Vehicle-to-grid: Does it make economic sense?

Vehicle-to-Grid (V2G). A fascinating concept that appeals to venture capitalists and energy economists alike.

V2G in theory

What’s not to love? Imagine millions of electric vehicles (EVs) and plug-in hybrids (PHEVs) connected to the power grid, storing excess energy generated by wind farms at night and selling power back to the grid during peak demand hours.

It seems to be a win-win-win story. V2G helps accommodate renewables in the grid; curbs CO2 emissions by reducing peak power demand; and provides a financial benefit to owners through time-of-day pricing.

Recently, U.S. Department of Energy Secretary Steven Chu expressed his praise for the concept:

“It has always been my goal to do energy arbitrage with plug in vehicles… If you get half the cars with 50 to 60 kilowatt-hours of energy storage, it’s an incredible amount of energy storage… and if you’re willing to sell half the energy storage back to the company, much of our energy storage problems will be taken care of.”

V2G in practice

But. Is V2G truly a win-win-win? Specifically, does it make economic sense for PHEV/EV owners and manufacturers?

I believe that engaging a PHEV/EV in V2G transactions would chip away at the remaining useful life of a lithium-ion (Li-ion) battery — and hence the residual value of the vehicle —  in a substantial manner.

Do the math

Let’s consider the following scenario based on Li-ion cells that will power the next generation of PHEV/EVs like the Chevy Volt (while owners of the first-generation Volt will not be allowed to engage their vehicles in V2G programs, I will nevertheless use the Volt battery pack as an example).

• The average cycle life of a Li-ion cell (down to 80% of initial energy storage capacity) is less than 1,000 full charge-discharge cycles.
• US$450/kWh is a reasonable estimate for the cost of automotive Li-ion battery packs.  These costs will come down with volume, but not by much.
• The Volt will sport a 16 kWh Li-ion battery pack, of which only 8.8 kWh will be usable (the battery will be cycled between 30% and 85% state-of-charge levels).
• We will ignore losses due to heat and assume 100% round-trip efficiency in and out of the battery.

Let’s assume that a PHEV/EV could buy (charge) or sell (discharge) up to 20% of its nominal capacity in one V2G transaction. For the Volt, that amounts to 3.2 kWh of energy. For the sake of argument, let’s assume that the vehicle is able to buy energy on the cheap, say, at 8 cents/kWh and sell it at a 25% premium (10 cents/kWh). That one V2G transaction (3.2 kWh bought and then sold back to the grid) would yield a net profit of 6.4 cents.

Now, let’s calculate the depreciation on the battery due to this V2G transaction. At $450/kWh, the Volt battery pack would cost around $7,200. With an optimistic cycle life estimate of 1,000 full cycles, the depreciation cost of each full (100%) cycle is $7.20 — or $1.44 per each 20% charge-discharge cycle!

The argument isn’t much better for larger EV batteries. The same 20% capacity V2G transaction yields a net profit of 21.2 cents for the 53 kWh Tesla battery pack, and results in a depreciation of $4.77 assuming a similar replacement cost of $450/kWh!

Bottom line

The miniscule gains from V2G transactions would not come close to compensating the owner for battery depreciation.

Furthermore, it’s not even clear yet whether PHEV/EV manufacturers will honor the warranty on batteries if the batteries are used for purposes other than driving. While the jury is still out, it won’t be a surprise to anyone if PHEV/EV manufacturers decide to void battery warranties on PHEV/EVs that participate in V2G programs.

Chemistry matters

V2G is a brilliant concept, but Li-ion may not be the right chemistry for V2G.  Eventually, there will be new energy storage methods with minimal degradation due to normal use and extraordinarily high cycle life.

Until then, it might be wise to focus our attention on more feasible ways to integrate renewables into the grid.