How Utilities Can Reap the Most Benefit From the Electric Vehicle Revolution

As utilities struggle with slowing demand growth, competition from rooftop solar, falling returns in their wholesale businesses, and even the shutdown of hundreds of power plants, they should take any kind of good news they can get. One of the best things that could happen to the utility business might be electric vehicles (EVs). Yet few utilities talk about it as a growth driver long term.

I think EVs are one of the best opportunities utilities have for growth in the next decade, and if utilities are smart, they'll find a way to make EVs a moneymaker. But the idea of innovation in utilities may be as novel as the electric car itself.

How utilities can make money from EVs

If you're a U.S. utility, the first thing you want is people to use more electricity.Electric vehicles by definitionneed electricity, so utilities should push for as many EVs on the road as possible, plain and simple. But that's not where the opportunity to make money on EVs ends.

Utilities are looking for ways to balance supply and demand, especially as rooftop solar becomes more common.EVs could play a big role in making the grid more reliable and cost-efficient. Southern California Edison, a division of Edison International , has a pilot program that's testing the idea of curtailing charging EVs when grid demand is high. Customers will have the option to charge normally regardless of price, allow curtailment if grid demand is high, or draw a lower level of energy that has less demand on the grid, taking longer to charge. If the program is successful, it could be possible to provide the energy customers need in their EVs while putting less strain on the grid at peak times.

It's also possible for an EV to send energy to the grid if demand is high enough. Maybe using your $100,000 Tesla MotorsModel S like a battery to charge and dischargeevery day doesn't make sense, but if there's a financial incentive to use your car as a supply of energy at times of very high demand, maybe an EV owner would take that revenue from time to time. No matter the demand response dynamic that EVs play in the electric grid, they could make it less costly and more reliable for utilities to run the grid.

Image source: Tesla Motors.

Chargers could be a valuable utility asset

Another opportunity in EVs is in the charging infrastructure, which has so far proven to be complex and disjointed to build out. Tesla Motors is building out its own charger networks, but as more EVs from Chevy, Nissan, BMW, VW, and others hit the road, there could be a need for both short- and long-duration charging networks across the country -- not to mention ones that support the different plugs different manufacturers are using. As the suppliers of electricity, this could be a key role for utilities.

Pacific Gas & Electric , SCE, and Sempra Energy's San Diego Gas & Electric all have plans to build EV charging infrastructures throughout California. And in some cases, the utility will even be able to rate-base the cost, charging all customers for the chargers. That's great for the utility, even though it's probably not great for non-EV customers paying for the infrastructure.

As the de facto testing grounds for the EV revolution, California will be a key location to watch for other utilities across the country. The state's utilities will likely need a way to balance their financial and regulatory might in building out infrastructure while also balancing competition. And that's a unique position for utilities to be in.

Business-model innovation will be key

Whether it's demand response, energy storage, or charging-station ownership, utilities are going to have to find a way to adapt their businesses to compete in the future of energy. I don't think it makes sense to rate-base EV assets, which would given them guaranteed returns paid for all customers. So, creative solutions may be needed.

At the end of the day, if utilities can find a way to participate in the EV charging business, it could be a boon for them long term. EVs will drive a big increase in consumption of electricity and that would be great for business. Plus, they may make the grid more stable. However, business-model innovation hasn't exactly been utilities' strong suit over the past century. Sogetting utilities to buy into the idea that they need to adapt to make money on EVs may be easier said than done.

The article How Utilities Can Reap the Most Benefit From the Electric Vehicle Revolution originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tesla Motors. The Motley Fool recommends BMW and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.