Navigant Research Blog

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.

 

Kansas City Takes a Flyer on EV Chargers

— February 11, 2015

Kansas City Power & Light (KCP&L), announced in late January that it will install 1,000 public EV charging stations in Kansas City, creating a dramatic increase from the 40 stations that are currently available. The stations are expected to be installed by the end of summer 2015.

According to Navigant Research’s report, Electric Vehicle Geographic Forecasts, there were only 2,687 EVs on the road in the entire state of Missouri at the end of 2014. The report also projects sales of 1,615 plug-in electric vehicles (PEVs) for the state of Missouri in 2015.

With such low PEV numbers in the state thus far, perhaps this move by KCP&L is an effort to encourage more PEV adopters in the Kansas City area. Even California, the largest adopter of EVs in the country, has fewer than 2,000 public EV charging stations. And Missouri, unlike California and other states with high PEV penetration rates, has no tax incentives for EV buyers.

Risky Business

The business proposition for the utility doesn’t look good, either. The network of chargers is estimated to cost $20 million, and the network will be free to the public for the first 2 years of operation. How many years will it take to recoup that investment through added sales of electricity and usage fees once implemented?  Perhaps KCP&L is following the path of California utilities that see significant value in controlling the flow of electricity and re-selling it through EV charging stations. Several California utility companies successfully petitioned the California Public Utilities Commission (CPUC) to allow utilities in the state to re-sell electricity via EV charging stations.

Nevertheless, California has far more EV users and according to PlugInsights, 81% of EV charging occurs at users’ homes, with just 10% of charging occurring at public stations (the remaining is mostly attributed to private charging stations and at workplaces). Thus, even if more Missourians do adopt EVs, the majority will likely be charging their vehicles at home.

Real Impacts

If KCP&L isn’t intending to make money from this initiative, but instead trying to reduce emissions, it would be better suited to convert the state’s existing power plants from coal to natural gas. This would be more cost effective and have a far more significant impact on emissions and air quality. Physically, it does not require much in the way of new equipment to convert a coal plant to run on natural gas. Missouri has one of the dirtiest electricity grids in the country, with coal accounting for a whopping 83% of the state’s electricity generation in 2013.

The map below, from the Union of Concerned Scientists’ report, State of Charge, shows that the gasoline vehicle mile per gallon (mpg) equivalent of an electric car is just 35 mpg in the SPNO region, where Missouri is located. This means that a gasoline car with 35 mpg, such as a Volkswagen Passat, would have the same impact on the environment as an electric car in Missouri (due to the high coal usage in the state). While KCP&L is moving toward removing a few coal power plants from its generation portfolio, an overhaul of the company’s electricity generation sources would have a much bigger impact on emissions reductions than building 1,000 EV charging stations that may or may not be used by consumers.

Electric Vehicle Global Warming Pollution Ratings and Gasoline Vehicle Emissions

(Source: Union of Concerned Scientists)

 

With Gas Prices Low, EV Drivers Adjust to Timely Price Info

— January 22, 2015

While the falling price of gasoline is welcome news for many drivers, it undercuts the financial argument for driving a plug-in electric vehicle (PEV).  On a per-mile basis, electricity in the United States is between 20% to 35% of the cost of driving a gasoline-powered car, depending on the utility rates and gas taxes.  Avoiding paying $50 or more for a weekly fill-up on gas compared to around $40 per month for charging an EV gives EV drivers financial satisfaction.

Gas has dipped below $2 in some states, and U.S. sales of plug-in hybrids have simultaneously slumped, falling 26% in November 2014 versus a year ago, according to HybridCars.com.  However, EV economics can be further improved by charging off-peak, and recent studies show that not only are significant savings possible, but also that consumers will adjust their charging to take advantage of the lower rates.

Time to Charge

A recent demonstration that provided EV owners with timely information about the cost of electricity and grid health indicates that the cost of charging can be reduced by up to 60% through smart charging.  Customers in the study had access to hourly utility rates through a connection to the Siemens energy cloud, and charging power levels were alternated based on the needs of the grid.  The study was performed by Duke Energy and Siemens and delivered charging information to mobile phones, tablets, and computers, enabling EV drivers to schedule charging based on the anticipated costs given the varying rates at different times of the day.

Siemens delivered electricity rate information via its computing cloud using the OpenADR demand response protocol, which enables energy-consuming devices (including charging stations) to respond to grid conditions.  The Society of Automotive Engineers (SAE) has established many standards for communications between charging stations and EVs; others, including the CEA-2045 modular communications interface standard, enable communications between charging stations with smart meters and home networking devices.

A Bad Connection

Meanwhile, in December, the U.S. Department of Energy published a report summarizing six projects related to EV charging that were funded in 2009 as part of the American Recovery and Reinvestment Act.  Entitled Evaluating Electric Vehicle Charging Impacts and Customer Charging Behaviors, the report states that when provided with discounted overnight rates for EV charging, consumers will adapt their charging habits.  “Customers took advantage of time-based rates to save on overnight residential charging” when they were able to pre-program charging, according to the report.  Convenience in managing charging is viewed as essential to minimize the cost of EV charging.

The report also points out that work needs to continue on connecting EV chargers with smart grid devices.  The Sacramento Municipal Utility District (SMUD), which was one of the six utilities managing the projects, found that charging equipment “successfully connected to SMUD meters about 50% of the time for several reasons, including poor ZigBee radio signal quality (often range related), problems with power supply circuits in the EVSE [electric vehicle supply equipment] communications module packet loss recovery, and environmental interference.”

Simplifying and reducing the cost of EV charging is critical to convincing more consumers to opt for EVs over conventional vehicles –  especially when prices at the pump are low.

 

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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