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PUR Guide 2012 Fully Updated Version

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Killing the Electric Car ... Again!

EV Policy Dilemma

The recent rise in oil prices once again stokes the interest in electric vehicles (EV) – and for good reason. They run cheaper, cleaner and on domestic fuel. Some EVs already have a lower total cost of ownership than a gasoline-powered vehicle, and others will follow as production scales up and unit pricing drops. Unfortunately, in the current regulatory environment, EV adoption in the U.S. will not happen in scale because, in most states, utilities have no meaningful financial incentive to sell electricity to EV owners, yet they bear all the risk of any local system overload from newly increased demand.

 

With all the risk and no reward for utility companies, economic incentives don't support innovation.

Reading newspaper headlines about auto company needs and government announced investments, it’s easy to think that technology and infrastructure are the constraints. Clear thinking and an analysis of the situation on the ground shows that the U.S. isn’t technology constrained or capital constrained, but collaboration constrained. A review of the numbers shows that with tremendous profit potential, something must be keeping U.S. businesses down – and out of the good fight.

Though the U.S. has sufficient reserve electricity capacity, it has almost no electricity market for transportation. The market for petroleum-based fuel used for U.S. transportation is about $540 billion when gasoline is just under $3 per gallon. Close to two thirds of that, or $350 billion worth of fuel, is imported. The U.S. electricity market is also $350 billion – about thirds the transportation fuel market in size – and electricity demand grows slowly, at less than the pace of GDP. If you’re a CEO selling a slow-growth commodity, and you see a market 50 percent bigger than your current market – and with faster growth with uptake from current customers – you’d probably look for a way to enter that market.

At daytime, in a slightly high-priced region such as New York state, rates are 11 cents per kilowatt hour (kWh). A Nissan Leaf only consumes 0.24 kWh per mile (according to the FTC and Nissan), which means that an EV owner in New York is paying about 2.5 cents per mile. By comparison, the owner of a 25-mpg car pays 12 cents per mile, with gas priced at $3 per gallon. Put another way, the Leaf consumes 66 cents per gallon equivalent of electric energy, instead of burning $3 worth of gasoline. In New York City where electric customers pay 22 cents/kWh – close to the highest in the nation – the Leaf would run at $1.32 per gallon equivalent. This is a staggering savings in fuel costs, which makes electricity look like an excellent replacement for gasoline.

Now imagine that utility CEO looking at a market 50 percent larger, where customers could save massively by switching to the utility’s fuel.

If the utility suddenly starts making more profits by selling electricity overnight for EVs, regulators will force the utility to return to ratepayers any excess income.

It gets better. While wholesale gasoline prices fluctuate only a few percent per month, there

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