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 |
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.
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
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