Industries Interviews Figure 19: Comparison of Battery Cost Reduction Forecasts with Actual Results in Photovoltaic Technology PHOTOVOLTAIC CELL COST TREND--RELATIVE TO PHOTOVOLTAIC MODULE COST TREND--RELATIVE TO MARKET DEMAND MANUFACTURER'S PRODUCTION VOLUME 60 80 7 Average Module Manufacturing Cost ($/W) 70 6 50 Projected xEV Li-ion battery demand 60 Projected cost curve 5 Projected cost curve Installed Capacity, MW 40 for battery for Li-ion EV batteries PV cell cost 50 4 reduction = 71% $/W 30 40 3 30 20 2 20 10 1 10 0 0 0 1975 1980 1985 1990 1995 0 200 400 600 800 Total PV Manufacturing Cost (MW/yr) PV Mean Module Cost ($/W) PV Manufacturing Cost PV World Market (MW) Source: NREL, DOE, United Nations University, PRTM Analysis 20 Discussion and Conclusions The development of the longer life batteries has become in lithium-ion battery related technology, the United States a "team effort" as the upstream and downstream battery nearly a quarter, and South Korea and Europe owning manufacturers, and, in some cases the OEMs, have built about 20 percent--leaving China with only about 1 percent strong supply relationships/partnerships to pool resources of international patents in this field. and accelerate their development timelines. Figure Battery Management Systems. After battery quality, 20 shows an example of these emerging relationships the next critical determinant of battery life is the battery between the upstream and downstream Li-ion battery management system (BMS). The systems not only manage value chain manufacturers. the use of the charge to maximize distance but also manage the variables (e.g., temperature) that have an Figure 20: The Relationships between Upstream and impact on the life of the battery (Figure 21). Downstream Li-ion Battery Makers (June 2010) BMS systems can account for 20-30 percent of the battery systems' final cost. Those costs are expected to Intermediate Cathode diminish rapidly as scale is achieved and China should Cell/Battery Manufacturers Material Manufacturer have an advantage with its extensive electronics sector Phostech Lithium JCI-SAFT and its competitive cost position. Hunan Reshine GAIA As the overall BMS sector is in its infancy, it is not clear Toda Kogyo China BAK/A123 who could be classified as the leader. The know-how is Evonik Degussa Valence critical and most of the western OEMs have been devel- Citic Guoan MGL Ener1/EnerDel oping the capabilities in-house. Chinese OEMs will likely BASF LiTec find the need to do the same in the future. Mitsui Mining & Smelting GS Yuasa Mitsubishi Chemicals Hitachi Infrastructure. One of the most debated aspects of the Sumitomo (Tanaka) LG Chem EV industry is the infrastructure. The three main issues are: Nippon Chemical Panasonic · What type? EcoPro Bosch-Samsung · How much? Announced Relationship Sanyo* Sony · To which standards? Speculated NEC-Tokin/AESC * Sanyo battery assets acquired by The first question typically addresses the mix of home Matsushita/Panasonic versus public charging and the mix of slow versus fast charging. There is no single answer as the type of vehicles, Source: Public Announcements, PRTM Analysis the level of urbanization, and government policies all play a major role. Another issue with battery development in China is that a For example, as shown in Figure 22, the nature of the EV vast majority of technology patents are owned outside of fleets and the nature of the pilot activity are somewhat China. Japan owns more than half of international patents different in Asia, Europe, and the United States. Figure 21: The Function of BMS Systems CONTROL USE OF BATTERY ENSURE SAFE OPERATION OPTIMIZE PERFORMANCE Regulate how fast and how often the vehicle Monitor the battery condition to prevent damage Maximize battery capacity and life through can discharge and recharge the battery and potentially unsafe operating conditions optimizing performance of each cell 21 Discussion and Conclusions Figure 22: Comparison of Infrastructure Deployment Globally ASIA EUROPE NORTH AMERICA PHEV/HEV PHEV/HEV PHEV/HEV EV EV EV Coordinated City Pilots Independent City Pilots Coordinated City Pilots - China ­ 20 Cities Pilots & National - London - EV Project (Tennessee, Arizona, California, EV Program - Paris Oregon, Washington) - Japan ­ Yokohama, etc. - Berlin - 5-15 EV Deployment Communities Fleets Fleets (Legislation Pending) - Bus/Garbage Trucks - Passenger Cars Fleets - Taxis - Delivery Fleets - Passenger Cars - Private Cars Public Charging Infrastructure - Commercial Vehicles Public/Depot Charging Infrastructure - Street/Garage More Emphasis on Home Charging - Fast Charging - Train Stations - Home/Apartment Garage - Bus/Taxi Fast Swap Stations - Stores/Shopping Centers - Some Public Charging - Public Charge Points China is pursuing an ambitious EV pilot program and in see major dividends in electric vehicles for future revenues 2011 this has now grown to 25 cities. The latest estimates and in capacity investment reduction through the use of suggest the program will be supported by RMB 100 billion the vehicle's batteries for storage. in government investments. Some cities, like Beijing, The U.S. Government has been promoting EV technology are focused on buses and municipal trucks while cities and has invested approximately US$ 2.4 billion in electri- like Shenzhen are directing their attention to cars. As fication grants. This has included US$ 1.5 billion in battery described earlier, the Beijing Bus Pilot is reliant on a highly manufacturing, US$ 500 million in electric vehicle compo- automated battery swapping infrastructure. Shenzhen, nents and US$ 400 million in infrastructure projects. In however, is working on placing up to 24,000 electric many respects, the U.S. program is similar to the Chinese cars on the road in 2012 and is actively seeking to posi- model where there is top-down funding and coordination, tion public charging lots close to the apartment build- albeit on a smaller scale. Infrastructure pilots are being ings where most of the residents live. This has resulted deployed under the EV Project Program across several in complex land use planning and coordination with the states, including Tennessee, Arizona, California, Oregon, urban planning authorities. and Washington. Cities like San Diego, Los Angeles, San In Europe, EV activity has been led by cities like London, Francisco, Chicago, New York, and Washington D.C. are all Paris, and Berlin, largely at the local level. The mayor of preparing for deploying charging infrastructure. London advocated the incentive schemes to reduce taxes However, as the solutions are configured to meet local and fees on EVs to reduce congestion and clean the air. needs, the infrastructure will need to provide for three Paris, where Renault and Peugeot already have some basic types of charging as shown in Figure 23: 30,000 battery powered EVs in use, worked with the local utility EDF and the local government to develop a plan · Smart Battery Charging: Ensures that demand is that includes more than US$ 2.5 billion in investments in met by customers to charge when they need to charging infrastructure. Berlin has been following a similar without compromising the integrity of the distribu- path, but the key driver has been utilities like RWE that tion system. This will require "smart grid" technology 22 Discussion and Conclusions Figure 23: The Three Types of Charging for an Integrated Solution INTEGRATION WITH THE GRID INTEGRATION WITH THE EV Charge Point 1 2 3 Smart Charging Standardized/Safe/ Networked & High Service Charging (for Power Grid Load Management) Authenticated Charging - Balance grid loads to support EV charging - Standardized charging to - Adequate charging network - Use off-peak capacity to charge EVs maximize ease of use - Telematics services to access charging - Safe, authenticated charging to ensure Network customer security, max. battery life Source: PRTM as well as measures such as time of day pricing to the U.S., will be able to largely rely on overnight home manage the load. charging for their needs. In Chinese cities where high rises dominate, authorities in cities like Shenzhen are exploring · Standardized/Safe /Authenticated Charging: There parking centers close to residential buildings where must be common standards to minimize complexity, owners can charge vehicles overnight. Public charging safe charging systems that prevent accidents during will also be required for drivers who wish to travel beyond charging and authentication of the vehicle for the the reach of their batteries' charge. In this situation, fast appropriate charging speed/power. A seamless charging, and the ability to reserve charging spots for integration of the technologies that support these especially rapid charging, will be critical. capabilities will be required to produce a "hassle free" experience for the driver. There is a likelihood that taxi fleets will become users of EVs in the near future and this is being actively promoted · Networked and High Service Charging: The EV driver in cities like Shenzhen. It will require a stronger IT commu- will require a higher level of service (e.g., reserving a nications infrastructure to ensure drivers are recharging charging spot) while also spending more `dwell" time during idle times rather than "roaming" for customers. around the charge point than a gasoline vehicle driver spends at a gas station. This provides opportunities The EV driver's needs for service are likely to create inno- for innovative new services that could add to the vative business models to help pay for the services. For revenue line for the providers. example, department stores may provide free charging to attract customers. The charge spots could generate To help visualize the integrated charging solutions, it is additional revenue through advertising, as drivers interact useful to explore how they may be configured to meet the with them more frequently. Loyalty programs may offer needs of different "use case" environments as shown in charging time in place of other incentives. Figure 24. The second major question under debate is how much The urban drivers with a garage, as in many parts of infrastructure is needed, how much will it cost and, 23 Discussion and Conclusions Figure 24: Examples of Different Use Cases for EV Charging Requirements Urban--Residential & Work Charging Public Charging EV Taxi Dispatch Co-Branding Overnight charging at Charge at work--receive Get live traffic & route GPS guidance system Customer calls EV taxi Co-branded residential structure charging status via guidance calculates most advertising promotes with controlled load Web/mobile battery efficient route via e-mail and balancing considering traffic in-vehicle telematics Customer receives ! After trip, taxi conditions --"Buy at XYZ and get Green Loyalty Points identifies closest taxi 30 min free charge" on Visa Eco card charging station & Central dispatch reserves time reviews real-time taxi availability Depleting battery Automatic vehicle status triggers system authentication & Reserve charge point to suggest available charge release at work and optimize nearby charging And dispatches taxi Charge status recharge routing for station--reserve with sufficient broadcast to central day Allow building or Reserve preferential Redeem loyalty points charging spot remaining battery dispatch utility to use car "Charge Parking" spot for partner discounts capacity battery for V2G load balance Source: PRTM Analysis perhaps most significantly, who will pay for it. There are Figure 26: Charge Point Payback no clear answers but the debate on the importance of public charging infrastructure was best illustrated by the 70 study conducted by the Japanese utility, Tokyo Electric Power Company (TEPCO) in 2007 and 2008, as shown in Figure 25. 60 Initially, TEPCO installed chargers at the homes of the EV owners. Due in part to what is commonly referred to as 50 "range anxiety," the drivers returned home with batteries Payback Period (years) typically less than half depleted. Later in 2008, TEPCO 40 installed a number of public charging stations. Curiously, although the public chargers were not used extensively, drivers began to return home with batteries significantly 30 more depleted than in 2007--they knew the public char- gers were available even if they did not need to use them. 20 Therefore, it is generally accepted that some amount of public charging infrastructure will be required, even if Expected Charger Life 10 it is not clear how much precisely. The amount of infra- structure is not an insignificant question as the return on investment on a typical charger is not attractive, as seen in 0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Figure 26. Utilization Rate Source: PRTM Analysis 24 Discussion and Conclusions Figure 25: TEPCO Infrastructure Study Results23 STAGE 1--October 2007: One station at home base STAGE 2--July 2008: EV fast charge station added 8 km 8 km 15 km Greater Battery Use: 15 km October 2007 July 2008 Before: Drivers returned 6 with batteries > 50% 6 5 After: 5 Drivers returned 4 4 Frequency Frequency with batteries < 50% 3 3 2 2 1 1 0 0 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 SOC (%) SOC (%) Source: TEPCO Currently, most of the costs have been borne by govern- the infrastructure and the overall EV value chain will grow ments but, over time, those costs will shift increasingly to in significance as governments begin to pull back funding the private sector. Utilities are likely to be players in the and expect the industry to find viable business models to provisioning of charging infrastructure in many parts of pay for the infrastructure in the "Gen 2" timeframe from the world but whether one party will own/operate and 2012 to 2014. That is when the EV production volumes will maintain the charging public infrastructure is unclear. begin to exceed the million units mark, and when world- wide and large-scale deployment is likely. China, like the What is clear is that there will need to be commercially rest of the world, will have to fashion its own business viable solutions to the infrastructure questions: models that sustain the ramp-up. · Do utilities do more than sell electricity--for example Standards. The EV industry is struggling with the issue of provide EV services? EV charging standards. As with many industries in their · Is there a need for independent, third-party EV power infancy, there are a multitude of standards emerging. For + service companies? example, the Society of Automotive Engineers (SAE) has · Do the vehicle manufacturers need to provide the undertaken development of the primary standards for the infrastructure for their vehicles? charging-related wired and wireless interfaces such as J1772, which governs the physical interface ("the plug") It will be several years before the answers to these ques- that connects to the vehicle. However, as seen in Figure tions are answered by the marketplace as the focus for the 28, the full set of standards that connects the vehicle to immediate future is centered on the technical/operational the grid, including safety and power grid standards, have and policy issues that will provide a basic infrastructure to be considered in creating an integrated solution. for supporting the first wave of EVs in the next several The unfortunate fact is that the United States and Europe, years. 2010 and 2011 represent the "GEN1" years, as shown which took the lead in developing the EV charging stan- in Figure 27, where such issues will displace the business, dard, have now developed two different charging plugs or commercial, aspects. But the commercial viability of 25 Discussion and Conclusions Figure 27: The Emerging Priorities for EV Deployment Technical/ Operational Policy GEN III Business 2014 - ? Technical/ Operational Business GEN II 2012-2014--"Ramp Up" ? Policy - Mix of EVs/PHEVs across segments/ geographies GEN I - Expanded fast charging; new charging 2010-2011--"Getting Started" technologies... - Expanded/new services; E-mobility Infrastructure co-branding/marketing... and Services Road Map - Battery second life applications /business - Supply of EVs/PHEVs with reliability/durability models being tested... - Basic Infrastructure for reliable and safe home/public charging Figure 28: The Full Spectrum Of Standards Required For an Integrated Charging System in the U.S. Electric Utility J2857, J2836, J2293-- communication & energy transfer Smart Energy 2.0 Power System V2G/G2V (Utility) Electric Vehicle Energy Transfer System (EV-ETS) Batteries: Electric Vehicle J1798 Performance Supply Equipment J2929 Safety (EVSE) J537 Storage EV 1547 J1772 Electric Vehicle Computer (Distributed energy interconnection) V2G, G2V Source: SAE 26 Discussion and Conclusions (Figures 29 & 30). The U.S. plug developed by the SAE Figure 31: Japanese TEPCO Fast Charging Plug is called the J1772 plug. It can support 120V and 240V charging. In Europe, the manufacturers have selected a different plug that is often referred to as the Mennekes plug, after the manufacturer. It can support 240V and 360V charging. They have different numbers of connec- tors, and vary in size. Figure 29: European Figure 30: J1772 EV Mennekes Plug Charging Plug Source: TEPCO Source: Mennekes, SAE China has not yet formally launched its standards. In May 2010, it was announced that a four-tiered standard was being developed and would be launched later in the year. For fast charging, the Japanese TEPCO standard, which Ideally, those standards would incorporate some of the can go as high as 500V, is emerging as the dominant solu- standards already developed to minimize the costs of tion in Asia (Figure 31), as well as on the west coast of the complexity as the Chinese manufacturers eventually begin United States, but Europe is continuing with the Mennekes to export their vehicles. standard for fast charging. 27 Discussion and Conclusions Figure 32: Global EV Value Chain in 2020 THE EV VALUE CHAIN WILL LIKELY BE GREATER THAN $250 BILLION Advertising/Co-Branding /Services EV/PHEV Sales w/o Battery and Traction Components ? 185 Li-Ion Batteries and Traction Components Used in EV/PHEVs Infrastructure Investments @$1000/vehicle 60 60 Incremental Electricity Sales for ~30M EV/PHEV Parc 13 20 ENERGY GEN & FUELING & GRID COMPONENTS EV VEHICLES SERVICE DISTRIBUTION Source: PRTM Analysis 4.1.3 Commercial Models clear if they will be the only ones doing so or if they will be providers of the services whose revenues can help The EV value chain that is developing is likely to be offset the cost of the infrastructure (e.g., driver services, greater than US$ 250 billion worldwide by 2020, as per charging station operation and maintenance and so forth). the analysis shown in Figure 32. As seen in Figure 33, independent, third-party players The utilities will play a major role in this new value chain (like Project Better Place) could take a role in providing as the suppliers of the "power" required. Though they the electricity and services, as has been occurring in the are the primary contenders for a role in the infrastructure United States and Europe. business that delivers the power to the vehicles, it is not Figure 33: Potential Business Model Owners in the Emerging EV Value Chain EMERGING BUSINESS MODEL "OWNERS" NATIONAL/UTILITY-BASED OPERATOR 3RD PARTY OPERATOR STATE MUNICIPALITY OEMs - Participating in Tech. Pilots with OEMs - Planning to Own and Operate Infra- - Some Planning to Own and Operate - Establishing Technical Pilots with and Technology Providers structure Infrastructure Utilities and Technology Providers Emerging Models - Some Plan to Own and Operate - Explore Broad Business Models to Include - Developing Services Infrastructure Service and Battery Business - Electricity/Grid - Integrated Business Model - Local Regulations - Vehicle, Customer Pro - Federal/State Role - Battery - U.S. Too Fragmented to Cost Effectively - Access to Capital - Lack of Scale to Be Cost Effective - Capital Constrained Cons/Gaps Develop Services and Infrastructure - Hesitant to "Open" Network - Financial Limitations - Single OEM, Not Likely to Provide - Regulatory/Regional/Capital Constrained - Not Currently Multi-OEM Multi-OEM Solution Success Probability MED MED-HIGH Based on Partnership LOW LOW (MED if Partner) Most Likely Model Candidates Source: PRTM Analysis 28 Discussion and Conclusions 4.2 Challenges for China Going Forward Figure 35: China xEV Total Cost of Ownership Comparison China is pursuing an ambitious electrification program. Yet the challenges it faces are similar to those faced elsewhere $0.46 ICE PHEV-40 in the world. Many of them have already been discussed $0.44 EV HEV in this paper and they have centered on the supply side $0.42 Ownership Cost ($/Mile) issues surrounding the provisioning of the charging tech- $0.40 nology and the batteries. $0.38 $0.36 A framework for organizing these barriers around demand $0.34 and supply is presented in Figure 34. Those shown in $0.32 yellow are potential solutions, whereas those in red $0.30 still require development of solutions. On the demand $0.28 2010 2015 2020 2025 2030 side, customer acceptance is still a significant unknown. Although it is generally accepted that however successful KEY ASSUMPTIONS 2010 2030 the EV sector is, it will not satisfy much more than the Gasoline ($/Gallon) $2.93 $5.81 demand of the "early adopters" in the next 10 years, Electricity ($/kWh) $0.10 $0.15 through 2020. The costs of ownership will be a central Battery (Li-ion) · HEV ­ 1.5kWh $1,250/kWh $400/kWh issue throughout the decade as costs have to be reduced · PHEV ­ 12kWh $690/kWh $220/kWh significantly as government subsidies and incentives will · EV ­ 24kWh $625/kWh $200/kWh be phased out. Source: PRTM Analysis Even the reported RMB 100 billion dedicated to the China New Energy Vehicles program will not be sufficient to subsidize purchases for the entire decade. If consumers do not find value in EVs, it will be very difficult to convince Figure 36: China xEV Initial Purchase Price Comparison buyers to commit to them. Figure 35 compares the Total Cost of Ownership (TCO) $39,000 ICE PHEV-40 model for EVs, PHEVs, and HEVs for the next 20 years. $34,000 EV HEV xEV Initial Purchase Price ($) Today, gasoline and HEVs offer somewhat comparable $29,000 TCOs. EVs and PHEVs are not yet competitive without $24,000 government incentives and subsidies, and will not be until $19,000 the latter half of the decade. As shown in Figure 36, one $14,000 of the key enablers for cost competitiveness of EVs and $9,000 PHEVs is vehicle price reductions of 15-20 percent while $4,000 gasoline vehicle prices remain relatively constant. -$1,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Source: PRTM Analysis Figure 34: A Framework for Organizing the Barriers to EV Adoption DEMAND 1 Infrastructure Investments--Billions Required 3 Vehicle Affordability/TCO - Who Will Fund? - Government Incentives/Tax High Risk/Barrier - Long Payback Periods - Creative Financing Solutions Partial/No Solutions 2 Batteries--Technology & Cost 4 Customer Acceptance Moderate Risks Only Partial Solutions - Dramatic Cost Curve Slope - Range Anxiety - Technical Performance - Re-Charge Timing Moderate Risk Plans in Place SUPPLY - Secondary Life - Attractive/Usable Vehicles 5 End-End Eco-System Integration - Technical Integration ­ Into Grid and Vehicles - Business Integration and Profitability - Political/Regulatory Alignment 29 Discussion and Conclusions Further compounding this challenge is that fact that even in the U.S. is the number of utilities--some 3,000 by when the lifetime ownership costs become favorable one count--that are subject to the 50 Public Regulatory for EVs, the upfront vehicle cost will still be significantly Commissions (PUCs) for each state. The PUCs' aim is higher than a conventional vehicle with a gasoline engine to ensure rates stay low and they do not favor business (Figure 37), while the payback period is significantly cases that show poor rates of return, as the charging longer than most consumers or commercial fleet owners infrastructure is likely to have. In Europe, there are fewer are willing to accept. While leasing could address this utilities and they cut across countries. They are not issue, two key barriers need to be addressed for EVs subject to the U.S. style regulatory issues. to become a viable alternative in China. First, a vehicle China may have the least complexity, as there are only financing market, which is not a widely established market, two large utilities, State Grid and Southern Grid. This would need to be developed. Second, a secondary market offers distinct advantages for China, especially from for batteries, a critical enabler for the leasing market to be a common standards approach. However, the current viable, would need to be established. Currently, there is no Chinese electricity grid has relatively high GHG emis- downstream market to place used batteries from vehicle sions and analysts have projected that, due to the long applications into new secondary markets for other appli- remaining lifetime of the existing and newly installed cations, such as renewable energy storage. coal-fired generation capacity, this could remain the case for a considerable period. 24 Electrification of the Chinese Figure 37: Cumulative Ownership Cost Comparison for vehicle fleet clearly will help achieve energy indepen- Vehicle Purchased in 2018 dence objectives (due to reduced reliance on imported oil) and will reduce GHG emissions in some regions even with the current grid. But China faces a significant challenge in fully realizing the low emission potential of $35,000 NEVs and indications are that realizing such benefits will 8 Year Payback require a deliberate policy framework supported by a $30,000 consistent monitoring regime (Box 3). $25,000 $20,000 $15,000 ICE $10,000 EV $5,000 $0 2018 2019 2020 2021 2022 2023 2024 2025 Source: PRTM Analysis The one other "red" barrier is the creation of an inte- grated solution that addresses both the technological and commercial issues. Each region faces different challenges in this regard. Potentially, the biggest chal- lenge is faced by the United States, where the aging grid is viewed as weak. Further compounding the issue 30 Discussion and Conclusions Box 3: A Framework for Measuring and Maximizing Carbon Benefits Three critical factors determine the well-to-wheels need to be clarified in order to accurately and consis- GHG intensity of an electric vehicle: tently measure the carbon impact of a vehicle electrifi- cation strategy. Issues of particular concern include: a. The carbon intensity of the generation mix. This is the dominant factor and is determined by the a. Using the average versus marginal generation share of coal (versus renewable) in the generation mix. Until EVs become a mainstream solution, the mix and the efficiency of the coal power plants. marginal mix is more accurate (the generation China has committed to aggressive targets on source supplying the marginal demand). However, both--increasing the efficiency of coal power plants this is quite complicated to measure in practice. (from 32 percent in 2010 to 40 percent in 2030) b. Geographic factors. The carbon intensity of the and in increasing the share of renewables in the mix. generation mix will vary by region. Estimates of EV Achieving these targets will be key to realizing the carbon impact will vary depending on whether one potential GHG benefits from electrification. assumes the national, regional, or local mix. For b. The efficiency of the vehicle and associated regulatory purposes, it is simpler to use the national charging mechanism--how much electricity is mix but this is less accurate. required to travel a given distance. This will vary c. Future grid changes. The grid is getting cleaner over depending on the weight of the vehicle and its time. Thus, the electricity used by a vehicle in year specific design features. 10 of its life will be cleaner than that used in year c. The impact of EVs on the generation mix, (i.e., one. Estimates of the lifetime carbon impact of EVs EVs can "soak up" excess renewables at night and need to take this into account. thereby allow for a higher percentage of renewables in the overall mix than would otherwise be the case). From an institutional standpoint, work is needed to A deliberate policy environment (peak versus off- build a more direct linkage between generation and peak pricing, administrative requirements guiding consumption, in order to better measure the carbon charging) and facilitating technology environment impact of EVs and allow for dedicated use of renew- (such as the availability of smart grid applications) ables. The ability to purchase electricity from specific can have significant impact on actual GHG emis- generation sources and assign it to EVs will vary sions. from system to system. In most places at present, for example, there is no "direct access" so a consumer Even within a given technology context, there are cannot directly purchase renewable sources. considerable analytical and methodological issues that 31 Endnotes Endnotes 1 13 Darido et al. 2009. Conceptually, there is a distinction between local and global exter- nalities. For a global issue such as climate, the Pigouvian argument 2 U.S. Energy Information Administration Annual Energy Outlook 2010. makes most sense if the rest of the world is addressing the issue with Washington, DC: U.S. Department of Energy; http://www.eia.doe. the same level of commitment as China. gov/oiaf/aeo/ 14 U.S. Energy Information Administration International Energy 3 http://www.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm Outlook 2010, July 2010. Washington, DC: U.S. Department of Energy. http://www.eia.doe.gov/oiaf/aeo/ 4 http://articles.cnn.com/2010-07-23/world/china.oil.spill_1_oil-spill- crude-dispersants?_s=PM:WORLD 15 Qizhong Wu, Zifa Wang, A. Gbaguidi, Xiao Tang and Wen Zhou. 2010. "Numerical Study of the Effect of Traffic Restriction on Air 5 From a water consumption standpoint the situation is less clear. A Quality in Beijing," SOLA, Vol. 6A, 017-020, doi:10.2151/sola.6A-005. recent study using the U.S. 2005 electricity generation mix found that displacing gasoline miles with electric miles resulted in more 16 http://www.businessweek.com/news/2010-05-29/china-automo- water being consumed and withdrawn, primarily due to water bile-production-may-grow-by-15-this-year-update1-.html cooling of thermoelectric power plants (King, Carey W and Michael 17 E. Webber. 2008. "The Water Intensity of the Plugged-In Automotive http://www.science.doe.gov/sbir/solicitations/FY%202010/06. Economy," Environ. Sci. Technol. 42, 4305­4311). Much less water is EE.Electric_Drive_Vehicles.htm used by fossil power plants with dry cooling systems, and renewable 18 resources such as wind and PV solar. In general there is a trend in http://www.zhongtongbuses.com/8-electric-buses-b-LCK6120EV. China to reduce water use in electricity supply (http://www.circleof- html blue.org/waternews/2010/science-tech/climate/chinese-power- 19 plant-develops-advanced-coal-technology/). http://www.byd.com/showroom.php?car=e6&index=6 20 6 http://ec.europa.eu/environment/air/transport/co2/co2_home.htm http://www.canadiandriver.com/2010/04/11/china-builds-45-car- electric-charging-station.htm 7 http://www.jato.com/Consult/Pages/co2.aspx 21 For examples of regional US power sector greenhouse gas emission 8 Fuel consumption conversions are conducted according to the factor caps see the Regional Greenhouse Gas Initiative, http://www.rggi. defined in An, Feng and Dianne Sauer, "Comparison of Passenger org/home, and the California Air Resources Board cap and trade Vehicle Fuel Economy and Greenhouse Gas Emission Standards program, http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm Around the World," Pew Center on Global Climate Change. 22 December 2004. According to An and Sauer's analysis, due to the U.S. Department of Energy, Energy Efficiency and Renewable differences between the NEDC and US-CAFE (and other) testing Energy, EERE State Activities and Partnerships, http://apps1.eere. cycles, direct unit conversions from mpg to L/100km are not accu- energy.gov/states/maps/renewable_portfolio_states.cfm rate and need to be modified by a multiplier. 23 TEPCO R&D Center Study 2008 9 Huo Hong, Qiang Zhang, Michael Wang, David Streets and Kebin He, 24 "Environmental Implication of Electric Vehicles in China," Environ- Huo, Hong, Qiang Zhang, Michael Q. Wang, David G. Streets, and mental Science and Technology, May 2010. Kebin He: Institute of Energy, Environment and Economy, Tsin- ghua University, Beijing, China, Center for Earth System Science, 10 GM's vision for 2030 Urban Mobility," Automotive Engineering Inter- Tsinghua University, Beijing China, Center for Transportation national, November 16, 2010. Research, Argonne National Laboratory, Argonne, Illinois, Decision and Information Sciences Division, Argonne National Laboratory, 11 Delucchi, Mark and Ken Kurani, "How we can have safe, clean, conve- Argonne, Illinois, and State Key Joint Laboratory of Environment nient, affordable, pleasant transportation without making people Simulation and Pollution Control, Department of Environmental drive less or give up suburban living," Institute of Transportation Science and Engineering, Tsinghua University, Beijing, China. 2010. Studies, University of California Davis, CA.UCD-ITS-RR-02-08 rev. 1. "Environmental Implication of Electric Vehicles in China," Environ. October 2010. Sci. Technol. 2010, 44, 4856­4861. 12 A Pigovian subsidy (tax) is a term for subsidies (taxes) imposed on individuals or firms who are taking actions that have positive (nega- tive) social consequences. The subsidy (tax) corresponds to the social benefit (burden) associated with the action, so that the total "cost" to the individual or company reflects the costs they impose on society. A Pigovian subsidy (tax) equal to the positive (negative) externality (or impact on society) is thought to correct the market outcome back to efficiency. A typical example of such a tax would be to charge polluters for air or water pollution emissions.