Key View:

China will emerge as the fastest expanding EV market globally by some margin over the next decade. Given the country's wind and solar power integration issues, coupled with vast grid investments, we expect the market to aim to leverage vehicle-to-grid (V2G) technology over the coming decade.

Coal generation overcapacity will mean that this V2G deployment will be of less acute importance to energy security in China than for example Western Europe, where baseload capacity is going offline at a rapid pace.

The upside risk to this scenario is that Chinese air pollution reduction efforts ramps up more than we expect, with EV storage playing an active role in integrating intermittent wind and solar power supplies.

China Leading The Way For Renewables And EVs

Renewables And EV Storage Capacity By Region By 2027f

f = forecast. Source: EIA, Fitch Solutions

According to our Autos Team, China will be the by far fastest expanding EV market over the coming decade. In fact, we expect China to have a Battery Electric Vehicle (BEV) fleet of almost 11mn vehicles by 2027, compared to 3.4mn vehicles in Europe and 1.4mn vehicles in the United States. This will in turn mean that China will be able to harness its substantial EV fleet to support the integration of increasing volumes of intermittent wind and solar power in the market through technology called vehicle-to-grid solutions (V2G). V2G entails a two-way flow of electricity between electric vehicles and the grid, with EVs helping to balance power supply and demand by charging during peak supply, and selling power back to the grid during peak demand (see 'EV Storage Key To Supporting Renewables Grid Integration).

China Crucial To Global Renewables Growth

Renewables Capacity Additions By Market Between 2010 and 2027f, MW

f = Fitch Solutions forecast. Source: EIA, Irena, Fitch Solutions

China's surging EV segment will mean that the country will be able to scale up V2G solutions before any other market, and at a scale unrivalled over the coming decade. In fact, with BEV and plug-in-electric vehicles (PHEV) totalling 13.4mn vehicles - China will in theory have access to 1,138GWh by 2027. This is compared to 295GWh in the United States, and 459GWh in Europe. In addition to being the global EV deployment spearhead, China is also by far the fastest expanding renewables market globally. This has posed a number of issues in the market, where grid constraints (in addition to provincial preference for coal power) has meant that large volumes of wind and solar power has been wasted (see 'Power Dispatch Reform Key To Decarbonisation Efforts', December 20 2017). This has been particularly pertinent in inland regions such as Xinjiang, Gansu and Inner Mongolia, where renewables supply has outstripped demand, and exports to other provinces has been capped by grid constraints.

As China improves this connectivity, we believe the EV fleet can become a substantial storage tool for the government to integrate rapidly growing supplies of wind and solar power to the grid, without jeopardising its stability. That being said, the country already operates its coal-fleet at low utilisation rates, highlighting the baseload overcapacity in the country's power sector. This will likely mean that V2G will be slower to materialise in China than somewhere like Europe where baseload capacity is coming offline at a rapid pace.