Will spot pricing influence electric vehicle charging? An example from Norway
As you may have seen in the news, Norway is under considerable pressure at the moment due to high energy price rises in the last quarter.
On October 1st, 2020, Norway established hydro-power energy trading between Norway and the United Kingdom. For some time now, Norway has been setting itself as one of the main energy providers of Europe, supplying cheap natural green energy.
However, this initiative suffered a recent blow when domestic energy consumption surged due to low temperatures and electrification initiatives. This caused Norway’s energy prices to spike, reaching unforeseen numbers. The outcome is that electricity prices are expected to remain considerably higher in the future than in previous years.
The current state of energy prices in Norway has driven the government to take drastic action and implement severe measures. Last December, Prime Minister Jonas Gahr Stoere announced plans to subsidise the electricity bill of households to soften the impact from soaring power prices. The cost of the proposal could amount to some 5 billion Norwegian crowns ($560 million) combined for the four months from December 2021 to March 2022, the government said.
But why the sudden energy crisis in Norway?
Norway’s biggest challenge comes from the source of its energy. In Norway, 98 percent of electricity production comes from renewable energy sources. Hydropower is the biggest source of production, along with wind energy in second place.
This means that their energy supply is dependent on weather conditions, such as rain, wind speed, and temperature changes. This fluctuation makes energy prices vary immensely depending on the season, with winter being one of the most expensive periods for energy consumption due to the low temperatures and unreliable conditions for natural power creation.
What is spot pricing in the energy market?
If energy production is more volatile, implementing new utility programs might be the solution. Spot pricing is one possible way to achieve some stability.
Spot pricing contracts are based on a calculation of the average market price on the market’s electricity exchange, hour-by-hour during the course of a month. With a time spot agreement, customers pay for the actual market price that applies at the specific time they use the electricity.
This program differs from more traditional programs such as fixed-price contracts, since spot pricing constantly shifts the price of energy depending on the time of day, the energy available, and the energy sources used.
Energy companies like Fjordkraft have offered spot pricing to customers over recent years, claiming that customers pick spot pricing over fixed energy pricing.
What are the benefits and challenges of Spot Pricing?
Spot pricing definitely comes with some headaches.
During the winter months, we can see incredible price fluctuations, which means that customers pay unforeseen charges. On the other hand, the program brings large savings at certain times of the year, such as the summer months when energy demand is lower.
The key to using spot pricing programs successfully is the optimization of energy consumption. Even during high energy demand periods, customers can take advantage of the pricing structure by planning their energy consumption accordingly. This is fairly hard to do manually, since keeping track of hourly changes in energy prices is quite challenging. Here is where smart charging technologies such as smart houses and smart EV charging come into their own.
How to optimize electric vehicle charging with spot pricing?
Electric vehicles account for a large proportion of energy consumption in cities. In countries like Norway, EV charging represents a large percentage of the energy usage for residential grid users. At the same time, electric vehicle charging is the perfect opportunity to use spot pricing to reduce charging costs and maintain grid stability. We can see its impact in a variety of scenarios.
To make this a bit easier to understand, let’s look at two examples:
- CPOs in Residential Area:
Let’s say you are a Charging Point Operator (CPO) offering charging solutions to your EV customers, under a fixed flat rate. This rate is calculated over the monthly mileage and charging habits (charging at home, work, etc.). For your customers, you make EV charging extremely easy and they can always rely on one fixed bill.
- For you as the CPO, on the other hand, it is a completely different story. Since you operate under a spot pricing program, you are taking the economic risk of having to pay unexpected spikes in prices during the day, making your business model less feasible.
- Smart charging technologies offer an ideal solution, as a way of optimizing the charging of your customer’s electric vehicles. They plan and adapt the charging schedules automatically, while still ensuring on-time departures and full loads to your customers.
- Electric Bus Fleet:
You operate a public transportation agency, with a fleet of 100 electric buses. Your buses have specific routes and schedules every day. On average, each bus has an idle time of 6hrs, during which buses are charged and maintained.
- If you opt for a spot pricing energy rate from the local energy company, you will risk that the vehicles charge when energy prices are very high. As the price changes several times per day, it’s difficult for you to manually adjust the charging plan.
- However, with smart charging, the optimization software makes automatic decisions for the fleet operator and drivers.
- For example, at Ampcontrol we use vehicle information (e.g., planned departure time) and the spot pricing data to optimize the charging plan. This means that the software sets a low charging speed during peak energy cost periods and increases charging during the lower energy cost period. This significantly reduces the costs of charging for the bus fleet.
- You can see more details about a similar case study here.
We are seeing new energy programs spring up throughout Europe and the United States at the moment.
Utilities are finding new ways to deal with demand and supply of energy, creating programs such as day-ahead pricing, time-of-use rates, and others.
What we see happening in Norway is just one example of how energy and charge optimization is the key to efficiently managing the energy grid.
At Ampcontrol, we focus on providing smart and reliable optimizations that reduce energy costs while ensuring satisfactory results on the customer side.
Learn more about our technology, and how to optimize for spot pricing with Ampcontrol here.