Electric Vehicle Charging Deployment Needs Competition to Achieve Scale
- Aug 16, 2021 6:09 pm GMT
When President Dwight D. Eisenhower signed the Federal-Aid Highway Act in 1956, there were considerably fewer automobiles traveling U.S. roads. Imagine for a moment if that law had prohibited private gas stations and instead required the federal government to build, own, and maintain all gas stations throughout the interstate network with taxes. Would government bureaucrats have performed better than the market at providing cost competitive gas pumps where the market needed them? If you doubt that, you should be concerned about government regulated electric utilities trying to monopolize the energy supplies of the next generation of U.S. automobiles: electric vehicles.
This issue is playing out in North Carolina right now. Duke Energy, which filed its $76 million EV ‘pilot’ program with the N.C. Utilities Commission (NCUC) back in 2020. Duke Energy wanted to be paid to install, own, and control $76 million worth of EV chargers, and earn a guaranteed rate of return on those assets. While the NCUC authorized Duke Energy to move forward with a reduced amount of $25 million for pilots in November 2020, the company came right back in May 2021 to ask ratepayers for another $50 million before they even started to spend the first $25 million.
The public subsidy Duke Energy has requested is enough to stifle private sector competition for the next decade. Carolinas Clean Energy Business Association (CCEBA) intervened in the EV pilot docket advocating for a partnership between private investors and utilities. Allowing Duke Energy to own and operate all the EV chargers gives them an unfair competitive advantage over third-party market companies. CCEBA has remained engaged with Duke Energy’s second pilot proposal to ensure it doesn’t restrict North Carolina’s competitive EV charging market.
The Need for Electric Vehicles
The number of EVs on the road by 2030 is expected to reach up to 18.7 million. Recently several major automakers pledged that all new cars sold would be electric, hydrogen-fuel cell, and/or plug-in hybrid vehicles. A recent survey from the Pew Research Center showed that seven percent of U.S. adults currently have a hybrid or electric vehicle, and 39 percent said they were somewhat or very likely to consider electric for their next vehicle purchase. The International Energy Agency reported 1.8 million EVs registered in the U.S. as of last year, more than three times the number from 2016; 1.1 million of those are all-electric, with the remaining numbers HEVs and other fuel cell vehicles.
Transportation emissions have overtaken the electric power sector as the largest share of greenhouse gas emissions. Carbon dioxide and other greenhouse gases from cars, trucks, planes, trains, and buses account for around 29 percent of total U.S. emissions. What's more, light-duty vehicles like cars account for nearly 60 percent of these emissions. More energy-efficient modes of transport, such as plug-in electric vehicles (EVs) and hybrid-electric vehicles (HEVs), will play a key role in minimizing climate impacts.
The EV Charging Market is Unique and Evolving
But even with these promising figures, the U.S. only holds 17 percent of the global stock of EVs. U.S. EV drivers live in major metropolitan areas and typically charge their vehicles at home using Level 2 chargers at times that are beneficial to the grid (e.g., overnight hours).
Most public EV chargers are Level 2, meaning they provide 10 to 20 miles of range per hour; less common are DC Fast Chargers (DCFCs), which can provide 60 to 80 miles of range in 20 minutes. Many public chargers are sited at businesses and restaurants, with the idea that your vehicle will charge while you are eating or shopping. EV charging represents an enormous business opportunity for mom-and-pop businesses as well as chains.
If fair market protections remain in place, private firms will be leaders in EV infrastructure deployment. The public sector can also play a key role in supporting private investment in EV charging. For example, the N.C. Department of Environmental Quality, Energy Office should focus on how to leverage one-time sources of funding such as the VW Settlement to incentivize deployment in priority areas. In addition, the bipartisan infrastructure deal included $7.5 billion for EV charging, which will push out more than $200 million across the Carolinas in formula funding specifically for state transportation department investments in EV charging. This federal investment will be a game changer for the Carolinas.
Drivers Need Fair, Competitive Pricing for EV Charging
EV charging is a tricky market. Gas stations, on the other hand, purchase fuel wholesale, set their prices competitively and make a profit. Electricity pricing, on the other hand, is set by public utility regulators. Unfortunately, complicated regulations around utility pricing create problems for those seeking to profit from EV charging.
For example, it has only recently become legal for owners and operators of EV chargers to "sell electricity." States must authorize EV charging operators to set a per-unit (or kilowatt-hour) electricity price; otherwise, private companies are limited to setting the price based on time. The legislatures in both North and South Carolina have already clarified that EV charging is not a resale of electricity, but that is not the only regulatory barrier to operating electric vehicle supply equipment.
Utility electricity rates are designed to impede private investment in high-powered EV chargers. Most residential electric customers pay for the total amount of energy used each month in terms of kilowatt-hours (kWh). In contrast, manufacturing companies face a greater energy demand over a sustained period and typically pay an additional demand charge based on the highest peak demand for power capacity in each month.
Unfortunately, traditional electricity rates were never designed to reflect the unique characteristics of light-, medium-, and heavy-duty electric vehicle (EV) charging.
As explained by the Great Plains Institute, high-powered EV chargers “will likely incur demand charges, especially if two or three vehicles are charging simultaneously. Even if this only happens once in a month, the operator will get billed for a very large demand since this charge is based on the peak use occurrence for each billing cycle.” These outdated electricity rates stack the deck against private investment and in favor of monopoly utilities.
The Way Forward?
Opinions are split about how to accelerate investment in clean transportation and increase access to electric vehicles, and those opinions are often taken to extremes:
- Some have suggested that regulators should authorize utilities to expanding their monopoly by directly owning and operating EV chargers and passing along those costs to all ratepayers . However, allowing utility utilities to expand their monopoly control into the EV charging market would crowd out competition and private investment, stifle innovation, and hurt ratepayers.
- Others have argued that utilities should have absolutely no involvement in EV charging infrastructure or rate design, which would leave significant value for ratepayers on the table and prevent utilities from appropriately incorporating new load from EVs onto the grid.
Going along with either of these radical approaches would hold back clean transportation in the Carolinas. Fortunately, there is another way forward, which is known as “make ready.” In the EV world, “make ready” infrastructure refers to the conduit, wiring, and other infrastructure necessary to connect EV chargers to the grid. Programs that support make ready investments accelerate private investment, prepare utilities for an increasingly-electric vehicle fleets, and create value for all ratepayers.
Regulators around the country are increasingly approving “make ready” programs that create a partnership between private investors and regulated utilities. In fact, Duke Energy proposed a separate Make Ready Credit program, which CCEBA supports to integrate distributed energy resources efficiently and cost-effectively into the grid. CCEBA intervened in the NCUC docket offering comments on the Make Ready Credit proposal.
Clean transportation is coming to the Carolinas, and policymakers will have to decide how to bridge the infrastructure gap. Ultimately, whether we allow monopoly control or a free market for EV charging will determine whether we have enough chargers to support a full transition to electric vehicles, whether we chase out or encourage private investment, and whether the Carolinas continue to grow into a hotbed for innovation and economic development.
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