Navigant Research Blog

No Clear Path to Highway Funding Solution

— May 4, 2015

The gap between the investment needed for U.S. transportation infrastructure and the available taxpayer funding continues to grow. And neither Congress nor the White House has not gotten significantly closer to solving this problem.  A new report from the University of Michigan’s Transportation Research Institute (UMTRI), released just 2 months before the latest temporary Congressional funding patch for transportation is set to expire, provides further evidence that the federal funding transportation pool will continue to shrink unless Congress takes action.

Navigant Research has been writing about the problem of the Shrinking Gas Tax Fund for many years. Created by Congress in the 1950s, the fund was set up to pay for transportation from direct taxes, rather than from the general Treasury. The current tax rate of 18.4 cents per gallon was set in 1993, 22 years ago. Congress and the White House are loath to propose raising the gas tax, which has long been the third rail in American politics. Today, unfortunately, the drop in gasoline consumption combined with the shrinking purchasing power of 18.4 cents per gallon has made the unthinkable closer to becoming reality.

Tabled

Mainstream business groups have proposed raising the gas tax, and the Republican leader of the Senate Transportation Committee, John Thune, said that raising the gas tax would be on the table for the current Congress. The head of the Senate Environment and Public Works Committee, climate change denier James Inhofe, agreed with that statement.

As of the end of March, though, there was still no clear legislative pathway to raising the gas tax.  The UMTRI report should set off alarm bells in Washington about the future of the Highway Trust Fund. The report points out that U.S. gasoline consumption has been dropping steadily since well before the 2008 recession. From 2004 to 2013, fuel consumption by light duty vehicles in the United States dropped by 11%. The report’s author, Michael Sivak, also noted that the U.S. passenger car population has decreased since 2008, which could be considered an artifact of the economic downturn, or a foretaste of millennials’ mobility habits.

Millennium Shift

This data confirms reports about the shift in attitudes about car ownership among millennials that have been widely reported, albeit mostly anecdotally. A 2013 U.S. PIRG report found that there is a permanent change in expectations about how to get around–with driving seen as just one of many options that millennials regularly use.  And increasingly stringent fuel economy standards are likely to further reduce total gasoline consumption.

Unfortunately, the White House’s proposal for the new transportation bill does not include a gas tax increase, so it will be left to Congress to determine whether the time is finally right to increase the rate–or find a new mechanism to pay for the maintenance and improvement of U.S. transportation infrastructure.

 

Fuel Cell Makers Seek an American Foothold

— March 18, 2015

In the United States, the topic of fuel cells is very often greeted with skepticism. One prominent fuel cell skeptic, Tesla founder Elon Musk, recently called fuel cell cars a silly idea.

So it’s interesting to compare that to the respect still given to fuel cell technology in Japan, where the 2015 FC Expo recently took place. The FC Expo is one of the largest fuel cell conferences in the world and attracts attendees from around the world. But the audience is predominantly from the Asia Pacific region, and the level of interest in the potential of fuel cells is dramatically different than in the United States. Japan and South Korea, in particular, are two of the biggest markets for fuel cell deployments to date.

Japan’s ENE FARM program has supported the deployment of 100,000 fuel cell combined heat and power systems in Japanese homes. At the Expo, companies like Toshiba, Panasonic, and Aisin Seiki spoke about their commitment to the Japanese residential fuel cell program, which aims to sell over 1 million fuel cell CHP units in Japan by 2020. South Korea’s POSCO Energy has developed the 59 MW Gyeonggi Green Energy fuel cell park and built a 200 MW capacity manufacturing plant for the molten carbonate fuel cell that utilizes FuelCell Energy’s technology.

New Beachheads

What’s most interesting is that these Japanese and South Korean companies are focused on expanding to new markets—in particular to the United States. Ironically, though skepticism toward fuel cells persists in the United States, the American market remains one of the most attractive in the world. That’s why South Korean companies have been buying up North American fuel cell companies, and their technology, over the past few years.

LG became a majority investor in Rolls Royce’s fuel cell business in 2012. In 2014, Doosan bought ClearEdge’s assets, and POSCO has continued to strengthen its relationship with FuelCell Energy. These companies bring significant resources and a long term outlook to the fuel cell sector, using their U.S.-based fuel cell businesses as a beachhead into the U.S. market.

Got a Match?

The U.S. market has many characteristics that make it a good market for fuel cells. The shale gas boom is driving interest in electricity generation that can take advantage of plentiful supplies of natural gas. High value markets, such as data centers, are growing in number and in energy demand, and companies like Apple and Microsoft are exploring using fuel cells to bring down those costs. Energy services companies are exploring ways to meet the growing demand for distributed energy resources (DER) , and are using new financing instruments to support  deployment of DER. Incentives and programs to promote fuel cells in states like California and New York are helping to bring down the costs of today’s fuel cells to where the cost of the power approaches grid parity.

It’s not certain, though, that the fuel cell market in the United States will grow beyond early niche markets. Fuel cell companies need to drive down costs and utilize financing schemes like power purchase agreements to reduce the risk to end users. What the fuel cell industry needs is a matchmaker who can bring together the companies working to develop a successful fuel cell market with the right energy company or financing partners in the United States so they can work together to expand the market for fuel cells in this country.

 

Finding a Pathway to Profit for EV Charging

— February 24, 2015

The question of whether it’s possible to make a profit from a public charging station continues to hang over the electric vehicle (EV) charging industry. The challenges are threefold:

  • The costs of the EV charger and installation, which remain fairly high.
  • The utilization rate; i.e., how many plug-in electric vehicles (PEVs) are actually using the chargers each day.
  • The question of what PEV drivers are willing to pay for the charging.

Level 2 charging is still the most widespread type of installation deployed in public charging, and a back-of-the-envelope payback model shows that it is possible to receive a reasonable return on investment (ROI) for a Level 2 charger with high utilization and the right price point. A networked Level 2 charger with two plugs typically costs around $5,000–$6,500. Installation costs vary significantly, but can easily double the upfront investment by the site host. Operating costs are actually quite low. The electricity used is not a major cost factor, even at a relatively high cost of $0.13 per kWh (as in California, for instance). Typically, the site host will pay monthly services fees to a network operator. In some cases, it will share revenue with the operator, as well.

Just in Case

It’s important to note that there are only so many hours in the day that a public charger is going to be both accessible and likely to be used. If a dual public charger can reach utilization of around 10 charging sessions per day, and charge $2 per session, the host could make back the initial investment in 5 to 6 years.

This picture is a little rosier than the reality today, simply because the current rate of usage of public chargers is nowhere near 10 charging sessions daily. Nevertheless, this simple ROI model demonstrates that there is a pathway to profit for offering public charging services. However, there is a real question as to how many drivers will be willing to pay $2 for around 20 miles of charge, which is what a typical battery electric vehicle (BEV) driver may get from a single charging session. Given that this should cost them less than a dollar when they charge at home, it’s not clear that Level 2 public charging will ever be much more than a just-in-case opportunity for drivers. This will be even more accurate as we see affordable, longer range BEVs come on the market, since the need to top up during the day will be lessened.

Keeping It Free

These economics are one reason why many businesses will continue to offer public charging as a free service, figuring that there’s more benefit from using the chargers to attract customers, and keep them shopping longer, than to collect charging fees. It’s also why public charging manufacturers are offering leasing or no money down, no interest financing to keep the upfront cost from being so daunting.

According to Navigant Research’s new report, Electric Vehicle Charging Services, global revenue from EV charging services is expected to grow from $81.1 million annually in 2014 to $2.9 billion by 2023.

Annual Revenue from EVSE Charging Services by Region, World Markets: 2014-2023

 EV Charging Services chart

(Source: Navigant Research)

EV charging is a promising new, multibillion-dollar business sector. These forecasts include revenue from DC charging, which is likely to be a more lucrative segment than Level 2. But our scenario also assumes that some public charging will remain as a free perk, rather than as a direct revenue generator, given the questions that linger about drivers’ willingness to pay for top-up Level 2 charging.

 

Fast EV Chargers: Still Seeking a Market

— January 16, 2015

DC charging stations provide a significant benefit to electric vehicle (EV) drivers by allowing them to recharge in 30-60 minutes.  But while the market for DC chargers is growing, it is doing so at a relatively slow pace, thanks to the cost and complexity of deploying the chargers. A new report by North Carolina-based firm Advanced Energy on its DC fast charging deployment coordination project describes how the company found five hosts to deploy DC fast charging stations, provided for free of charge by Advanced Energy.  The report serves as a useful primer on EV charger installation generally and fast charging specifically.  It also gives a sense of how the public charging infrastructure market, while continuing to grow in key markets, is still in an early adopter phase that requires infrastructure companies to spend significant resources educating potential customers and guiding them through the planning and installation of EV charging.

Advanced Energy launched this initiative to deploy up to 10 DC fast charging stations for public use in North Carolina in March 2013.  Sixteen host sites applied for the equipment, with five ultimately installing it.  The site selection process highlights the practical considerations that must be taken into account by businesses interested in offering DC charging.  In this program, host sites are responsible for both installation and operational costs.  With installation costs expected to range from $20,000 – $60,000, a free charger becomes much more expensive.  Not surprisingly, these costs were two of the top factors that prevented some applicants from deploying stations.

The Cost of Power

Installation is also a barrier for Level 2 commercial charging, as the cost of trenching or boring from the charger site to the electrical breaker box are significant for any type of charger, Level 2 or DC.  Limiting the distance from the circuit breaker to the charger is essential to minimize installation costs, but it’s not the only consideration.  The site also has to be one where a DC charger, with its large footprint, can fit without reducing the parking space.  The report also recommends that the chargers be placed away from other infrastructure and nearby trees.  And of course the spot must be readily accessible by drivers.

In addition, the DC charger’s power requirement is a major cost factor.  The chargers use three-phase 240V or 480V input; if the site is not already equipped for this, it is a significant added expense.  Then there is the issue of ongoing power demand.  Thirty-kilowatt (kW) and 40 kW DC chargers run the risk of triggering demand charges for customers if they exceed a certain level under their utility rate agreement.

Successful But Unprofitable

The good news is, the sites that installed chargers are seeing rapidly increased utilization.  Two spots — a large retail outlet and a municipal center – reported around 500 sessions combined in the third quarter of 2014, up from 350 over the previous two quarters.  Energy demand per session has also risen.  Note that the stations are currently free to use; nevertheless, given that this is very early in the deployment of these stations, and there are fewer than 3,100 PEVs in all of North Carolina.  The success of these DC chargers provides evidence that, if you install them, drivers will come.

This conclusion is also supported by the experience of the first fast charger deployed on the Chargepoint network. The 25 kW Fuji fast charger, operated by charging services company Evoasis, was installed at a Marriott in San Juan Capistrano, roughly halfway between San Diego and Los Angeles. After 18 months, Chargepoint reported that the station had delivered 2,900 charging sessions.  While the station was free for the first few months, Evoasis began charging $10-15/hour in early 2013. Usage remained steady and Chargepoint reports that the station generated $10,000 in revenue over its first 18 months.

However, the 250 sessions a quarter reported for the North Carolina stations is less likely to make DC charging adoption look like a profitable enterprise for the near-term, given the expected cost of $30,000-$60,000 to purchase and install.  At this stage of the EV market, DC charging will likely require either innovative financing options – perhaps leasing to own or financing with no interest; offsetting incentives, either from government or programs such as this; or alternative revenue models like advertising.

 

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