RETRANS2 Regions

Opportunities for the Use of Renewable Energy in Road Transport in North America, Europe and China

Executive Summary12.07.2011

AuthorsRWTH Aachen University – Institute for High Voltage Technology

Univ.-Prof. Dr.-Ing. Armin SchnettlerThomas DederichsAnn-Kathrin Meinerzhagen Eva Szczechowicz

COWI A/S

Henrik DuerCamilla Rosenhagen

ÉcoRessources Consultants

Natalie Lambert

Azure International

Emiel van SambeekJenny Chu

IndexExecutive Summary 2

Regional Details – North America 6

Regional Details – Europe 9

Regional Details – China 11

RETRANS2 Regions – Executive Summary

Executive SummaryIn 2009/ 2010 IEA-RETD commissioned the project IEA-RETD “Renewable Energy in Road Transport (RETRANS)” (see www.iea-retd.org) which examined different options of using renewable electricity in electric vehicles which would result in a “Co-Evolution” of the energy and transport sector. Based on the findings of that report, the follow-up project RETRANS2 Regions aims at identifying challenges and opportunities for this Co-Evolution in three world regions: North America, Europe and China.

The framework for the Co-Evolution differs in the three regions with regard to the characteristics of personal mobility – modes of transport used, distances travelled, private vehicle ownership etc. Moreover, the infrastructures in the three regions have differing requirements concerning the integration of Electric Vehicles (EVs) and Electricity from Renewable Sources (RES-E). Third aspects under which the three regions differ are the policy framework and economical situation. An analysis of the characteristics of each region concerning the political, economical and infrastructural framework gives stakeholders an opportunity to understand the different roads the Co-Evolution of Renewable Electricity and Electric Vehicles has to take. The assessment of the different policy options from RETRANS highlights the regionally differing developments.

RETRANS2 Regions approaches this scope by an assessment of studies that are relevant to the field and of pilot projects that aim at gaining experience with the deployment of Electric Vehicles. Statistical data on the three regions and regional policies concerning vehicles and renewable energy are analyzed. Expert interviews provide an insight into the regional electricity sector development.

Background for Electric VehiclesThe economic and population background regarding GDP, economic growth, population and urbanization is similar for Europe and North America. Both are wealthy (3 and 4 times average world GDP), show slow but steady economic growth, the population is about the same (334 and 500 million) and urbanized (72-80%). The two regions differ in population density, however. The higher the population density is, the cheaper infrastructure investments are per user. China is poorer (75% of the average world GDP), its economy is booming, the population is thrice of North America (1.5 billion) and less urbanized (45%). However, that means still that the number of urban Chinese population is roughly equivalent to the total of all Europeans and North Americans. High levels of urbanization center the electric load and let population density peak in urban areas thus providing an environment in which pilot deployment of Electric Vehicles may be cheaper and more easily realized.

The characteristics of personal mobility clearly separate the three regions. While in North America personal mobility relies almost totally on private vehicles (only urban regions offer public transport solutions for inner-city-travel), public transport is much more common in Europe and especially in China where it is extremely important for long-distance travelling. This is mirrored in the vehicle ownership – in North America and Europe there are 227 and 210 million passenger vehicles on the road, respectively, while in China there are only 35 million. This will change as the Chinese vehicles market is growing extremely (tripling of sales within five years). Vehicle ownership in China is centered in urban areas while in Europe and North America vehicle ownership is slightly higher in rural areas. Traffic volumes are expected to increase in all three regions.

Electric Vehicles have only a marginal share in the market (maximum 1% of sales). In China mostly buses and taxis are sold. Electric two-wheelers have been in the market for a long time without ameliorating the traffic situation or helping battery technology progress. As they are mostly charged

2

RETRANS2 Regions – Executive Summary

during the night, their impact on grids has been negligible. National targets for Electric Vehicles on the road by 2020 amount to 5 million in Europe (33%) but only 3-10% market share are held to be a realistic development. In China the target amounts to 5% (1.75 million).

Pilot projects with first deployment of electric vehicles are an important tool for gaining experience both in the production and usage of electric vehicles. Also they can stimulate customer acceptance of the design and performance of electric vehicles of changes in personal mobility patterns which is one aspect whose influence will be considerable for the transition of the transport sector worldwide, but whose characteristic remains unclear. Overall, only small numbers of EVs are deployed in North America – European and Chinese projects are much more ambitious by numbers. Some pilot projects already concentrate not merely on electric vehicle deployment and experience but on offering a complete mobility packages.

System requirements and Electricity from Renewable SourcesIn all three regions the share of electricity from renewable sources is similar (17-18%). However, regionally this share varies between 1% (North China) and 99% (Norway). Hydro power is the most important source in all regions and is used for base load power except for China, where it is most important for peak load power management. Expansion of other renewables’ capacity in China is centralized and thus concentrates on large wind or PV plants. In contrast, in Europe renewable electricity production is more and more distributed.

The regulatory framework for renewable electricity differs extremely between the three regions. While Europe has implemented support policies most widely across all countries, such policies exist only on state or province-level in North America and not at all in China. The mostly regulated and vertically integrated markets in North America and China impede the market entry of new producers.

The integration of electric vehicles mostly affects distribution grids, especially in cities, since first deployment will be in urban areas. European grids can take up high penetrations (>50%) while grids in North America and China might experience overloads earlier. The increase in electricity produc-tion from renewable sources will expedite local grid development in North America and enhance transmission capacity in China. The current trend towards increasingly distributed renewable electricity production in Europe leads to a need for regional enforcements in distribution grids.

The three regions will need to follow different roadmaps for a Co-Evolution of electric vehicles and renewable electricity. All start at local integration of electric vehicles and charging them unregulated. Smart grid technologies will be first implemented parallel to local grid expansions in North America because their grids require investment for taking up electric vehicles and renewable energies. The integration of huge renewable energy plants in China makes expansion of transmission capacities im-portant rather than increasing local capacities on the distribution level and smart grid technologies. Controlled charging will be quickly introduced as the number of electric vehicles rises. The modern European grids may permit active load management and ancillary services earlier than in other regions.

Policy AssessmentThe policy suggestions from the RETRANS project envisioned a two-phase policy approach. During the first phase (until 2015) policies need to prepare a framework for electric vehicles, increase electricity production from renewable sources and ensure a balanced grid development. Thus, charging infrastructure and EV standards need to be introduced. It is important to provide a long-

3

RETRANS2 Regions – Executive Summary

term perspective to industry from the very beginning. Pilot fleets will result in cost reductions due to learning effects. Renewable electricity can be supported by priority access for renewable s and known support policies like Feed-in tariffs, Renewable portfolio shares or cap and trade systems. A balanced grid development can be ensured by close coordination between regulatory and technical developments. Smart grid technologies may enable this balance, too, by enabling load management or bidirectionality. In Phase 2 the deployment of EVs needs to reach mass markets and increased system integration can enable real Co-Evolution and a higher use of both EVs and RES-E. For this, a legal and technological framework for load management and vehicle-to-grid (V2G) services needs to be in place.

Six policy options for supporting Co-Evolution were identified:

Hard Coupling electricity needs of electric vehicles to new renewable electricity is feasible in Europe but unlikely in North America and China because there support policies for renewable energy are lacking that back up this policy option.

EV manufacturers’ investments in renewable electricity per EV sold could make them count as Zero-Emission Vehicles. This policy option may be feasible in all regions. The vertically integrated electricity sectors in China and North America have to be opened to these new investors.

For enabling Tax Exemptions for charging electricity from Renewable Energy Sources, charging tariffs have to be established that guarantee renewable electricity for the charging process. Modifications to the electricity billing systems may be necessary, but overall this policy option is feasible in all regions.

The electricity tax from the charging current of EVs could be re-invested into new renewable electricity production plants. This option is feasible in all three regions (if electricity taxes exist). This option requires a charging tariff for electric vehicles for identifying the exact amount they charge.

A Cap and Trade system for vehicles emissions could couple emissions from the transport and the electricity sector. This option is feasible in Phase 2 if Phase 1 was used for preparatory policies.

Another Phase 2 policy option is a Grid Stabilization Bonus that Distribution System Operators pay for plugged-in vehicles that are available for ancillary services. This option is feasible in all regions if smart grid and bidirectional charging technology is available.

National and internationally harmonized standards for Electric Vehicles and charging infrastructure are the first requirement for globally successful Co-Evolution of the transport and the electricity sector. The system requirements and framework conditions lead to different roadmaps for this Co-Evolution.

In North America, policies will have to support local development – new RES-E production and the deployment of electric vehicles will drive local grid expansions. While EVs will first be deployed in urban areas, RES-E may be installed also in rural regions. The adoption of binding GHG emission reduction targets will ensure that significant and extensive renewable electricity and EV targets and support programs will be adopted, both at the national and the regional level. Binding targets for renewable electricity and EV are unlikely to be implemented on their own right. Indirect incentives (e.g. taxation benefits) for both EVs and RES-E will be most likely accepted publicly. Measures for facilitating the market

4

RETRANS2 Regions – Executive Summary

entry of electric vehicles and renewable electricity are key for making Co-Evolution feasible, but the profitability of both vehicles and electricity production will decide whether they will be accepted.

In Europe support policies for Electric Vehicles should concentrate on incentives for charging infrastructure and increased deployment as well as standardization issues. The near-term focus will stay on urban areas as breeding ground for EVs. The variety of current local approaches in pilot projects across the continent permits an evaluation of criteria for the successful deployment of electric vehicles. It becomes apparent that solutions for traffic and grid problems will have to be localized. Coordinated action might not be possible for all countries because of the variety of economic and political backgrounds. Thus, pan-European policies will have to concentrate on standardization and common framework policies that provide a scope of action for the countries. Coupling current incentives for electric vehicles to charging renewable electricity might slow down the deployment of electric vehicles but may be a strong instrument to establish the connection of these two sectors.

In China as in North America, binding GHG emission reduction targets should be adopted for motivating targets for RES-E and EVs. Emission standards for manufacturers’ vehicles’ fleets have to be adopted for slowing down the rapid increase in emissions from transport that has to be expected. Since private, distributed RES-E will most likely not be encouraged for charging EVs, a tariff that guarantees RES-E charging should be developed. A potent measure for avoiding additional emissions from traffic altogether could be rural EVs which could be chosen instead of a conventional vehicle. This will only work if the quality is high enough to make EVs the same status symbols as conventional cars.The vertically integrated electricity sector that determines the electricity mix based on governmental decisions leaves little room for EV manufacturers’ financing new RES-E. However, the importance of governmental decisions makes hard coupling EV and RES-E targets an interesting option for RES-E expansion.

Consistent long term policy is needed for Co-Evolution. The policy frameworks have to ensure that system operators can react quickly to changing demand and supply characteristics in electricity grids. First experience from pilot projects has shown that people begin to identify mobility not only with private vehicles but more and more as a service. Thus, integrated local approaches for traffic problems are needed. Business cases that link electric vehicles to other transport solutions and guarantee RES-E charging are needed.

Information and marketing campaigns have to be realized ensuring that demand barriers for EVs are broken down. Policies have to be adapted to regional characteristics – especially in Phase 1 when differences between the regions are most eminent.

Follow up work should include an Impact Assessment of the suggested policy options. The success factors for EV deployment and Co-Evolution have to be identified from pilot projects. Boundaries for Co-Evolution have to be identified.

In the following more information on each of the three regions is given. The detailed report is available in power point format under www.iea-retd.org.

5

RETRANS2 Regions – Executive Summary

North AmericaThere are approximately 250 million passenger vehicles on the road in the United States and 30 million in Canada, with an average of about 850 vehicles per 1000 people in both countries. 93% of passenger-km are travelled in private cars. 20,000 km are travelled per person per year in the US (15,000 km in Canada). 80% of the US and Canada population live in cities and on average a car is used for one hour per day to travel approximately 55 km.

In 2008, the number of battery-electric vehicles (BEVs) or plug-in hybrid electric vehicles (PHEVs) on the road in both the USA and Canada was in the low thousands. There were no BEVs or PHEVs for sale in the USA and Canada in 2008, therefore most of these vehicles were imported (apart from the Tesla Roadster, a relatively expensive ($129,000 approximately) niche BEV that appeared on the market in 2008). In 2008, 515,000 hybrid electric vehicles (HEVs) were sold in the USA, accounting for 1.1% of total passenger vehicle sales. In Canada in 2008 there were 100,000 HEVs on the road, accounting for 0.5% of the total passenger vehicle population.

The first entry-level BEVs and PHEV’s were available in the USA and Canadian market at the end of 2010. Predicted production figures were increased twice due to demand. Receiving 20,000 pre-orders in 2010, Nissan stopped taking orders and announced in March 2011 that it would double production at its Japanese plant in order to meet these orders.

The Chevrolet Volt and the Nissan Leaf are the two BEV and PHEV models with the largest-scale deployment foreseen for the near future in the USA and Canada. Nevertheless, there are about a dozen other BEV and PHEV models that are expected to come on the market in the next two years, both by existing large automobile manufacturers and dedicated BEV or PHEV manufacturers. Encouraging large automobile manufacturers, who can use existing infrastructure for economies of scale, to produce electric vehicles will be essential to the success of the co-evolution of electric vehicles with electricity from renewable sources, since large-scale deployment will be impossible without their cooperation.

There are some issues with regards to different vehicle standards between the US and Canada (there are no issues related to electrical standards) that can delay or prevent certain BEV and PHEVs from entering the Canadian market (both US and international models). The discrepancies in vehicle standards between Canada and the US are expected to be resolved in the next two years.

Dozens of smaller-scale pilot projects on battery electric and plug-in hybrid electric vehicles are currently underway in both the US and Canada. The US has begun a large-scale electric vehicle deployment initiative called “The EV Project.” The US Department of Energy (DOE) and corporate partners (Nissan and GM/Chevrolet among others) awarded a total $230 million for the three-year project. Launched in summer 2010, the EV project is the largest deployment of EVs and charge infrastructure to date: 8300 EVs and 15,000 charging stations in 18 cities in 6 states (Oregon, Washington, California, Arizona, Tennessee and Texas) and Washington DC. The Volt and the Leaf are the two models that will make up the 8300 vehicles deployed for this project. Buyers of the Volt or the Leaf receive a residential charger for free with free installation. Data collection on technology performance and potential business models is an important part of the project. Mobility solutions could include solutions for longer-distance travelling, e.g. preferential access to rental cars that can be used on short notice.

6

RETRANS2 Regions – Executive Summary

A number of incentives exist for electric vehicles: in the US there is a federal tax credit, established in 2009, of $7500 on the purchase of a new BEV or PHEV. The full tax credit will apply to the first 200,000 units from the same manufacturer, after which it is phased out over a year. Seventeen states have incentives for BEVs and PHEVs in addition to the federal incentive, ranging from $750 to $6000, in the form of tax credits, rebates and sales tax exemptions. In Canada, the Province of Ontario provides a $5000 - $8500 (CAD) rebate, depending on the size of the battery, to the first 10,000 eligible applicants.

US President Obama recently announced in his State of the Union Address of January 2011 a (non-binding) target of one million electric vehicles on the road by 2035. There is no official target for Canada, although the province of Ontario set a target of 5% electric vehicles on the road by 2020 (which is to be driven by the rebate mentioned above).

The principal barriers electric vehicles in the US and Canada are facing, in general, are similar to the barriers they face in other jurisdictions: high battery costs, driving range, charging time, charging infrastructure and operating costs. However, the issue of public education and acceptance is a particularly important barrier in this region. One US survey found that among consumers initially interested in purchasing an electric vehicle, the number drops by 50% after learning of the $5000 price premium on average. However, another survey found that once consumers were educated of the benefits of plug-in hybrid electric vehicles, their purchase consideration doubled. Clearly there is still a lot of misunderstanding amongst the public regarding electric vehicles.

It should also be noted that the prices of gasoline and the taxes on gasoline are amongst the lowest in the world in both the US and Canada. This is one of the ways in which the barriers to consumer acceptance of EVs are higher relative to other regions.

Renewable energy technologiesCanada is uniquely placed to take advantage of the environmental benefits of the use of electric vehicles, given that 58% of electricity generation in Canada is from renewable sources (this goes up to 95% in 3 provinces). Most of this renewable energy comes from large hydroelectric installations, so expansion of electrical capacity is beginning to become more challenging, given the public’s aversion to the construction of new large hydro installations. However, this is an issue for meeting growing electricity demand in general, not just from electric vehicles (in order to accommodate 500,000 BEVs on the road by 2018 in Canada, this would require an addition 1.5 TWh of generation, only 0.2% of normal projected demand growth overall). In the United States the situation is more challenging, given that only 10% of electricity is generated from renewable sources.

Historically, the electricity grid in North America was been built up in radial structure, but in more recent years has slowly been reinforced with mesh structure, particularly in densely populated areas. Due to low population density in most parts of North America, as well as slow upgrades and improvements, the electricity grid is relatively old and not always reliable enough or even capable of feed-in from renewable energy sources (or electric vehicles). The large distances between urban centers in North America increase the cost per capita of infrastructure development on a nation-wide scale. As such, bi-directional smart grid development on a nation-wide scale is almost impossible. Developing charging infrastructure on a local level is a first step, such as subsidies for charging stations (homes, offices, shopping centers, public spaces). EV deployment in urban areas will thus drive local grid expansions. Additional RES-E production – in rural regions – could also drive local grid

7

RETRANS2 Regions – Executive Summary

reinforcements. A second step would be to develop bi-directional support for V2G. Charging infrastructure and V2G development will likely take place via individual projects in the short- to medium-term (pilot projects, community/local projects). Expansion of electric vehicle deployment to rural areas in North America is highly unlikely in the medium term due to the high cost of infrastructure and social acceptance issues.

The electricity market in many North American jurisdictions is still vertically integrated. This causes increased barrier to entry by renewable energy entrepreneurs and prevents competition between providers for value-added services related to electric vehicles and electricity from renewable sources.

There are no mandatory targets for electricity generation from renewable sources at the federal level in the US and Canada. However, 30 US States have mandatory targets for electricity produced from renewable sources and 6 States have voluntary ones. The Province of Ontario has a target of phasing out coal by 2014 but not all of it will be replaced by renewable energy (part of this target is being met by a feed-in tariff program). A number of incentive programs exist at the national and regional level in the US and Canada; however they are mostly small-scale and limited programs that encourage one-off individual projects rather than large-scale and/or extensive deployment of renewables.

The US and Canada have both adopted the same, modest, non-binding target for green house gases (GHG) emission abatement: 17% reduction relative to 2005 levels by 2020. The implementation of a binding target would likely stimulate more ambitious binding RET targets and funding programs, in order to help the nations meet their GHG objectives. However, US and Canadian citizens have grown accustomed to inexpensive energy costs and are reluctant to support politicians that impose policies that could cause energy prices to rise, even if these price increases are modest.

Co-evolution of electric vehicles with electricity generation from renewable sourcesA number of business models exist that would seek to encourage the co-evolution of renewable electricity generation with electric vehicle deployment. The most commonly-discussed business model that is also the most likely to be implemented is V2G (vehicle-to-grid). In North America, there is currently only one jurisdiction in Colorado that has put into law a V2G program, following a university-led demonstration pilot project. The V2G model requires the upgrade of the grid to a bi-directional smart grid at a high capital cost, which many jurisdictions may not be able to afford. The financial incentive of V2G, both for EV drivers and service providers, are most advantageous when the reserve energy being serviced by the EV fleet would otherwise be from a costly option (diesel-fired, for instance). This is the case in most regions in the USA and Canada. However, there are jurisdictions where even spinning reserves are provided at low cost (by hydropower, for instance), hence the financial incentive of V2G is less strong.

For North America, the first and most important step to support and encourage real renewable electricity and EV development is the adoption of binding GHG emission reduction targets. This will ensure that significant and extensive renewable electricity and EV targets and support programs will be adopted, both at the national and the regional level. North America is one step behind Europe in this regard. Binding renewable electricity and EV targets are unlikely to be implemented in their own right. Typically, renewable electricity and EV targets are used to achieve another goal (GHG emission reduction targets, improving vehicle fuel efficiency, phasing out coal power, etc). GHG emission reduction targets are the best way to ensure that other complementary policies and targets that

8

RETRANS2 Regions – Executive Summary

could drive co-evolution are put in place. Indirect incentives (e.g. taxation benefits) for both EVs and RES-E will be most likely accepted publicly.

The next steps are to start developing medium- to large-scale pilot projects. This is already underway, with the EV Project in the United States that covers 18 cities in 6 States, and the V2G project in Colorado. More similar projects need to be developed. These pilot projects also contribute to first steps in upgrading the electricity grid in order to accommodate electricity from renewable sources and electric vehicles.

The government and the industries of electric vehicles and renewable electricity also have a role to play in informing the public of the benefits of their technologies. Electric vehicles produced in the highest numbers are made by automakers whose core business is around internal combustion engine (ICE) vehicles. These automakers have been historically reluctant to produce and market EV products to the same extent as ICE vehicles. With improved fuel efficiency standards, as well as consumer interest in environmental performance, they are now starting to produce and market Hybrid Electric Vehicles and Plug-in Hybrid Electric Vehicles almost as much as their ICE models. Battery Electric Vehicles are still somewhat in the niche market status, with supply not yet nearly meeting demand, and are not yet being promoted to the same extent. But this is likely to change in the short to medium term. Nevertheless, the government and automakers, driven by GHG targets and fuel efficiency standards, will be required to encourage the public to adopt these technologies and to understand their benefits (and dispel any myths). Measures for facilitating the market entry of electric vehicles and renewable electricity are key for making Co-Evolution feasible, but the profitability of both vehicles and electricity production will decide whether they will be accepted.

EuropeThe European automotive market is stagnating in the old member countries of the European Union, while new member countries are not at West European levels yet. The vehicle ownership is high (nearly 50% of all Europeans own a car) and 83% of all passenger transport activity relies on cars. The average European drives 8,000 km per year while in Nordic Countries this distance increases to 14,000-20,000 km. However, even if the vehicle market is stagnating, it is expected that passenger traffic will increase further because of the growing economic activity and the enlargement of the European Union.

In Europe a variety of policies regards the reduction of fossil fuel dependency in the transport sector and in the overall energy mix. The European Trading Scheme for CO2 and the mandatory target of a 20% share of renewable energy in the primary energy mix in 2020 are but two examples. Different biomass-based fuels are available for conventional vehicles as well as gaseous fuels. As anywhere electric vehicles exist only as a niche market. The highest share of these vehicles is in Norway (0,1%), where one EV manufacturer is situated. Many European countries have issued targets for the deployment of electric vehicles and some have national targets for the production of electricity from renewable sources that exceed the common European values.

This project had a special focus on Nordic European countries – Sweden, Norway, Finland, Denmark and Iceland – because these countries caught attention for their pilot projects on electric vehicles – especially with deployment in Oslo, Norway and the BetterPlace-project in Denmark. The Nordic

9

RETRANS2 Regions – Executive Summary

countries differ from other European countries regarding their electricity mix and – apart from Denmark – also their population density. The latter is comparably low but with elevated urbanization rates (77-80% except for Finland compared to 72% for the European average). The Nordic electricity mix (S, N, FIN, IS) is dominated by renewable electricity (shares are from 58% to 90% compared to 17% European average) and further increases in electricity production from renewable sources in this region are already planned. While the European Union aims at a 10% share of fuels from renewable sources in transport by 2020 (his share includes charging EVs with RES-E), Denmark and Sweden have the target of a fossil-fuel-free transport sector by 2050 and 2030, respectively.

Policies and incentives for EV deployment vary as the national approaches are not coordinated. Some countries subsidize EV purchases, some give tax exemptions (per purchase or annually). Traffic privileges are common policies especially for cities that host pilot fleets and in some pilot deployments the electricity for charging the EV is free. Coordinated action might not be possible for all countries because of the variety of economic and political backgrounds. Common European suggested policies for the transition of the transport sector focus on cities as the breeding ground for new technologies and an internalization of external costs. In Europe mobility packages should include cheaper tickets for public transportation thus offering a seamless integration of EVs in today’s mobility possibilities. This could be expanded by preferential access to rental cars or car-sharing models for long-distance travelling.

In Europe, even high penetrations (40-60%) of electric vehicles will not destabilize local distribution grids. The European grids are also well prepared for taking up additional electricity production from renewable energy sources. The Nordic grid today already is designed for a high share of renewable electricity. With an increasing share of distributed renewable electricity in the system, the management of these sources will become a challenge because the characteristics of electricity production become less predictable. In the combination of distributed electricity production and electric vehicles lies both a chance for local renewable electricity supply and a challenge regarding the overall grid management.

Integrated into a policy framework for future sustainable transportation systems, the deployment of electric vehicles will start and continue in pilot projects in cities across the continent. The variety of local approaches permits an evaluation of criteria for successful deployment of electric vehicles. The possible pathway of electricity grids towards local solutions for power supply will thus be matched to local solutions for transportation solutions. These will vary by country and even by city and thus, one common policy for the co-evolution of electric vehicles and renewable electricity is not possible.

However, a common policy framework that concentrates on standardization providing a scope of action for the countries will be necessary for this evolution. Support policies for Electric Vehicles should concentrate on incentives for charging infrastructure and increased deployment. The expansion of the European Trading Scheme to the transport sector may give an incentive for further reducing fleet emissions. The full potential of policies for renewable electricity production should be exhausted by more European countries. Vehicle manufacturers should be obliged to finance new RES-E production so that EVs can prove their lower emissions (e.g. through certificates). Coupling current incentives for electric vehicles to their renewable charging might slow down the deployment of electric vehicles but may be a strong instrument to establish the connection of these two sectors.

10

RETRANS2 Regions – Executive Summary

ChinaThe Chinese automotive sales tripled in the last five years. The number of passenger vehicles in the market surged to 70 million by 2010. The electric vehicle market, however, is still at a preliminary stage in terms of vehicle ownership (0,01% share of the market), private electric vehicle purchases, infrastructure construction and standardization. The government has been ambitious to develop electric vehicles in terms of total investment, policy making, setting demonstration programs and promoting auto manufacturers’ Mergers & Acquisition and has set the ambitious goal to have EV take 5% of the market share by 2020.

25 pilot cities have been chosen to test the roll-out of EV. In these pilot cities, vehicle manufacturers and the electricity companies co-operate with local authorities and public services to gain experience in many different applications for electric vehicles. Each pilot city has set ambitious targets (between a few thousand and 50,000) for EV purchase, and infrastructure construction, and has provided appealing financial incentives. These financial incentives sometimes benefit private EV purchases but often aim at public institutions. Electric buses and taxi fleets are important applications that many cities chose. Electric two-wheelers have been in the market for a long time without ameliorating the traffic situation or helping battery technology progress. As they are mostly charged during the night, their impact on grids has been negligible. Business models for Battery ownership, charging, electric billing and other models for electric vehicles still need to be developed. In China two different usage scenarios require different mobility packages. In rural areas EVs have to be made attractive for first-time vehicle users by offering long-distance travel solutions. In cities, where parking space is valuable, EVs could be advanced if they are combined with parking and charging opportunities.

The Chinese Government sees the main potential benefits of EVs in the reduction of reliance on fossil fuels (thus saving energy and reducing GHG emissions), acceleration of technology innovation and balancing grid demand. While the benefits to the grid remain a field to be explored, the impact of EVs regarding the reduction of fossil fuel reliance and their role as a strategic means to promote Chinese automotive production and battery technology are important reasons for their deployment.

Three charging strategies (slow/ fast charging, battery swapping) are under demonstration in pilot cities with most of them still under construction. There is no preference among them and no relevant standard has been published yet. China is the largest battery manufacturing center globally; however, quality issues and Intellectual Property Rights remain obstacles for these batteries to be applied on EV.

Chinese RES-E production is mostly remote from the demand centers. At this time, China does not approve off-grid power production developments. Since such RES-E cannot be used for charging EVs, charging tariffs should be developed that guarantee RES-E charging. Further construction of big RES-E projects and hence Extra High Voltage transmission lines is a more likely development in the Chinese electricity sector. South China and Central China grids provide the cleanest grid-connected energy, with 41% and 30% hydro in the electricity mix respectively, while northern China, although with the most wind energies, have the least connected RE resources (only about 1%).

With nighttime charging, Chinese grids could already accommodate large EV fleets. However, nighttime electricity is strongly dominated by coal which reduces the environmental benefits of EVs. There is hope that smart grid technologies will enable efficient use of energy and infrastructure

11

RETRANS2 Regions – Executive Summary

through off-peak charging. There have been demonstration projects on the local level about how to best utilize the differentiated electricity price to charge EVs. One the other hand, a stabilizing impact on the grid will require millions of electric vehicles. However, electricity being fed back to the grid from electric vehicles is not permitted at this moment.

With the strong reliance on coal-based electricity in the Chinese grid, the full environmental benefits of EVs regarding GHG emission reduction cannot come to fruition. EVs must be charged with RES-E for reducing the reliance on fossil fuels in the transport sector and reducing emissions. A potent measure for avoiding additional emissions from traffic altogether could be rural EVs which could be chosen instead of a conventional vehicle. This will only work if the quality is high enough to make EVs the same status symbols as conventional cars. Hard coupling EV numbers to RES-E expansion is a policy option which would assure charging from renewable sources. However, Chinese policy so far has not focused on strong targets for renewable electricity. Thus, binding GHG emission reduction targets should be adopted for motivating targets for RES-E and EVs. The vertically integrated electricity sector with only two grid companies leaves little room for EV manufacturers financing new RES-E. A central, national fund dedicated to building new RES-E capacity to which manufacturers contribute may be possible. However, emission targets for manufacturers’ fleets are the first step that has to be taken for slowing down the rapid increase in emissions from transport that has to be expected.. Since the electricity mix is regulated by the Chinese government, strong targets for renewable electricity production could be implemented quickly. The growing energy demand of the Chinese economy might pose problems that have to be resolved first.

12