The Business Case for Utilities Supporting Public EV Charging

Authors: Benoit Marcoux, Simon Ouellette

In this white paper, we offer some fact-based thoughts to fuel utilities’ push toward developing sound EV strategies. Our suggestions are inspired by the actions of some of North America’s leading utilities, which we have had the privilege of assisting with data and strategic advice over the last few years. Done right, EVs prove to be good for utilities and their ratepayers.

Three value streams exist to support the case for utilities to support public EV charging. First, research has shown that light-duty EVs put downward pressure on electricity rates through increased demand requiring little incremental investment. Second, EV drivers are prime targets for other utility programs, because they are the most digitally engaged of all customers. Finally, leading utilities see new business opportunities from home, public and workplace charging.

However, for utilities to capture the value from the slow but irreversible transition into EVs, they must develop new skills. On the consumer side, EV drivers are dissatisfied by public charging, a barrier to adoption that increases range anxiety. Meanwhile, many utilities are driving blind through the transition—not even knowing when, how, or where charging occurs on their own electricity grid—or even who’s charging.

EV Charging Puts Downward Pressure on Electricity Rates

The real-world experience of utilities with noticeable penetration of light-duty EVs shows that EV charging brings additional revenue that vastly exceeds the costs to generate and deliver that energy

These value numbers are quite high: throughout the electric transportation value chain, utilities are, arguably, the businesses with the most to gain from the switch to light-duty electric vehicles. For example, the net value to utility ratepayers of a new EV can often be higher than the gross margin earned by the car dealer who sells it.

This optimism may come as a surprise, given concerns expressed in some industry opinion pieces over the ability of the grid to support EVs. However, in California, with high EV penetration, otherwise relatively low average residential load, and high clustering of EVs, a mere 0.15% of EVs required a service line or distribution system upgrade.[1] At a system level, a Hydro-Québec study showed that home charging an EV draws an average of only 600 watts on peak—a small amount.[2] It is worth noting that these two examples do not rely on any strategies for EV load management, which further lower contribution to peak load.

In practice, many factors mitigate the grid impact of unmanaged EV charging. For instance, owners of modern long-range EVs tend to charge at home only every two to three days[3], and often well outside peak demand hours. Also, many EV drivers simply charge from a standard 120 V wall plug—called level 1 charging—which is slow but can add enough range for daily commute in many circumstances. More and more drivers can now charge at their workplace or at public stations, diversifying the load curves. EVs do add to local load, of course, but the current average load on distribution transformers used for residential customers is relatively low, typically in the range of 25% to 30% of their rating. Only a few hours each year may be above the kVA rating of the transformer, with little consequence beyond possibly slightly shorter life.[4]

If anything, the advent of EVs may enable electric utilities to grow again: current year-over-year electricity consumption growth (kWh) averages less than 1% in North America, down from about 2.5% as recently in the 1990s.[5] Incredibly, yearly growth was about 8% to 10% in the 1950s and 1960s, as a wave of electrification propelled the economy. Let’s not forget the DNA of electric utilities evolved to grow the electricity grid, the greatest engineering achievement of the 20th century.[6]

Looking forward, forecasts of electricity use due to the transition to electric vehicles range from a fraction of a percent to perhaps 2% per year[7]—not negligible, but clearly manageable given past growth rates.

Overall, grid impacts of light-duty EV load profile over at least the next decade should be relatively modest. The net economic benefit from additional demand revenue vastly exceeds the costs of providing it. That benefit can exert downward pressure on rates for all utility customers—not just those driving EVs. For example, Avista estimates that the net present value to ratepayers of a single EV on its system is $1,206, without managed charging.[8] Furthermore, shifting charging to off-peak hours or periods of high renewable generation further improves that benefit—up to $1,603 per vehicle.

Obviously, EV drivers also gain from lower maintenance and operating costs. And, of course, the switch to EVs significantly reduces greenhouse-gas and other harmful emissions.

EV Charging Enables Stronger Customer Engagement

Today, ratepayers largely interact with their utility for outages and billing issues. Not exactly positive customer engagement.

Compare this to how engaged drivers of gasoline cars are. They’ll drive out of their way to pay less, and fuel up on days when prices are lower. They follow loyalty programs and use coupons. Gas stations have become minimarts. Clearly, motorists are deeply engaged with those providers.

In offering EV charging, utilities become mobility enablers, empowering their customers to visit friends and family, or to go to work and shopping. Those consumers make a conscious decision to interact with the utility every time they plug in their vehicles.

Just as gas stations do, leading utilities can leverage those new touch points, offering robust education, outreach, and assistance programs. Those start right on the dealer lot, move through vetting electrical contractors for home installations to partnering with charging-station site hosts, all along focusing on boosting value to the customer. It can even add an element of fun: the gamification potential of EV charging and driving is high, with some automakers already using games to change behavior.[9]

One major value-creation opportunity is leveraging home EV charging to get customers to opt into time-of-use or dynamic electricity tariffs. Residential EV charging responds well to price signals; even a small rate differential induces a strong tendency for overnight charging.[10] Light-duty EVs can be easily programmed through the car or the charger to begin charging at a preset time, making the burden on the driver low. The impact of time-of-use tariffs on charging is impressive: PG&E customers enrolled in time-of-use tariffs conduct 93% of EV charging off peak; at Southern California Edison, 88% of charging is off-peak.[11]

Today, the big problem with time-of-use tariffs is that utility customers are not opting into them. A few jurisdictions mandate use of smart meters and chosen to impose time-of-use tariffs: Ontario in Canada[12] and, soon, California and other states[13]. However, most regulators are giving customers the choice (“opt-in”) rather than imposing tariffs. Unfortunately, opt-in percentages for residential time-of-use tariffs tend to be very low—sometimes less than 1%[14]. For utilities, this is unfortunate, as time-of-use tariffs improve their peak-to-average ratio, reducing system costs for all ratepayers.

Charging an electric vehicle with low-cost off-peak electricity is a powerful argument for utilities when persuading customers to go for whole-house time-of-use rates. Furthermore, the ongoing need for off-peak EV charging makes it uneconomical for drivers to return to flat electricity rates, ensuring customers stay on those plans. Once adopted, time-of-use tariffs also encourage customers to shift other household loads to off-peak—a positive feedback loop. By promoting whole house time-of-use tariffs, the net value of EV charging to ratepayers becomes higher yet.

Benefits extend beyond EV charging and time-of-use opt-in. Utility professionals know how difficult it is to recruit customer participants for energy efficiency and demand-response programs.[15] However, EV drivers are utilities’ most digitally engaged customers[16] and hence prime targets for such programs. They are the customers most open to buying Energy Star® appliances and smart thermostats. The day a customer buys an electric vehicle may be the best time to sign them on a utility demand-response program—not only for the home charger, but also for cooling, space heating, water heating, even battery storage. With more touch points, greater trust, and clearly defined savings, recruiting EV customers into energy programs is much easier.

EV charging lets utilities reset and boost their customer engagement—especially as owning and driving a car has more passion behind it than other electricity uses (hot water to clean dishes, say).

EV Charging Unlocks Business Opportunities for Electric Utilities

Leading utilities find new business opportunities in home, workplace and public charging of light-duty vehicles, but effective collaboration with other stakeholders is required.

For example, some utilities now sell home charging stations and installation services to both homeowners and businesses. This is a natural extension of outreach and assistance programs aimed at EV dealers. Also, utilities may offer to vet electrical contractors for installation of home chargers, reducing customer anxiety and ensuring safer work.

That installation is a good opportunity to offer time-of-use tariffs, energy-efficiency tips, and demand-response programs to customers. At the same time, utilities can propose other appliances like smart thermostats, perhaps even energy-storage systems. Green Mountain Power is a good example of one utility leveraging the sale and the installation of residential EV chargers in a portfolio of other services and products.[17] A similar opportunity may exist with workplace charging, as well as with multi-dwelling units.

For utilities, public charging of light-duty vehicles may even have more value potential than residential chargers—and DC fast-charging stations (level 3) have more potential than 240 V destination chargers (level 2).[18] Today, EV drivers are deeply dissatisfied with the existing public charging infrastructure, and drivers who do most of their charging at home or work are much happier than those who rely on public fast chargers.[19]

The shortage of public charging stations and lack of awareness of those that do exist fuels range anxiety, and widespread confusion between Level 2 destination and DC fast chargers adds to the uncertainty. EV drivers are baffled by the plethora of pricing plans for public charging, with each operator having its own unique rate structure. Some charge a subscription fee; others sell by units of energy (kWh); still others impose fees by the minute, all with possible surcharges.

All these factors create barriers to EV adoption. For utilities, the opportunities come from supporting the development of a DC fast-charging infrastructure and using their deep reach to promote the existence of that charging, at a scale smaller operators simply can’t match. All this will serve to accelerate EV adoption, especially for drivers (a) without access to home or workplace charging; or (b) who regularly take road trips that exceed the range of their EVs.

Note that public DC fast-charging stations are generally not profitable: an analysis of DC fast-charging stations in 8 US states showed them to have negative NPV of $31k to $41k.[20] In other words, the cost of installing and operating a public DC fast-charging station is usually more than the charging revenue it generates. But, DC fast charging is a necessary prerequisite to considering an EV for many buyers. Higher EV adoption brings a corresponding increase in profitable home and workplace charging, creating permanent value for utilities and ratepayers.

For example, a study for NYSERDA showed that the benefits of an expanded DC fast charging infrastructure exceeded additional costs by $235 per EV.[21] With an average of 200 to 300 EVs per DC fast charger, this more than compensated for the lack of profitability. Another example: Hydro-Québec justified including the capital costs of a DC fast charging infrastructure in its rate base because of its “induced effects” on EV adoption and the ensuing benefits for all ratepayers.[22] This is also the rationale that NYPA used to deploy its own DC fast-charging stations.[23]

Furthermore, public DC fast charging offers totally new and valuable business areas for utilities. Like gas stations before them, selling energy at a DC fast-charging site acts as a loss leader for profitable ancillary services (like car washing) and many types of retail convenience sales. Compared to gas stations, DC fast charging sites require less infrastructure and are less constrained by zoning by-laws and public safety concerns. With the lower cost and smaller footprint of DC fast chargers in comparison to fuel pumps and tanks, we may see more and smaller sites, especially adjoining existing or new stores.

Fast charging takes a few minutes more than filling a gas tank. The countervailing benefit is that drivers do not have to remain beside the car, sweating, freezing or being rained on, while squeezing a filthy gas-pump handle.[24] With an electric car, a driver only needs to plug it in—and then adjourn to the adjoining café or convenience store for a snack, a coffee, or some groceries. This increases the shopping potential of each visit. We anticipate convenience stores evolving to cater to drivers who spend 15 or 30 minutes onsite, instead of solely “grab and go” offerings while they pay for fuel.

However, drivers will make fewer visits to fast-charging sites versus gas stations, since most charging will occur at home, at a workplace, or at a destination. For site owners, longer and more profitable stays should compensate for the reduced number of visits. Furthermore, demand for such traditional services as car washing and sales of windshield-washer fluid remains. Also, new concepts—appointments to charge a vehicle, valet services, or hand-washing a car while it is being charged—are likely to emerge.

The additional time spent at a charging site is an opportunity for deeper customer engagement, for both the site owner and the utility. Ideally, charging sites can become, in effect, utility stores. Utilities and site owners will need to partner in new and innovative ways to maximize the benefits from the transition to EVs. Utilities within a state should also consider working together, to reinforce each other’s efforts.

How Can Utilities Capture the Value of Light-Duty EV Charging?

It may be all good: light-duty EVs put downward pressure on electricity rates; new EV touchpoints enable deeper customer engagement; and supporting DC fast charging may create a new line of business for utilities.

But what are the best practices to capture the value inherent in light-duty EV charging?

First, utilities must think outside the meter box for their customer relationships. Utilities need to project to their customers that they can be a trusted advisor, starting at the very beginning of the EV ownership journey, giving them options. They must market with the mindset that they are capturing new customers for new offerings that require explanation and education, something that hasn’t necessarily been a strong suit for companies with captive subscribers.

EV drivers are drivers first, expecting broader choices (in vehicles, dealers, charging sites, itineraries, etc.) than do electricity subscribers. Utilities need to reach out to drivers where they are—often behind the wheel, on smartphones—with engaging consumer information pertinent to their driving experience. More than that: utilities need drivers to lend their smart phones, and their time, to provide real-time charging and driving feedback while they carry on with their lives. Then, utilities need analytical tools to make sense of this deluge of unstructured data. When the new electric appliance has wheels and moves among service areas, fixed-meter data is no longer the only thing that matters.

This new reality for customer relationships may appear daunting, but utilities have an ace up their sleeves: for all their perceived failings, utilities are the second-most trusted source of information on EVs, right after Consumer Reports. Note that car dealers are dead last on that list.[25] In fact, consumers interested in purchasing an electric vehicle expect customer assistance from their local utility to help them deal with the unfamiliar aspects of this new technology.[26]

All these new customer touchpoints can serve to promote energy-efficiency programs and time-of-use rates. For some utilities, time-of-use rates may be designed to incentivize charging during the renewable peak, utilizing abundant renewable energy from solar PV. For others, tariffs could be designed to shift demand to night hours. There is a strong virtuous cycle between time-of-use rates and EV adoption: having an EV is a strong customer incentive to adopt time-of-use rates, and time-of-use rates reduce household electricity costs, including EV charging. The combined benefits of time-of-use rates and EVs also support the utility business cases for smart meters.

Utilities also need to develop new relationships throughout the light-duty vehicle value chain. If the relationship with local consumers is an ace, utilities today lack the relationships they need with other EV actors—which often operate on a national or even global scale. Those include automakers, car dealers, retail-store chains (whose sites host charging stations), and charging-network operators. All these entities do business across many electric-utility territories. It makes no sense for each of the 3,500 North American utilities to establish unique relationships with the dozens of EV actors who happen to, or may plan to, operate within their territory. Conversely, these actors can’t keep up with the unique needs and rules of each utility.

Specifically, there are more than a dozen large charging network operators in North America.[27] A typical utility has at least a few operators in its territory. These are extremely important relationships, given the low profitability of public DC fast-charging stations and since many utilities provide incentives to network operators or site owners. The types of incentive vary, depending on local policies and regulations. Some utilities “make ready” the charging sites by installing a low-voltage feeder and a distribution transformer bank at no cost—though the cost to the utility can reach six figures, especially for underground distribution. Other utilities directly subsidize new station installations. Regardless of the details, regulators approve incentives to encourage DC fast charging, because public charging enables EV adoption—and, overall, ratepayers benefit from adoption of EVs.

For a utility, the proliferation of DC fast-charging stations can come with challenges. A DC fast-charging station may induce a new large load (hundreds of kilowatts to over a megawatt) on medium-voltage feeders and distribution substations that were not planned for it[28]. The approval of any DC fast-charging station thus requires engineering analysis to ascertain its impact. Once installed, a station may also constrain future load growth.

To better serve the future EV charging needs of communities, some utilities, like BC Hydro, have developed a “data clearing house” that compiles usage data from the different charging-network operators.[29] Armed with session-level charging data, a utility can better plan grid expansion and location of future DC fast-charging stations (within the reality that they must be on high-traffic routes with easy egress and clear signposting). It is even possible to receive real-time EV driver feedback on their experiences at public charging stations from integration with apps like ChargeHub.

The combination of session-charging data and user feedback lets utilities better understand charging behaviors, and can speed up issue detection and resolution at specific stations. The system may also incentivize charging at off-peak periods through dynamic pricing. Relative pricing of neighboring stations can be adjusted to divert traffic toward, or away from, specific stations, improving asset utilization and relieving grid congestion. Learning algorithms could even predict charging prices hours or days in advance, letting EV drivers charge at the most convenient time for them.

The BC Hydro model is a promising avenue. It offers utilities a turnkey solution to aggregate and manage EV charging data, especially as multiple network operators arrive in their service territory. Thus a crucial best practice for utilities that plan to incentivize the deployment of DC fast-charging stations is to require session-level data access from charging network operators, as well as price signals pushed to operators. That allows a data aggregation and management solution to be implemented, “future-proofing” utilities’ ability to understand plan for the new and growing use even in these early days.

Closing words

In this white paper, we described the three value streams of EVs for utilities: downward pressure on rates, stronger customer engagement, and new business opportunities.

There are multiple business models utilities use to incentivize DC fast charging. They can own the charging infrastructure in their regulated asset base. They can own the charging infrastructure in an unregulated subsidiary that is subsidized by the regulated entity. They can subsidize third parties (such as site owners and charging network operators), amortizing the subsidies as intangible assets over the years. Some of these models may coexist. In addition, a new rate design may be developed to address demand charges while reasonably recovering utility costs.

This industry being what it is, however, policies and regulations shape what each utility can and cannot do, either directly or indirectly through an unregulated affiliate. Some utilities own and operate charging stations, sometimes as part of their rate base, spurred by government policies to accelerate EV adoption: NYPA and Hydro-Québec are examples. Other utilities are wire-only companies, precluded from selling electricity—some Texas providers, like Oncor, are examples. Cooperative and municipally owned utilities need to account for the collective will of their constituents and the objectives of elected officials. Some utilities can own the charging infrastructure in an unregulated subsidiary. Many utilities fall somewhere along this multidimensional spectrum.

Regardless of the regulatory framework, understanding how leading utilities are preparing now for greater EV penetration in the future is useful to all utilities developing their EV strategy, even if only as a reference to guide policymaking. We hope it has been useful.