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  • Writer's pictureEmre Can Anlar

Energy procurement for fast-charging parks: taking a look on challenges and opportunities

Updated: Jul 11, 2023

Prof. Dr. Günther and Dr. Pfeiffer discuss the necessity of data-driven demand forecasting, interaction with the spot market, the implementation of dynamic pricing models from the perspective of charging station operators, and new business models benefiting from robust digital connectivity and giving rise to new roles for e-Mobility Service Providers.

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Prof. Dr. Maik Günther & Dr. Andreas Pfeiffer

Today we turn attention to the broad field of energy procurement and emobility. With Prof. Dr. Maik Günther, energy market expert and professor at IU International University, and Dr. Andreas Pfeiffer, founder and CEO of greenventors, two proven experts introduce us to the topic. They will shed light on current challenges and opportunities in this rapidly developing sector.

In order to be able to procure electricity cost-effectively in the context of electromobility, in addition to a suitable strategy of forward and spot market trading, a data-based, dynamic sales forecast will be required above all in the future. Prof. Dr. Maik Günther

Prof. Günther, could you start by explaining to us the importance of the electricity spot market for efficient and cost-effective energy procurement in the context of emobility?

Prof. Günther: In contrast to the futures market for electricity, which is very forward-looking in terms of physical fulfillment, the spot market enables relatively short-term trading on the exchange. Here, quantities of electricity can be traded one day before the actual physical delivery, i.e. in day-ahead trading, or even on the day of the physical delivery itself, which is referred to as intraday trading. This possibility of short-term trading of electricity for specific hours or even quarter hours makes it possible to react very well to forecast deviations in charging electricity. A procurement strategy that includes forward and spot trading is therefore suitable for operators of fast charging parks in order to reduce procurement costs and minimize risks.

With a massive ramp-up of electromobility, the volumes of electricity purchased at charging stations will also increase significantly. What does that mean for the procurement logic? Couldn't the entire volume simply be procured on the spot market at short notice?

Prof. Günther: In the early days of emobility with a few AC charging stations in a city, the quantities of electricity charged were so small that the local municipal utility, for example, could always have accommodated the quantity in its existing portfolio by rounding up to the next MWh. However, as already indicated in the question, with more and more electric vehicles and fast-charging parks, there is a concrete need for action with regard to the development of a suitable procurement strategy for the charging electricity. In contrast, the exclusive procurement of significant quantities on the spot market would not be a good solution, since without further hedging measures (which, however, cost money) the price risk is not adequately taken into account - as we have seen in the recent past how volatile the electricity market can be.

Therefore, on the basis of a demand forecast, medium- to long-term procurement on the forward market should be carried out first. This can be done in tranches, deviating from rigid procurement rhythms if relevant market signals occur. Short-term readjustments are then made on the spot market in the event of deviations from the forecast.

You mentioned the keyword 'demand forecast'. Can you explain in more detail what is meant by this and why charging station operators should be well positioned here?

Prof. Günther: In order to be able to procure electricity cost-effectively in the context of emobility, in addition to a suitable strategy of forward and spot trading, a data-based, dynamic demand forecast will be required above all in the future. This must take into account, among other things, the typical charging behavior of user groups, but also the local conditions of the charging infrastructure, the planned expansion of charging stations, the increasing number of electric vehicles, and possible feedback from flexible pricing models. We once looked at this with the help of artificial intelligence on Germany-wide data of hundreds of thousands of charging processes. There were significant differences between the identified user groups and with regard to the utilization profiles of typical charging station locations. Charging station operators without a precise knowledge of these correlations will find it difficult to reduce their energy forecast deviations, which significantly limits the potential of an optimal procurement strategy to minimize risks and maximize profit.

From your perspective, Dr. Pfeiffer, how does the role of the e-Mobility Service Provider (e-MSP) change in the context of dynamic, spot market-based pricing?

Dr. Pfeiffer: With a development of dynamic, spot market-based prices, an e-Mobility Service Provider (e-MSP) has to rethink and expand its business model. In addition to the existing tasks in the overarching access to charging networks, navigation, billing services and data exchange, the e-MSP becomes a strategic buyer of charging volume. By procuring charging volumes in advance from charging station operators, based on forecasts of its customers' charging behavior and anticipation of long-term such as spot market-based energy prices, the e-MSP can build a data-driven business case. In this regard, it is important that the e-MSP is able to capture and negotiate price changes from charging infrastructure operators and transparently pass them on to its customers. In addition, due to its market power, the e-MSP can skim some of the profit from the real option of charging infrastructure operators by leveraging its own customer base. The e-MSP's competitive position will therefore also depend heavily on retaining large fleet customers and accurately forecasting charging behavior.

With a development of dynamic, spot market-based prices, an e-Mobility Service Provider (e-MSP) has to rethink and expand its business model. Dr. Andreas Pfeiffer

How do you see dynamic pricing models in the context of fast-charging infrastructure?

Prof. Günther: If there is a certain degree of time flexibility for charging electric vehicles, user behavior can be influenced by dynamic pricing models if the monetary incentives are sufficiently attractive. These are based on the spot market, whereby varying procurement costs can be passed on to end consumers. Dynamic pricing models differ in terms of various parameters (advance notice period, base price, any price bands, continuous or discrete prices, etc.) and can also be combined with other variants of flexible pricing models to influence demand, for example, in order to utilize the local charging infrastructure more efficiently. I consider the following aspect of dynamic pricing models to be significant: charging station operators can save or postpone any electricity volumes procured more favorably in advance by influencing user behavior in sudden high-price phases and thus sell them profitably on the spot market. The customer base of the charging station operator thus receives additional value with dynamic pricing models. Customers become a real option that must be used skillfully. Of course, all of this also involves effort: IT systems, metering equipment, data exchange, trading access, personnel, etc., so it will only pay off once it reaches a certain size or once electromobility continues to ramp up.

The general assumption is that dynamic pricing models will also optimize the utilization of electricity grids.

Prof. Günther: Dynamic pricing models in the proper sense are based exclusively on the electricity price. If no additional load-variable control elements are included in such a tariff, this tariff can certainly lead to behavior that does not serve the grid. For example, imagine a situation in the grid of a large city with manageable PV feed-in, very low spot market prices and extremely high demand. If then, in addition, charging station operators as well as other aggregators, each with similar dynamic pricing models, would suddenly encourage their customers to increase demand in this grid, then this is not grid-serving.

It should be emphasized, however, that dynamic pricing models can improve the integration of renewables. This is because during times when there is a surplus of renewables in the system, electricity prices also tend to be very low. Dynamic prices can stimulate demand during these times, which reduces the surplus.

In your view, how could the trading of GHG quotas be used to protect profit margins for charging station operators?

Prof. Günther: The certified CO₂ emissions saved by charging electricity can be sold to petroleum companies to help them meet their GHG quota. These revenues could, for example, be considered in conjunction with dynamic electricity price models as a kind of price buffer to cushion unpredictable developments in the electricity price. This is possible at least as long as there is a significant number of combustion vehicles using fossil fuels. After all, in a world with declining CO₂ emissions, there will eventually be no need for a GHG quota. Ultimately, dynamic pricing models and GHG quota revenues must be part of a holistic procurement strategy that maximizes profit and adequately manages electricity price risk.

Digital connectivity is essential for efficient navigation in the emobility sector. It creates an efficient ecosystem for emobility where - through the exchange of data - energy markets, eMSPs, and CPOs can work together to expand charging infrastructure, forecast and manage electricity demand, improve the customer experience, and integrate renewable energy. Dr. Andreas Pfeiffer

Dr. Pfeiffer, your company supports established and new players in electromobility in finding their way in this fast-moving environment. What role does digital networking play from your experience?

Dr. Pfeiffer: From our point of view, the ability to digitally network is essential for efficient navigation in our sector. Used correctly, it enables an understanding of the dynamics of markets and user behavior. This enables effective strategies to be developed to minimize the impact of price fluctuations, for example. It also helps in the development of modular business processes and tariff systems that can be more easily adapted to changing regulatory requirements. In this context, it is critical to advance the standardization of systems and their networking at an early stage. In our experience, it is essential, especially for "new" players in the field of charging services, to first obtain an overview of the ecosystem and then make targeted investments in key components: Be it in internal resources or in the right market partnerships. We help here as an experienced navigator and help to take the first steps on the new terrain safely.

Are there other effects of digitally networked emobility, particularly with regard to cooperation between traditional energy companies, e-mobility service providers and charging station operators?

Dr. Pfeiffer: Digital networking creates an efficient ecosystem for electromobility. By sharing data, energy markets, e-MSPs, and CPOs can collaborate to expand charging infrastructure, forecast and manage electricity demand, improve customer experience, and integrate renewables. Standardization of systems and their interconnection are particularly important. In my view, this is the only way to ensure interoperability and scalability and to guarantee smooth operation of the electromobility system.

Can you tell us a little more about how greenventors helps companies develop business models that take into account both the GHG quota and the possibilities of spot market procurement and dynamic prices?

Dr. Pfeiffer: At greenventors, we take a holistic view of emobility, leveraging more than 14 years of experience. We help companies adapt their business practices to the rapidly changing landscape of electromobility.

To optimize their business model, charging station operators should develop a deep understanding of GHG quotas and market dynamics, deploy a proactive procurement strategy that combines spot market purchases and trading of GHG emission certificates, and focus on digital connectivity and data management. Through partnerships and digital connectivity, they can better position themselves in the emobility landscape and develop sustainable, customer-centric solutions.

What does this mean for you and your work in concrete terms?

Dr. Pfeiffer: As an implementation-oriented consultant, we therefore support our customers in building and strengthening sound knowledge in the areas of GHG quotas, dynamic electricity price models, and data-driven forecasts. At the same time, we promote the development of skills in the area of "partnerships" and in "digital networking" within and across organizations. In this way, we help our partners to position themselves even better in the electromobility landscape and to develop sustainable, customer-oriented solutions. Our ultimate goal is always to empower customers so that they are able to adapt and develop these strategies and measures in the future.

The combined expertise of Prof. Dr. Günther and Dr. Pfeiffer offers an exciting and insightful look at the challenges and opportunities in this rapidly developing sector. Their remarks not only illuminate the current situation, but also give us a foretaste of what the future of emobility might look like. There is no question that there is still a lot of innovation potential in this area and that the companies that approach this market in a proactive and data-driven way have the best chance of succeeding in a greener and connected future.



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