June 29, 2022

Ford’s New F-150 Aims to Make Lightning Strike Twice

Our take on the energy transition has always centered on two dynamics. The first is that cost and performance drive the transition among energy sources as it does with all products and services in all industries. The second is that the energy system is, well, a SYSTEM with thousands of supply sources and millions of demand elements using energy for heat, mechanical power, locomotion, lighting, communications, etc. And like all systems, the whole is more than the sum of its parts.
That brings us to the Ford F-150 Lightning and its ability to convert electrons into locomotion and a locomotion device into electrons by allowing its owner to use the truck’s battery as a back-up power source. Which based on the graph below is of increasing importance to consumers.

Exhibit 1: Duration of Power U.S. Power Interruptions

Source: “U.S. electricity customers experienced eight hours of power interruptions in 2020” Today in Energy, November 10, 2021. U.S. Energy Information Administration, Annual Electric Power Industry Report.

And don’t just take our word for it. Look at home generator sales, which have soared over the past couple of years as power reliability problems have become not only more frequent but also problematic in a society and economy that’s increasingly dependent on electronics.  Generac, a major provider of residential and commercial backup power systems, reports Q1 22 trailing twelve-month sales growth of 44%[1].

Here’s where the “system” part comes into play.   While virtually every home now has a refrigerator and air conditioner, less than 6% of homes have either a generator or an electric vehicle[2].  Why? Cost and performance.  A generator for a typical home would cost about $7000 installed[3]. The average EV is typically more expensive than a comparable internal combustion engine (ICE) vehicle and has less range[4].  But what if consumers thought of these two purchases in tandem and what if utility and energy policy planners did as well?

In our opinion, Ford Motor Company seems to have done a lot of thinking about this and is positioning the F-150 Lightning as much more than just a cleaner alternative to a gasoline or diesel fueled truck.  The Lightning is not just a “Ford-tough” truck that can tow a trailer or make dump runs, it’s also a backup generator that can power a home, a remote jobsite, or keep food and beverages cold at a tailgate.  And yes, range may still be an issue, but pickup trucks are used more for their muscle and carrying capacity than long road trips. In that regard, an electric truck performs better than one powered with an ICE that needs a complex set of gears and devices to generate more torque at lower RPMs. An electric motor generates the same high-level torque at low RPMs as high RPMs.

Here’s where it gets interesting for the grid. The shortcomings of an EV (cost and range) complement the shortcomings of renewable power generation (intermittency) and together could, in our opinion, make the electric power system cheaper and more reliable.  We have written extensively on the dramatic declines in the costs of wind and solar in areas where those resources are abundant, as well as their performance shortcomings (intermittency) which must be compensated for by other power sources like natural gas fired power generation.  While batteries used to store power during the sunny time of the day and discharge that power at night have good economics, batteries for seasonal storage are prohibitively expensive (see our Insight). Utility planners are therefore limited in how much low-cost wind and solar can be added to the grid because of their negative impact on reliability and the cost of batteries. The EV manufacturers, on the other hand, are reluctant to make batteries larger as that is the most expensive part of the car resulting in “range anxiety”. But by seeing vehicles as a part of the energy system no less than solar panels, nuclear power stations and data centers, Ford has made a breakthrough.

This dynamic bears some resemblance to the evolution of the mobile phone.  Revolutionary at its debut, the original “cell phone” has gone from an expensive luxury to an affordable must-have device. And it has moved well beyond its core communication functions to include everything from entertainment to home security to trading stocks—becoming both indispensable and ubiquitous along the way.  Sure, vehicles already have both of those characteristics, but adding new functionality like backup power is broadening the truck’s benefit offering and has the potential to attract new customers.  Indeed, the F-150 Lightning’s chief engineer, Linda Zhang, noted that half of retail orders are from people who’ve never owned a truck, adding that “some people are just truly, really interested in this product as a backup generator[5].”

Ford has gone a step beyond just advertising the Lightning’s power capabilities by partnering with distributed solar power developer Sunrun to sell the service of building and installing a bidirectional system to not only charge the truck, but also enable power to be drawn from its substantial battery pack[6].  At 130 kilowatt-hours (kWh), the Lightning can deliver ten times the power of a typical residential backup battery system[7]—enough stored power to supply the needs of an average residence for 3 days or more.  But the Ford/Sunrun platform also comes with the ability to deliver power back to the local utility, making Ford first among automakers to bring “vehicle to grid” or V2G functionality to market.

Today, EV’s use the utility grid to charge the vehicle’s battery—a one-way transaction. V2G greatly expands that, allowing the vehicle battery to deliver power to the grid, with several powerful implications beyond simple emergency backup.  Electricity storage at the point of delivery can help utilities manage peak loads on hot or cold days. According to IEEE (https://www.ieee.org/), V2G will enable a utility to optimize vehicle charging to align with power availability as well as the grid’s real-time ability to handle the incremental EV load[8]. From an economic standpoint, consumer interest in electric vehicles is rising along with gasoline prices, but the electricity storage capabilities of a V2G-enabled EV could also allow some electricity consumers to also save on their power bills by using stored power purchased at lower off-peak prices to meet peak loads in the morning and evening hours, when power prices are high.

Our discussions with electric utility company senior management indicate considerable interest in EV growth and technology, while recognizing that it’s still early.  EV’s represent an opportunity to sell more electricity, as well as grow a utility’s rate base upon which they earn their allowed rate of return. One utility recently told us that fully one-third of its electricity distribution transformers – which often serve multiple homes or businesses – could only handle the addition of two electric vehicles. If every home eventually has two EVs, a lot of capital will need to be invested. In our opinion, V2G technology would allow utilities to tap into electricity stored in vehicle batteries to manage the daily peaks and troughs of demand and economically optimize utilization of existing grid components. This would help offset the cost of more capital, making it easier for the utilities to justify this investment in rate base growth.

Even before the advent of intermittent renewables, utility reliability has been challenged by storms that knock down power lines and extreme hot and cold temperatures that spike demand. V2G and other forms of distributed power production and storage can help address these issues by providing emergency backup and grid support.  California utilities, which have been forced to interrupt power to not only meet supply shortfalls but as a preventive measure to reduce the risk of wildfires, are particularly interested in the potential for vehicle-based battery storage to provide solutions to these problems[9].

The key word is potential.  Ford has orders for 200,000 of its new electric trucks, but deliveries are just beginning, and EV’s are still less than 1% of vehicles in service today. (Read this Insight for our perspective on adoption rates and fleet turnover.)  Utilities we’ve spoken with are considering electrically powered fleets (e.g. school buses) with predictable usage patterns as a good platform to test V2G.  Consumer EVs are on the radar, particularly in California, where reliability is challenged, and energy prices are high.  Over a five-to-ten-year time horizon, EV and V2G technology shows considerable promise to further the evolution of the grid toward an intelligently managed network that optimizes infrastructure and resources while driving economic and environmental benefits.

[1] http://investors.generac.com/static-files/056e4602-0c26-4f69-80e5-1e0aa9a4e931
[2] http://investors.generac.com/static-files/34c2f282-f588-4643-afbf-385ce64a435c
[3] https://www.generac.com/for-homeowners/home-backup-power/build-your-generator#price-it
[4] https://money.com/electric-car-vs-gas-car-costs-biden/
[5] https://www.bloomberg.com/news/articles/2022-05-31/how-the-ford-f-150-can-be-a-backup-home-generator?sref=xGsH8A4F
[6] https://media.ford.com/content/fordmedia/fna/us/en/news/2022/02/02/f-150-lightning-power-play.html
[7]https://money.com/electric-car-vs-gas-car-costs-biden/
[8] https://innovationatwork.ieee.org/vehicle-to-grid-v2g-technology/
[9] https://www.bloomberg.com/news/articles/2022-05-31/how-the-ford-f-150-can-be-a-backup-home-generator?sref=xGsH8A4F

The above is Energy Income Partner LLC’s (EIP) opinion and such opinions may change without notice or duty to update. The information is based on data obtained from third party publicly available sources that EIP believes to be reliable, but EIP has not independently verified and cannot warrant the accuracy of such information.

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