Market Design for Electric Vehicles

Abstract

The recent growth in global electric vehicle (EV) sales has stimulated the development of new charging technologies and ways for EVs to become active participants in the energy system. However, markets were historically not designed for distributed, small-scale assets like EVs and still pose barriers to entry. In which markets do electric vehicles provide services today? Which designs are most suited to incentivise EV services, centrally operated markets, or decentralised price signals? EV flexibility has been recognised as tradable in day-ahead (wholesale) and intraday markets, frequency regulation, demand response, and DSO congestion markets. However, operational examples of EVs participating in these markets are scarce. Our case studies from the UK, the US, the Nordics, and Hong Kong show that high technical barriers still limit EV penetration in frequency regulation and wholesale energy markets, where at least two intermediaries are required: an aggregation partner and a trading access partner. Demand response market mechanisms are emerging with the aim of facilitating EV entry, but dynamic, cost-reflective price signals still appear a more realistic first step to encourage consumers and business fleets to commit their EVs. Finally, we highlight the risks to innovation and market growth caused by mandated, uncompensated system operator control approaches as proposed in the UK and seen in the USA. Price signals are likely to remain the most important mechanisms to encourage EV engagement as storage and demand response resources in the near term. Policymakers, regulators, system operators, and suppliers should direct their attention to designing system cost-reflective, dynamic tariffs that maximise social welfare rather than individual EV revenues.