Note: This article originally posted on S&P Global.
Electric vehicle sales are expected to surge in coming years, not only for passenger cars but also for companies with large vehicle fleets, such as Amazon.com Inc. and United Parcel Service Inc., which are adding EVs to help decarbonize delivery operations.
California-based EV Realty Inc. is working to develop the grid-scale charging infrastructure that electrified fleets will need while confronting various grid challenges, including distribution and capacity requirements.
S&P Global Commodity Insights spoke with Patrick Sullivan, CEO and co-founder of EV Realty, about commercial vehicle fleet electrification and the grid challenges that come with it. The following conversation has been edited for clarity and length.
S&P Global Commodity Insights: Can you give an overview of what EV Realty does and the electrification problem it is trying to solve?
Patrick Sullivan: EV Realty develops, deploys and owns multi-fleet charging hubs that power critical commercial fleet operations. We call these our powered properties. They are grid-optimized large-scale EV charging hubs designed for a range of different delivery, logistics, services and vocational fleets. They are secure dedicated depots for multiple fleets.
By aggregating multiple fleets onto these grid-ready powered locations, we’re able to offer fleets lower charging costs and drive significant utilization of the infrastructure of the property that we’re investing in. And we’re able to site these locations really proximate to where these critical commercial fleets operate, travel and load.
The best projects are sited around where the grid is able to interconnect. The electrical grid was never designed to be the fuel source for 300 million vehicles. It’s just simply not a use case that our distribution system was ever optimized around. Where you have access to significant amounts of capacity on the distribution system will be critical to powering fleets at scale.
Several major corporations in the US with delivery fleets, including Amazon, UPS and Walmart Inc., have all made various commitments to electrify their fleets. How many service fleets are expected to go electric in the next several decades, and what does the build-out of an electrification network need to be to support that?
There are just under 300 million total vehicles in the US. Eventually, by 2050 and beyond, if we’re to achieve our carbon emissions targets from the transportation sector, almost all of those vehicles will be electric. Of those 300 million vehicles, there are about 12 million medium- and heavy-duty vehicles on the road. You can think of those as a pretty good proxy for a lot of the commercial fleets.
Just focusing on California, where EV Realty is based, there are about 1.8 million medium- and heavy-duty vehicles. Based on the approval recently by the Air Resources Board of the Advanced Clean Fleets (ACF) regulation, about one-third of those will be subject to ACF regulations, which means about 600,000 medium- and heavy-duty commercial vehicles will be electric in California by 2035.
There was a 2020 report by the Air Resources Board that estimated there would be a need for about 157,000 fast chargers just in California for 180,000 medium- and heavy-duty vehicles, and that’s by 2030. With the passage of advanced clean trucks and advanced fleets here in California as well as the passage of the Inflation Reduction Act, all of these estimates are being revised and re-evaluated significantly upward.
So you’re looking at 350,000 to 500,000 fast chargers just in the state of California just to support medium- and heavy-duty commercial fleets. No matter which way you slice it, the scale of the market opportunity and, frankly, the challenge is enormous.
Our estimates suggest that, just in the state of California, you’re looking at almost $70 billion of potential distribution system upgrades to have the grid be capable of powering this.
A lot of the numbers and policies you have referenced are relatively recent. What were the trends in this industry leading up to these major pieces of California and federal policy, and where do things stand today in terms of a charging network build-out?
In general, the industry is still quite early. Based on the last 15 years that I’ve spent in more traditional renewable energy project development and financing, the conversations with customers and the understanding of the complexity of the challenges are significantly earlier than where you see more sophisticated market participants.
That said, you are starting to see the largest fleets move beyond pilot scale and starting to think about how to power dozens, and eventually hundreds and then eventually thousands of trucks, and that’s just here in California.
I think there’s a list of over 100 publicly traded companies here in the US that have made EV and clean transportation commitments of some variety. But it is really quite early in terms of networks or even charging facilities for commercial trucks. We really have yet to see the build-out of, frankly, almost any of the infrastructure that we need.
What are the biggest challenges that come with building this infrastructure?
There is ample generation capacity [to support these vehicles]. The challenge is really the distribution of that energy all the way down to the low-voltage system or the circuits and segments that run to each individual home and place of business or work.
The electrical distribution system is designed to operate in a highly reliable fashion, but it was not built with significant excess distribution or transfer capacity to each home or place of business.
That means that oftentimes where you may have a large warehouse or logistics facility, it is served by a low- or a medium-voltage distribution circuit segment that has multiple businesses pulling power from that infrastructure, and there’s no excess capacity to be able to plug in a bunch of trucks.
Sometimes, to create that additional capacity, it’s as simple as reconductoring a segment of wire, making it able to carry more electricity, so to speak. But oftentimes, and what we’re seeing really being borne out here in California where the grid is particularly constrained, those upgrades are really added distribution substations, and those can be very expensive and time-intensive upgrades. We’re talking upwards of 10 years. Building a new distribution substation in California could be a $30 million to $50 million activity.
The grid, once you start to see the penetration of these electric vehicles at scale, is simply not sufficient for everybody to plop all the chargers they need at their location. You’re going to have to think about where you charge vehicles in relation to where the grid is more able to handle them today or where the upgrades to serve that amount of charging need are reasonable and, frankly, feasible.
What are you most optimistic about when you think about the future of fleet electrification?
What I’m excited about is figuring out how to work within the existing infrastructure constraints to start finding those charging locations that are ready today. This has a couple of important near-term benefits.
The first is, for fleets with vehicles coming and at scale, oftentimes these locations are directly adjacent or immediately proximate to where they operate. They just happen to be on a different circuit going into the right part of the substation. So it has the benefit of helping these fleets in the near term.
It also has a critically important benefit of using the system that we have rather than completely throwing it out and building a brand new one. Our approach, and I think the approach of others in this space, is to really try to use that existing capacity today, which ultimately benefits ratepayers in addition to bringing fleets online.
In the longer term, something my founders and I are extremely optimistic about is the ability to drive scale. We’re not going to pilot our way to powering 300 million vehicles on the grid. We really do need to think about infrastructure-scale solutions.