Flexible and green transition of Danish private transport: Addressing market barriers and unlocking flexibility

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With an electricity mix increasingly based on renewables, Electric Vehicles (EVs) can play a significant role in the decarbonization of the Danish transport sector and society. However, current EV market trends are too slow for electrified transport to play its part in the country’s energy shift to reach the 70% CO2 reduction goal set forth by the Danish government. This report focuses on the role of public authorities in supporting the development of clean vehicles in general and EVs in particular. We consider the techno-economic characteristics of EVs in terms of purchase and use cost on the one hand, and in terms of battery charge and flexibility, on the other hand, to delimit the scope of actions for supporting policies and framework conditions. Using a benchmark analysis, the report derives good policy practices from EV pioneer world countries and compares them to the recent Danish policy framework for EV development. Successful incentive frameworks build on a combination of instruments and measures directed at offsetting the overcost of EV compared to substitutable vehicles. Especially, good practices show that direct subsidy schemes together with tax exemption on EV provide the main incentive leading to purchasing decisions. These incentive instruments should then be combined with targeted policy measures that will further diminish the cost of use of the vehicle during its life cycle.

We show that, despite a certain delay in the application of supportive framework conditions for the market uptake of electric cars, the overall set of recently adopted targets and policy measures in Denmark is aligned in terms of diversity with the regulatory package set forth in leading countries. However, the incentive framework shows substantial limits, particularly with regard to the incentive scope of the economic incentive instruments (subsidies etc.). In the absence of higher
support schemes aimed at significantly dropping the cost of EVs for the consumers, it is unlikely that market sales will follow the trends shown in fast-growing markets such as Norway. In the meantime, the roadmap published by Danish authorities and the allocated budget for the roll-out of charging infrastructure over the coming years sends strong signals to the industry and future EV owners, that adapted infrastructure is underway.

This report also pays particular attention to the flexible integration of electric car batteries to the electricity system. More specifically, we identify the provision of multiple flexibility services to the electricity markets as an additional source of revenue for car owners and a way to save costs and optimize operation on the electricity networks. Current electricity market rules applying to Denmark are scrutinized and barriers to the participation of EV to day-ahead and balancing markets are identified. Multiple current features of market product design and technical requirements for ancillary services and flexibility in day-ahead markets critically prevent business opportunities for electric car batteries. The following adaptions of market designs are necessary if we want to support EV participation to flexibility.

 Reduction of minimum bid requirement for ancillary services;
 Relax pre-qualification requirements and technical requirements on measurement devices;
 Reduction of service duration;
 Adjustment of non-delivery penalty;
 Move gate-closure closer to operation hour;
 Intensify market framework harmonization in Europe.

The lessons learned and recommendations made to facilitate small flexibility providers’ participation at the TSO level can serve as backbone to develop suited rules at the decentralized level, too. EV should be eligible to the provision of grid services and penalties for non-delivery shall be fair and not represent an entry barrier. 
On the distribution level, unrestricted EV charging can lead to local system instabilities. To avoid the costly expansion of distribution systems, local markets emerge as a viable solution. Local markets should in priority provide signals reflecting congestions and voltage levels such that EV charging follows grid constraints in real-time. 
Additional transversal barriers to EV flexibility also arise from unsuited regulatory framework conditions. In particular, the current grid tariff scheme should be adjusted to better reflect local stresses on the network and further support the offer of new grid services. In the meantime, such a tariff would delay or avoid costly reinforcement on the distribution grid to accommodate the new load from EVs, and limit the electricity bill increase for all end-users.

Finally, as Denmark does not have a domestic vehicle production, EV development also depends on decisions taken in the surrounding countries with an automotive industry, such as Sweden and Germany. Sweden seems to move towards an electrification of transport, while Germany is heavily investing in its hydrogen industry. It is likely that the respective outcomes of both strategy will affect future decisions in Danish transport sector, too. 
Original languageEnglish
Number of pages37
Publication statusPublished - 2020

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