Navigant Research Blog

Electricity Pricing and the Economics of EVs

Scott Shepard — April 2, 2014

The hottest global market for plug-in electric vehicles (PEVs) is Norway, where PEVs accounted for nearly 5.5% of all light duty vehicle sales in 2013.  Success of PEV sales in Norway has been credited to the country’s attractive purchase incentives and tax breaks, which include exemption from all non-recurring vehicle fees, annual road taxes, all public parking fees, and toll payments, along with free access to bus lanes.  While these incentives are appealing, equal credit goes to the massive price gap between the costs of petroleum fuels and electricity in the country.

One of the most attractive aspects of PEVs is that driving on electricity is significantly cheaper than driving on gasoline or diesel.  While this is largely true in most markets, the price difference can vary significantly by market.  The most meaningful variables in fuel cost returns are the retail price of petroleum-based fuels, the residential rates for electricity (since a vast majority of PEV charging is done at the owner’s home), and the average efficiency of new conventional vehicles compared to PEVs.

The Turkish Premium

The price of retail gasoline and diesel varies sharply from country to country.  The starkest example is in Turkey and Iran: in 2012, a gallon of gasoline cost $9.61 in Turkey (highest in the world) and $1.25 in neighboring Iran.  Electricity prices are also vastly different from country to country; residential electricity rates per kilowatt-hour (kWh) in France, which gets 80% of its electricity from nuclear power, are half the rates as those in Germany.  The variation in prices for each fuel determines which markets offer the best returns for PEV owners.

The best returns on fuel costs in Europe are in Norway and the worst are in Germany.  If the average new light duty vehicle in Europe has an mpg rating of 35 and the average new PEV has a miles per kWh rating of 2.7, then on a per-mile basis, Norwegian PEV owners save $0.16 per mile while German PEV owners save only $0.05.  Given that Germany’s incentives for PEVs are far less attractive than Norway’s, it’s not surprising that the Scandinavian country (population just over 5 million) still put around 1,500 more PEVs on the road last year than did Germany (population just over 80 million).

State to State

Among U.S. states (average new vehicle mpg is now 25) the best returns are in Indiana ($0.11 per mile) and the worst are in Hawaii ($0.03 per mile).  Given current government incentives, maintenance cost reductions, an annual vehicle mileage of 12,000, and an average $12,000 premium for PEVs, a battery electric vehicle (BEV) driven in Indiana nets a return in less than 4 years – twice as fast as one driven in Hawaii.

Fuel Costs per Mile of Fuel, Select Regions: 2014

Pricing-Economics of EVs blog (04-02-14)

(Source: Navigant Research)

Because PEV returns are so varied, local utilities can significantly affect markets by introducing time-of-use (TOU) electricity rates specific to PEV owners.  TOU rates, which incentivize off-peak electricity usage, can drastically reduce per kWh prices for PEV charging.  Residential TOU rates are limited, for now, to a few utilities in the United States.  Their adoption, however, is a win-win for utilities.  TOU rates can increase utility revenue by making market conditions for PEVs better, thus increasing demand for electricity, and TOU rates shift the increased demand to manageable off-peak hours.  The final outcome is one in which utilities make more money and drivers save more money.

One Response to “Electricity Pricing and the Economics of EVs”

  1. Christine Andrews says:

    Aloha from Maui. Not sure if you considered in your analysis for Hawaii that roughly 8% of Maui residents (and 10% of Honolulu residents) have rooftop solar power, which thanks to net-metering, dramatically reduces their effective electricity rates. Also, three of the Hawaii utility companies offer a time-of-use rate which is only available for residential customers with EV (under an EV charging rate pilot program, no other TOU rate is available to residential customers). This EV charging rate reduces charging costs for all Hawaii EV drivers that take advantage of it, but it is especially beneficial for those with rooftop solar. In Maui, we have what may be the best DC fast charging infrastructure per capita on the planet, thanks to our JumpSmartMaui Smart Grid and EV project. Volunteering EV members get free access to over 20 DCFC on Maui. The synergy of rooftop solar energy and an EV time-of-use rate appears to be driving EV adoption in Hawaii. Maui EV registrations are growing at over 120% year-over-year, in part because the unique energy economics here can make the return on investment substantial. Thanks for posting.

Leave a Reply

Blog Articles

Most Recent

By Date

Tags

Clean Transportation, Electric Vehicles, Energy Storage, Policy & Regulation, Renewable Energy, Smart Energy Practice, Smart Energy Program, Smart Grid Practice, Smart Transportation Practice, Utility Innovations

By Author


{"userID":"","pageName":"Electricity Pricing and the Economics of EVs","path":"\/blog\/electricity-pricing-and-the-economics-of-evs","date":"8\/23\/2014"}