An economic model of vehicle-to-grid: Impacts on the electricity market and consumer cost of electric vehicles

Higher battery storage capacity in electric vehicles (EV) implies less need for inconvenient recharging during long trips and increases the potential gains from vehicle-to-grid (V2G) electricity supply. We present an analytical model for the intertwinement of the consumers’ choice of battery capacity and the electricity market. We show that V2G increases the consumers’ choice of battery capacity, and it may reduce the cost of owning an EV vis-à-vis a traditional car. Furthermore, V2G alleviates the capacity pressure on peak hours, and thereby reduces the need for investment in generating capacity, saving social costs. Moreover, V2G may make the difference in electricity prices between peak and off-peak hours smaller, potentially increasing social surplus further. Based on a future scenario for the Belgian electricity market, we provide a numerical illustration indicating that the savings might be substantial.