Like rooftop solar—now one of America’s fastest growing industries—electric cars are poised to hit their tipping point. As we’ve seen with other clean energy technologies, each product generation brings rapid improvement. Starting this fall, the second generation of electric cars will be arriving at showrooms —starting with the Tesla Model X and Chevy Volt – offering greater range and more model choices.
As with renewable energy, taking the electric vehicle market to the next level will require big investments in creating a robust network of public charging stations and creating new business models to make such investments worth it.
It has been widely recognized that the lack of publicly available charging infrastructure – including at workplaces and apartment buildings —is a key barrier to mass adoption of electric vehicles. The infrastructure gap is in large part a “financing gap.” As a recent National Academies of Science study on electric vehicle barriers confirms, it is hard to identify any standalone private sector entities that have an “attractive business case for absorbing the full capital costs of investments in public charging infrastructure.
Utility companies are in the unique position to finance charging stations because they can capture the grid-wide benefits of large-scale electrification, especially the benefit of greater utilization of fixed assets. However, the conundrum for owners of charging stations is that while a safety net of more stations is needed to drive sales and further reliance of cars using electricity for their fuel, the vast majority of the charging is still likely to happen at home. By creating incentives for home charging to happen duringoff peak hours, utility companies can generaterevenues that exceed their cost of service, even with time-of-use rates.This is because the distribution system and other fixed assets are sized to meet peak loads and thus are underutilized during off-peak hours.
The problem is how to build EV load, and to do such you need a “safety net” to reduce “range anxiety” which then drives adoption, but because the network is more of a safety net, it will not be the primary location to charge, versus at home. So a network drives EV adoption and load, which then predominately occurs off peak which allows utility to increase their capacity utilization rates of fixed assets, which then allows them to collect more net revenues.
This creates a rare “win-win” situation where electric vehicle drivers, utilities and all utility customers can benefit from increased investments in electrification. A recentCalifornia study estimated that utility companies could earn $2.26 to $8.11 billion in net revenues from large-scale commercialization of EVs. This is sufficient to allow utilities to invest both in installing charging infrastructure and return some of the revenues to their customers in the form of lower rates.