Rapid increases in EV market penetration pose big challenges for power and utilities operators and oil and gas companies, according to a new report — but all sectors should anticipate disruption

The widespread adoption of electric vehicles in Canada will do more than just impact the way people drive, according to a new report from EY.

The report, Canadian Electric Vehicle Transition – The Difference Between Evolution and Revolution, outlines the potential impact increased EV ownership and use will have on the energy and power sectors.

Both areas, of course, will be directly affected by any changes in demand for and distribution of their key outputs — fuels and electricity. This disruption will not only require big changes in existing businesses, but is likely to lead to greater convergence and integration of the two sectors, says EY.

Diversify portfolios

Potentially, “[oil and gas] companies would look to diversify their portfolios by expanding further into the [power and utilities] sector,” says the report.

There’s a lesson in the findings for companies in other sectors, too: plan ahead, because massive shifts in transportation will have secondary ripple effects that could ultimately touch almost all areas of the economy.

“It’s still uncertain when and if EVs will wholly replace internal combustion engine (ICE) vehicles,” says EY. “[But] if your company is one that is facing disruption, it is simply not enough to watch, wait and hope for the best. Organizations need to be thoughtful and forward-looking, and view this transition as an opportunity to differentiate before disruption can make their businesses obsolete.”

Three scenarios

The report outlines three scenarios for EV adoption — rapid, moderate and slow. In the rapid scenario, EVs (battery electric and plug-in hybrid vehicles combined) account for 30 per cent of all vehicles in Canada by 2030; in the moderate, they make up 15 per cent and in the slow, a mere 3 per cent. Given that in 2018 EVs already accounted for 2.3 per cent of the market, a focus on the rapid and moderate scenarios makes the most sense.

EY identifies seven factors that will help enable EV adoption and eight that will inhibit it. Company strategists and planners are advised to pay attention to trends (“signposts”) in these areas to gauge which of the scenarios might be unfolding and act accordingly. The list of enablers includes things like zero-emission vehicle mandates from government, investor activism, pricing on GHG emission and consumer desires to be part of the climate solution. Among the inhibitors, it lists higher cost of vehicles, time to charge, battery performance and EV model availability.

Of note, among the enabling factors, the report fails to mention lower fuel and maintenance costs even though these are important considerations in EV purchases.

Severe impacts

The first scenario, rapid adoption, will be driven by such things as increased push from federal and provincial governments to raise the price of greenhouse gas emissions while at the same time removing subsides for fossil fuels. “The net result being an early cost parity for driving an EV and an ICE,” says the report.

The impacts on industry? Severe. According to EY, oil consumption would be reduced from today’s levels by roughly 252,000 barrels per day. At the same time, Canadian power and utilities operators would face an 11% increase in electricity demand.

In response, oil and gas companies would be expected to increase their focus on petrochemical products and intensify efforts to develop new revenue streams for existing products. Power and utilities companies will need to invest in massive upgrades to facilities to meet the higher electricity demand, adding capacity and also upgrading distribution networks to improve power transmission.

Companies in both sectors would also likely become more active in mergers, acquisitions and partnerships. EY expects oil and gas firms to be even more aggressive acquiring and partnering with clean energy companies. Power and utility companies, meanwhile, will face new competitors and opportunities for joint ventures with hotels, restaurants and retail stores.

Under the moderate adaption scenario, changes would be less dramatic, but the overall trends will point in the same direction.

Managing the transition

EY concludes the report with several essential recommendations for companies in the two sectors to best manage the transition.

For power and utilities:

• safeguard grid stability through changes to electricity mix and demand management
• consider partnerships and mergers to counter increased competition
• look to grow business further in foreign markets.

For oil and gas:

• look to rebalance energy portfolios
• de-carbonize the energy mix to mitigate against higher carbon prices and capital risk
• increase flow of natural gas to power generators.