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EVs – The Great American Energy Swap

Alan Rozich's picture
Director BioConversion Solutions

Providing quantitative sustainability insights using sound technical analyses with a management consulting approach to craft strategies that address the mega-trends that are occurring in the...

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  • Aug 24, 2022
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This item is part of the Electrification of Transportation - August 2022 SPECIAL ISSUE, click here for more

Image credits: BBC and USEIA

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Synopsis

Who would have thought that a sustainability initiative to combat climate change also brings a compelling and attractive value proposition? Too often climate change zealots neglect the dictum that true sustainability is also about the economy. Electric vehicles (EVs) have the potential to significantly reduce energy resource consumption in the US and other countries. In effect, the EV initiative in the United States is the Great American Energy Swap replacing vehicular fuels such as gasoline with electrical energy. The Swap is basically an energy efficiency play. It has the potential to reduce annual US energy consumption by as much as 11% and US GHG emissions by as much as 25%. This can be realized economically with the ability to generate several billion dollars per year in revenue. It is rare to identify a scenario wherein the en masse deployment of a technology architecture has the potential for achieving large reductions in resource or energy consumption. In this circumstance, this feat can be realized without impinging on societal functionality while bringing an attractive economic opportunity that has the gravitas to attract third party investors.

The EV Sustainability Value Proposition

Some time-honored sayings often ring true in the pursuit of excellence, achievement, and accomplishment. Thomas Jefferson once said, "I'm a greater believer in luck, and I find the harder I work the more I have of it."

From the world of intellectual property and patent law, there is the mantra that truly groundbreaking concepts or inventions are, in fact, "not obvious to those skilled in the art."

These two seemingly unrelated principles fortuitously coalesce when it comes to EVs or electric vehicles and sustainability. Furthermore, it is interesting to note that the Musk Tesla Vision has been relentlessly excoriated by doubters until quite recently. That overdue exoneration may likely transition to outright support and a long overdue sense of enthusiasm for EV platforms.

US Energy Footprint

Going "all in" with electric vehicles (EVs) has the potential to significantly reduce energy resource consumption and greenhouse gas (GHG) emissions in the US and other countries. The figure below shows energy footprints for various countries makes the compelling point that the EVs will significantly reduce US energy footprint by about 11%. This will invariably make the US more competitive.

It should be emphasized, however, that an EV initiative by itself is a significant energy efficiency play with the potential to reduce annual US energy consumption by as much as 11% and provide cost-savings to consumers.  This is shown in the figure below.

US CO2 Emissions Reductions

It is also notable that going “all-in” on EVs has a somewhat, perhaps unexpected, impact on GHG emissions as shown in the next figure. The figure shows that the US would potentially realize a 25% decrease in GHG (CO2) emissions by adopting a total EV vehicle platform. The supporting calculations are given elsewhere.       

The figure below indicates that an EV initiative by itself is a significant energy efficiency play with the potential to achieve significant GHG reductions. Going “all-in” on EVs would reduce US emissions by about 15% with EVs alone. By using renewable energy to power EVs, emissions reduction can climb to 25%.

The graphic showing the potential impact of EVs on reducing US CO2 emissions makes some interesting points. It is notable that CO2 emissions reduction and concomitant monetization can be utilized to finance grid infrastructure or other initiatives required by utilities to proactively accommodate the impact of EVs to grid operations.

CO2 Credits Monetization and Energy Cost Savings

There are at least two potential paths for utilities. One is to monetize CO2 emissions reduction. There is also the matter of the cost-savings that result by not having to utilize a less efficient and more expensive energy source (i.e., electrification versus gasoline). This scenario necessitates some “out of the box” thinking if one is keen to benefit from the aggregate energy cost-savings. One potential approach could utilize hedging oil and gas prices as energy costs get impacted by the Energy Swap. 

CO2 Credits Monetization

The previous figure suggests two potential scenarios for monetizing CO2 credits. One scenario (15% US GHG reduction) where Utilities (or other interested parties) implement an EV platform that generates credits relying solely on the EVs reducing automobile energy consumption. It is assumed that the EV initiative is implemented over a 15-year period. The current pricing for CO2 credits is about 40 euros (about $40) per ton of carbon dioxide.

This scenario that would reduce emission by 730 million metric tons of CO2 per year and is projected to annually produce about $29.2 billion per year in carbon credit revenue.

Another scenario (25% US GHG reduction) where Utilities (or other interested parties) implement an EV platform that generates credits where renewables supply energy for EVs reducing automobile energy consumption.

This scenario that would reduce emission by 730 million metric tons of CO2 per year and is projected to annually produce about $52.6 billion per year in carbon credit revenue.

Gateway Generating Station, courtesy Wikipedia.com

Energy Cost Savings - Oil and Gas Price Hedging

Finally, there is also that matter of savings that occur because consumers expected preference for lower energy prices offered by the Energy Swap.

As of August, 2022, US gasoline prices are at about $4.30 per gallon and total annual US gasoline sales were about $430 billion .

Although this amount of potential cost savings is very significant, it may prove challenging to monetize using conventional approaches. Also, as gasoline providers begin to adapt to the inevitability of the energy transition from gasoline to electrification, it may be difficult to predict both gasoline consumption and associated pricing. Consequently, one approach that can be considered is a variety of hedging options. Clearly, it is essential to engage the right entities or individuals that have the skill-set, gravitas, and track record with hedging transactions. However, given the potential financial metrics, this pathway is at least one that is worth considering.

Potential Impacts and Opportunities of the EV Transition to Utilities

The EV transition and concomitant Energy Swap will undoubtedly bring a mixture of impacts that need to be addressed as well as opportunities for enhanced business that enables Utilities to provide more products and services to their customers and to generate revenue.

EV Adoption Will Vary Regionally and Locally

One consideration that holds sway over all Utilities is that EV adoption will vary depending on region and locality. Consequently, since EV proliferation in specific geographies will obviously be contingent on EV sales, it would make sense for Utilities to work closely with EV manufacturers so that they can forecast the expected forecast the geographical dispersal of EVs in specific geographies and thus ascertain the subsequent potential implications for grid operations in those areas.

There is also the matter that companies are buying EVs in bulk to have EV fleets. For example, UPS has EV trucks and the Cities of New York and Los Angeles are planning on en masse EV deployment. Harmeet Singh notes that, although fleets of vehicles increases grid stress, they bring predictability for charging times.

Integration of Renewable Energy into the Grid

It is interesting to note that it has also been suggested by Harmeet Singh that utilities should consider integrating renewables into grid functionality. It was previously noted in this article that the use of renewable energy in conjunction with an “all in” EV platform has the ability to lower by US CO2 emissions by 25%. Clearly, this represents an opportunity to improve the economy with enhanced sustainability and a concomitant reduction of emissions.

Charging Station Design and Implementation Strategy

It is becoming very clear that the “tale that wags the dog” concerning the overall calculus of merging an EV platform functionality into existing grid operations is how charging stations are deployed and utilized. For example, where the stations are located and charging times are pivotal for ascertaining the dynamics of increased load to the grid that is due to EVs. Optimizing charging station design and operation in relation as it impacts grid upgrade CAPEX is clearly a key factor and one that deserves immediate attention and consideration as it will likely drive much of the engineering, CAPEX, and economics of the Energy Swap initiative that directly impact Utilities.

Government and Consumer Engagement

It is notable that municipalities are already decreeing "EV ready" ordinances in anticipation of the surge in electrification that is needed to adapt to the new energy platform for automobile and other vehicle transportation. The gist of these initiatives is to ensure that there will be adequate facilities available to meet the charging needs for electric vehicles. The underlying assumption which is probably accurate is that EVs will have more difficult time penetrating the market without proactive measures by government. Another perspective is that these measures serve not only EV companies but the public in general and economy. This is particularly compelling given the value proposition that is embedded with the deployment of this platform and the concomitant reduction in pollution and emissions.

Courtesy, Corporate Finance Institute

Consumers have the ability to take advantage of Federal Tax credits and, in some cases, state or local incentives that accompany the purchase of an EV or a hybrid vehicle. It is a bit complicated since some brands, such as Tesla, are no longer eligible for Federal tax credits because they have sold over 200,000 vehicles, but State and Local governments still may offer remuneration in this situation.

One possible approach that Utilities or third parties that are engaged in the Energy Swap effort could consider is offering rebates or financing packages to EV purchasers. This initiative allows third parties and Utilities to gain more control and participation in the overall deployment of EVs in target geographies. This scenario presents opportunities to refine charging station design and operation as well as providing Utilities and their partners the opportunity to interact directly engage with EV owners to “coach” optimal charging habits.

This protocol can meet the needs of EV car owners as well as ameliorating the impact of charging activities on grid infrastructure, demand variability, and on CAPEX expenditures of Utilities that are needed to accommodate the Energy Swap.    

Third Party Financing of Initiatives Related to Grid EV Adoption

It was previously noted that carbon credit revenue is significant and there are arguably few sustainability scenarios where such large stockpiles of these commodities can be obtained as they can with the Energy Swap. Consequently, there is fortuitously an ample financial incentive for third parties to become involved.

Interestingly, the private sector appears to be leading the charge (no pun intended) in addressing the challenge of charging stations in a big way making it more convenient for EV users and thereby facilitating more aggressive EV deployment.

It was reported that Electrify America is investing $500 million in charging station infrastructure. More compellingly, however, they are creating a nationwide public EV charging network. Information on location of charging stations, pricing, how the charging network functions and other aspects of using their services are provided on their website.

Clearly, the issue of requirements for enhanced grid functionality and concomitant necessary upgrades must still be addressed. However, by tracking projected EV sales geography and charging station deployment, it should be feasible to glean reasonable insight into the needs for these upgrades.

Summary

Electric vehicles (EVs) have the potential to significantly reduce energy resource consumption in the US and other countries. Effectively, the EV initiative in the United States is the Great American Energy Swap replacing vehicular fuels such as gasoline with electrical energy. Both the sustainability metrics and underlying value proposition are very compelling. The Nationwide Electric Grid is a vital player in this initiative. Consequently, working with Utilities to mitigate and predict the impact of EV energy demand on the Grid both geographically and temporally is vital. All parties should be keen to muster appropriate resources that are needed to accommodate the evolving EV transition.  

Finally, the emergence of third-party entities that are participating with key functionality elements such as the vital deployment of charging stations is a welcome trend. Additionally, there are very positive and compelling economic features in this effort that are accessible and that can be readily leveraged. In closing, the Energy Swap should not be viewed as an onerous, compulsory exercise that one must grudgingly endure with a disposition of malicious obedience. Conversely and arguably, the EV transformation is a rare opportunity that should be prudently and measurably be embraced and one that can be managed and implemented with the same systems engineering protocols that have served us well in the past.

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