Four Critical Questions For the Future of Transportation Electrification




Electrifying the transportation sector offers a potential means for rapidly reducing greenhouse gases in the U.S. and other parts of the world. In recent years, transportation has replaced electric production as the predominant source of greenhouse gases in the U.S. The reduced carbon output from the electric sector reflects numerous factors, including the economy, but real progress has been made. Gains can be traced to the shift from coal to natural gas as the dominant fuel, and to the increase in renewable energy as part of the generation resource mix.

In light of the electric sector’s progress, electrification is being widely embraced by the public, car manufacturers, and governments as the future of clean transportation. Edison Electric Institute and the Institute for Electric Innovation (EEI/IEI) report there are about 840,000 electric vehicles operating in the United States as of April 2018. This number is expected to grow exponentially. EEI/IEI predicts the stock of vehicles in operation will rise to 7 million by 2025. Others anticipate even faster (and slower) rates of growth.

The increased interest in electric vehicles raises the potential for significant new growth in the need for electricity (referred to as “load” in industry parlance). With current technology, an electric vehicle consumes nearly 1/3 as much electricity as the average home. In an era in which the growth of electric load is otherwise relatively flat or declining in many parts of the U.S., electric vehicles offer the potential for a new source of revenue for utilities that supply or distribute electricity. Not surprisingly, this has garnered interest among utilities and should be of interest to consumers as well. Depending on how this new load growth is managed, consumers could reap benefits, or see costs rise.

Whether electric vehicles (or electrification of the transportation sector more generally, including trains, ports, and ground services at airports) will produce the emission reductions expected and do so cost-effectively will depend on many factors. Four questions particularly stand out:

Q1:  Will EV adoption meet expectations?

In order for any of the potential benefits of EVs to be realized, consumers (including companies and public policy decision makers) will have to choose them in preference to any alternatives. Presently, they appear to be the most viable alternative to internal combustion engines (ICE), and have been avidly embraced by many governmental bodies, as well as by electric utilities. Federal tax credits have helped reduce the initial cost of purchasing an electric vehicle. Depending on location, consumers may also receive assistance with the cost of installing a home charging system from their utility or state, the right to ride in HOV lanes regardless of the number of passengers, exemptions from state excise taxes, or other benefits. Further, electric vehicles are touted as having lower maintenance costs and, at present prices, it costs less to “fuel” an electric vehicle than a ICE vehicle. Therefore, much of the initial cost is offset through lower life-cycle costs.

“Range anxiety” (fear of not have having sufficient battery charge for long-distance trips) is still a deterrent, but it is being lessened by battery improvements and the build-out of public charging points in some parts of the county, including along interstate highways. However, public charging points are still scarce and relatively slow as compared to fuel pumping, which is an impediment to those without the option to install a home charger, such as renters or people who lack a dedicated parking spot. Further, the cost of a new EV is high, and the process for turning over the stock of vehicles will take many years. Therefore, the supply of used, lower-cost EVs for sale will remain small, limiting EV access for a large segment of the population.

Intervening external factors may also affect the rate of growth. For example:  

  • Advances in biofuels, hydrogen, or CNG vehicles might create a viable, economic alternative to electric vehicles and slow the projected growth.
  • Technological improvements in battery life, rates of degradation, ranges, and efficiencies; the growth of public charging stations (including potentially wireless charging and very fast charging); and cost reductions in batteries or EVs in general would have positive impacts.
  • Public opinion could be swayed, negatively or positively, by anecdotal events, such as the performance of EVs during a natural disaster and its aftermath. If long lines for access to public charging points during an emergency evacuation occur, or a wide-spread blackout leaves EV drivers stranded, the market could be negatively impacted. But alternatively, charging points connected to solar systems with battery back-up might allow for electric vehicle charging during a period in which the delivery of liquid fuel supplies is disrupted or gasoline pumps operated from the grid are not working, as occurred during Superstorm Sandy. Whether such events occur and the related media coverage could have powerful impacts.

Another external factor will be changes in the existing support systems. Tesla is the first manufacturer to hit the threshold for the number of cars sold in the U.S., after which the federal tax credit its purchasers can claim begins to phase out. Others will follow. As market penetrations increase, other changes can be expected. For example, fuel tax revenues used to support the highway system will diminish as more vehicles use electric power in lieu of gasoline or diesel, and thus new sources of funding will be needed.

EVs cannot create a meaningful reduction in greenhouse gases absent significant market penetration. The pace and degree of their gain in market share is subject to public policy decisions as well as a multitude of external factors, including technology and consumer confidence.

Q2:  How will consumers prefer to “fuel” their EVs? 

Often described as the chicken-or-the-egg problem, consumers will be reluctant to invest in EVs unless there is adequate, affordable, convenient charging infrastructure. Yet, investing in charging infrastructure absent an assurance of need is an expensive and potentially wasteful exercise. Although the build-out of the charging infrastructure (“electric vehicle servicing equipment” or EVSE) is a subset of the consumer adoption issue described above, it has its own set of complexities, including the questions of who should provide EVSE, who will pay for the infrastructure, and what type of EVSE is needed. 

There are several types of charging options. Level 1 and Level 2 charges use 120 or 240 volts (respectively) and can serve a car off a 20 amp circuit, all within the normal range of typical household loads. However, they are slow.  While charging times vary depending on factors such as the size of the battery and the rate at which it charges, a passenger vehicle using a Level 1 or Level 2 charger will require hours to charge, making such chargers most suitable for overnight charging or perhaps during the work-day. Further, home charging, or charging fleet vehicles at a central dedicated location, necessarily limits the vehicles’ use to commuting and local trips. Fast chargers deliver power at much higher speeds, such that the vehicle may be back on the road in 20 or 30 minutes. These are the ones most likely to be found at interstate rest areas or other public locations.  

Charging services are
 available on GWU's campus
 The challenge of providing charging points is being addressed through several channels. Many utilities, states and cities are providing subsidies for home chargers, and taking up the slack as needed to install public charging stations. Particular emphasis is being placed on serving multi-unit dwellings (MUD), and lower and middle income (LMI) consumers, who may not have dedicated parking or may not be able to afford the installation costs of a home Level 2 charger. To improve its vehicles’ utility, Tesla built out a proprietary charging system to support its’ early purchasers and is continuing to expand that system. Other private and utility interests have followed suit. Kansas City Power & Light built a system without the promise of rate recovery (initially) to support the adoption of EVs in its service area. Private companies, such as Charge Point, are installing public charging stations in numerous locations, such as major highway systems and college campuses. Charging stations are popping up at shopping areas and work places to attract consumers and exhibit the providers’ commitment to sustainability. PlugShare, a sort of AirBnB for EVs, matches travelers with local EV owners willing to let the traveler plug in and recharge away from home.

Despite this progress, charging points are not nearly as ubiquitous as gas stations. Three questions are central to expanding the charging infrastructure. The first is whether utilities or private parties should be the providers of EVSE. The second is who should pay for the new infrastructure.  The third is whether the right amount and type of infrastructure is being installed in the right places.  

Utilities are indisputably critical parties to the provision of EVSE. They must provide the charger’s interconnection to the existing distribution system and assure the distribution system is robust enough to handle the new load. Utilities also have the knowledge of where on the electric system installations may be lower cost or more helpful to system operations relative to other locations (although this knowledge could be shared, and connections could be priced, to incent the same behavior in private investors).

Whether utilities should also own the charger or provide the charging service is less clear. The provision of electricity to homes and businesses is regarded as a public service. Utilities assume an obligation to serve and typically have a monopoly on distribution (and in many jurisdictions, on retail sales as well). In exchange, their prices are regulated to prevent monopoly abuse. It is common for utility tariffs to specify that power sold at retail rates may not be resold. Providing EVSE could be an extension of utilities’ public service obligation, appropriately regulated to assure that prices remain reasonable and service reliable.

However, private companies are also interested in the charging market. Fast-charging is particularly enticing. Presently, gas stations earn higher margins on the food items in their co-located convenience stores than on gas. Charging times of 20 or 30 minutes might be quite compatible with grocery shopping or other services that compete for consumer dollars. Such companies are interested in competing or partnering with utilities to capture a share of this market. Whether they will be interested in serving all needs is not yet known. For example, if MUD or LMI markets are underserved by the private sector, utilities might claim those markets with little opposition.

It remains to be seen whether utilities will become the predominant providers, whether private companies will be able to successfully compete with utilities as providers of charging service, or whether partnerships that optimize the strengths of each will emerge. Regardless of how this competition to serve plays out, given the strong interest that utilities have in building load, they will be actively engaged in this sector in some respect.

Individual state commissions or regulatory boards will have to determine the contours of utility engagement, and how costs will be recovered – i.e., through ratebase or directly from the users or private providers of the EVSE. Expanded electrification of the transportation sector could benefit all ratepayers by reducing system costs, depending on how and where the new load appears (discussed below). Such benefits are squarely within the utility regulators’ authority to consider, and could be grounds for socializing the cost widely across all ratepayers. Some utilities, as noted, are already subsidizing chargers; some as a competitive business and others as part of their rate-regulated business.

The third and inter-related question concerns consumer charging preferences, specifically the type and placement of chargers. Will future consumers prefer the convenience of charging at home (or a dedicated central location, e.g., for fleet vehicles) or will they prefer fast-charging at public locations, similar to gas stations? The question is particularly challenging because this is new and evolving service. Faster charging times seem imminent and newer cars have greater flexibility to accept a range of chargers. Consumer preferences are likely to evolve too. As the market penetration grows and electric vehicle ownership expands from early adopters to main stream, the new EV consumers may have different preferences.

Charging infrastructure build-out decisions are being driven presently by both policy and demand in order to develop the market. They include incentives that spread the cost to non-users either through electric rates or the expenditure of other public, taxpayer-funded, dollars. Once the market is developed and subsidies are withdrawn, will the resulting infrastructure meet consumer demand? Might the chargers that are being subsidized today be seen in retrospect as a stranded cost? Or are the subsidies an essential key to developing the market and therefore unavoidable, whether the investments made are used in the future or not?

We are at a cross-roads right now where public policy is playing a key role in helping to commercialize a technology that is important to reducing greenhouse gases. Government has a traditional role in providing public goods, such as greenhouse gas reduction. Enlisting utilities – the providers of a public service – is also a time-honored approach. But there is a risk in investing too much public money in the wrong approach, as well as investing too little and missing an opportunity to unleash an enormous new market for vehicles with a substantially lower environmental impact. Thus, the tension between utilizing utility and public dollars to jump start the market or fill “gaps” in charging infrastructure and the preference for letting private companies take market risk is at its’ height.

Q3:  Where will the load land on the load curve?

A Load Curve Is …
The concept of a load curve may be unfamiliar to anyone outside the industry but important to understanding the potential impact of transportation electrification. Every utility experiences daily and seasonal changes in the amount of power required. This can be illustrated graphically as a valley-and-hill shaped curve, comparing the instantaneous demand for power (vertical axis) to the time of day (horizontal axis). Depending on the nature of the load on the system being observed, the day of the week, and the weather (as well as other factors), the curve may peak (that is the top of the hill will be reached) in the morning, afternoon or early evening. The lowest part of the curve (the valley), occurs at night, during the periods when most businesses are closed, and many people are asleep.

In the absence of a substantial amount of energy storage, electricity must be generated as it is needed to meet consumers’ demands. Therefore, the amount of electricity generated at any moment in time generally follows the same up-and-down curve over the course of a day, week, or season. System operators decide on what generators to operate based on the type of technology and cost. Nuclear plants and renewable resources, such as wind, solar, and some hydro, operate when they are available. During the nighttime valley, any additional needs are typically met with the next lowest cost resource available, which is generally coal or sometimes natural gas. As daytime load grows, system operators dispatch additional resources, again utilizing their lowest cost resources first and then resources with higher incremental costs. Accordingly, the average cost of electric generation on a utility system has historically been lower at night and highest during hours of peak consumption (although solar power can help mitigate the cost during summer peaks, since solar output tends to be greatest at the same time as summer afternoon peak energy usage.)

Many current policy efforts focus on expanding the number of EVs, since absent a critical bulk, the benefits that EVs might potentially offer to the electric grid and the environment, will not be realized. However, if the expected growth materializes, it will be critical to manage where the new load from EVs “lands” on the load curve. Where it lands affects costs, emissions, and operations.

Home chargers, which are generally used in the evening or at night, can help fill the valley of the load curve. New nighttime electric load has historically been viewed favorably by utilities and regulators because it reduces the per-unit cost of power. Traditional sources of low-cost power that might be underutilized at night, such as coal plants, can be more fully utilized. In contrast, if EV owners plug-in during peak periods, higher cost units would need to be dispatched. So, if measured solely by cost, utilities and consumers benefit if utilities can induce EV owners to charge at night when the system cost is lowest. 


Public fast-chargers offer consumers gas-station like convenience. However, they are designed for use while “on the go” which suggests they would be used primarily during the day, as current gas stations are. They also draw power at a high rate. At a recent conference, some participants spoke of chargers in development that may charge up to three cars simultaneously in 10 minutes but will put 1 MW of load on the system. In contrast, while an EV charged with a Level 1 or 2 charger will significantly increase the volume of electricity used, the instantenous impact is more evenly distributed. Further, if the car will be idle overnight, there is greater flexibility to choose the exact time for charging, which the car’s technology can do automatically (or will be able to do in the future). The flexibility to match charging to the system’s needs is lost with fast-charging. But if EVs are going to become practical for longer trips, fast-chargers must be available at the time needed. Thus, there is a risk that the charger will draw power from the system at times that are not optimal from a system perspective. Other forms of transportation electrification, such as use for mass transit, may also coincide with periods of otherwise high usage of the electric system.

There are some means to manage the impact. Chargers tied to storage or solar-plus-storage can mitigate the system impact. Time-of-use rates can be used to encourage EV owners to avoid plugging in during the evening peak, and instead delay charging until demand from other sources has fallen off. Technology can automate this process and increase the EVs owner’s savings from time of use rates. However, such a pricing scheme would inherently discriminate against those without access to home chargers and who must rely on public chargers, which may have more limited hours of availability. To the extent the population that is unable to choose optimal times for charging overlaps with lower- and middle-income consumers, the time-of-use rate would have a disproportionate impact on that group. Thus, regulators will have to think carefully about how pricing is used to direct where the load “lands.”

Importantly, the discussion above turns on costs, not emissions. If time-of-use rates drive usage to night time hours, and the next lowest cost resource available at night is coal, more coal-fired generation will be used. While the mix of resources and their relative costs are changing to include more renewable energy, which may include, for example, mid-day solar, the penetration of renewables in most parts of the country is still relatively low. Thus, for the most part, additional load will be met with greater use of fossil-fuel resources until such time as the growth of renewable resources catches up.

To achieve the environmental benefits of EVs and benefit consumers, utilities and regulators need to manage the new load to avoid an undue adverse impact on rates and emissions. The challenge of making the grid green and thus creating opportune times for low-emissions charging is the fourth question, discussed below. Assuming for the moment, however, that there are hours which are optimal from both an emissions and cost perspective, and when time of use rates can be assessed without an undue impact on lower- and middle-income consumers, there remains the challenge of getting the new load to land on those hours. Time-of-use rates, particularly coupled with automated timing to facilitate their use, could theoretically be a good incentive to change consumer behavior if (1) the rate optimizes for system costs and emissions; and (2) the rate differential is sufficient to overcome other preferences or needs the consumer may have with respect to refueling.

That second point is not an insubstantial issue. Lower rates are certainly an important inducement, since the volume of electricity that an EV requires is significant. But a consumer who is reliant on charging points with limited availability may not have the option to choose when to recharge. Further, will rate design, even one with a large differential between on-peak and off-peak rates, be a sufficient motivator when contending with consumer convenience, habits, or just general willingness to pay more? After all, if consumers made decisions strictly on economics, only the least expensive cars would sell. Will the owners of a Tesla, a Leaf, and a Bolt all respond the same way to the same economic motivator? Even at a relatively greater electric rate, consumers might still see a reduction in the cost of “fueling” their EVs compared to what they were paying for gasoline (depending on local rates) and therefore exhibit less price sensitivity.

As illustrated above, the type and location of the charger may influence WHEN it is used, and HOW MUCH instantaneous demand is imposed on the electric system. Policy makers will need more than rates in their toolbox to manage customer behavior. Understanding customer motivations and providing customer education will be two important places to start.

Q4:  How do we make it green?

The entire point of policies that promote or even subsidize electrification of the transportation sector is to reduce greenhouse gases and other emissions. (Economics, quieter streets, and other benefits are significant too, but are generally not cited as policy drivers.) So, unless the electric generation supply is green, the public policy impetus for electrification is lost.

The electric sector has made enormous strides in reducing its output of greenhouse gases in recent years. But two-third of U.S. electricity is still generated with fossil fuels. While the proportion of coal and gas has shifted, the displacement by renewable resources overall is still small. Notwithstanding reports that certain parts of the country are operating 100% on wind from time to time, overall, only about 13% of generation in the U.S. in 2017 came from renewable energy resources and another 19% from our aging nuclear fleet.

EVs will add new load to the system. Therefore, either the total amount of electricity generated must be increased, or existing uses of electricity must be decreased (e.g., through energy efficiency) to offset the new demand. Even if the new EV load could be offset with greater energy efficiency or conservation, a focused effort must be made to increase the use of renewable energy or otherwise decarbonize the electric supply. Further, the trajectory for decarbonization has to align with the needs of the growing electric transportation sector. If offsetting the new load with energy efficiency is part of the solution, the timelines for all three efforts must be united.

Further complicating the problem is the changing shape of the supply curve as greener resources are added. “Filling in the valley” that occurs in the load curve at night and avoiding the addition of more load during peak hours makes sense if the load is being met with generators that can be turned on and off at will, such as gas-fired generators. But as we move to a more sustainable system fueled with more wind and solar, it will be more important to deploy storage and vary the load (e.g., through demand response) to match the supply. It may be that on some systems, the EV load is better served during summer afternoons, when load is already at peak, but “excess” solar is available to be stored in the EVs’ batteries (in lieu of or in addition to other storage devices). Conversely, adding load at night might induce increased operation of fossil-fuel generators, worsening the greenhouse gas profile of the electric sector. Incentives for shaping the new load will have to be tailored accordingly.

Conclusion

Looking across these four questions, the complexity of the problem is enormous. Unknowns include the rate of market penetration of EVs, the charging preferences of consumers (as shaped, to the extent possible by time-varying rates, education, and the locations and types of chargers available), and the extent to which other changes, such as deep decarbonization of buildings, will affect the total amount of load to be met. The development of new technologies, including the ability to store renewable energy in land-based systems and EV batteries, to keep the new fleet of EVs on the road and running “green” is both an opportunity and another moving target. The success of aligning load shape and green sources of generation in the future will be highly dependent on whether consumer behavior can be shaped by rate incentives, education, technology assistance, or other means.

While concurrent advances in biofuels or other technologies may provide some alternatives, EVs are undoubtedly a part of our future. So solving this puzzle will be too.

Donna M. Attanasio
Senior Advisor for Energy Law Programs
The George Washington University Law School
October 2018

No comments:

Post a Comment