The Better Place Model for Electric Vehicles

Battery Cost and Range Anxiety

Last week, when I was in Denmark, I visited the Better Place showroom just outside of Copenhagen. Better Place is a new company founded in 2007 to provide customers with the opportunity to drive clean electric vehicles. Founder Shai Agassi identified that the combination of oil dependence and climate-inducing emissions were fatal flaws in our transportation system, and that the traditional auto companies could not solve these problems.

Better Place is the result of this project. It is an ambitious effort to not just make an electric car — companies like Chevrolet, Nissan, and Renault are already doing that around the world — but to interlink the electric vehicle into a new, emissions free transport and energy system. The concept is as follows: A customer walks into a showroom and purchases a car (today, only Renault Fluences are available, but more are coming). He then will sign a contract with Better Place for however many miles he drives per year, and Better Place will provide him with a battery and all the electricity he needs for that. Unlike cars such as the Chevrolet Volt or the Nissan Leaf, the initial purchase price of the car is less because the cost does not include the battery. The model is much like when you buy a mobile phone; you buy the phone from Apple or Nokia and then sign up for a service contract from AT&T or Verizon.

The battery itself is the key part of this system. Unique to Better Place’s model, it is actually a removable part of the car. Currently, the Lithium-Ion battery is able to provide a range of about 100 miles on a single charge. Better Place provides the charge through a home charging station it installs at the owner’s home, and there are additional charging stations being installed across Denmark, especially in Copenhagen. Better Place estimates that such a battery will be enough for 95% of a driver’s needs. But you cannot sell a car very well that is only 95% as good as what the consumer is used to — and that’s where Better Place’s model is unique. Across Denmark, there will be a series of battery switching stations that allow drivers to extend their range when needed. At these stations, a driver will pull into the station and the battery will be robotically removed and replaced by a fully charged one.

Better Place convincingly argues that this model will provide customers with their need for trips anywhere in Denmark, while providing a lower total cost of ownership than a traditional internal combustion car.

Integrating a Smart Grid and Renewable Energy

However, this is ultimately about even more than transportation. A network of battery operated cars across Denmark, and Better Place’s service stations full of batteries hooked-up to the grid will be a key part of a smart grid. Such a grid can more fully integrate renewable electricity into the system, at lower prices.

Denmark is very dependent upon wind power for electricity: in 2011, it provided 28% of total electricity production. The problem with wind production, however, is that it is both variable and dispersed across the country. This new network of batteries will allow the grid provider, DONG Energy (a major investor in Better Place Denmark) to manage this wind energy without the massive reserve power necessary to make sure there’s no outages in the grid. When these batteries are fully deployed, it will allow the cars to charge overnight with clean wind energy when it is most abundant — and cheapest.

Although the cars do not have the ability right now to sell electricity back to the grid, they soon will. This will allow Better Place, who manages the electricity-charging network, to act as an important middleman in the electricity grid. They can buy electricity when the supply is high, but the demand is low, and sell it during the day when supply may be lower, but the demand is higher. This will equalize the peaks and valleys in electricity supply and demand. Not only is this a good model for integrating more renewable power into the gird and increasing the grid’s efficiency, it also will position Better Place as a middleman that can make money by buying low and selling high.

Conclusion: The Concept is Promising, But Can it Scale Worldwide?

This is an ambitious effort to remake the transportation system, but I am not yet convinced it is ready for prime time in all markets around the world. Denmark, where the company will officially launch on April 1, is unique in ways that — for now — will prevent it from quickly spreading around the world. Denmark has a tax of 180% (yes – you read that right) on the purchase of cars. That tax does not apply to electric vehicles. It is also a small country made up of a peninsula and a series of islands; this geography allows Better Place to locate a relatively small amount of infrastructure to cover the whole country, and all the possible trips within it. Finally, with gasoline costing €1.83 per liter ($9.16 per gallon at current rates) and household electricity prices also high at €0.30 per KWh ($.40 per KWh), this economic model cannot work in places like the U.S. where prices are lower, spaces are bigger, and there is not as much support.

Nevertheless, this is a model that, if it proves itself in its two early-adoption areas of Denmark and Israel, could spread quickly. If oil prices continue to go up, and electricity prices go down, it could ultimately be useful in many other places. Already, Better Place claims to be planning to expand to markets similar to Denmark, like the Netherlands and Northern Germany. The first place they plan to expand in the U.S. is in Hawaii, where distance is not a problem. This is an ambitious model for integrating clean energy into the grid, and it deserves the opportunity to expand.