Navigant Research Blog

NRG Settlement Far From Settled

— April 25, 2012

A proposed settlement to make amends for energy price-fixing during the Enron era is causing shockwaves around California’s electric vehicle charging industry.  The settlement between the California Public Utility Commission (CPUC) and NRG Energy, which was announced on March 23, would require the energy company to spend $100 million on building out EV infrastructure and pay $20 million in cash to the CPUC.

The settlement is based on energy market manipulations committed more than a decade ago by Dynegy Inc., which at the time was a co-owner, along with NRG, of a portfolio of power generating plants that NRG later acquired in full.

More than half of the infrastructure investment would go towards installing 200 commercial EV charging stations.  NRG would install the stations in the San Francisco Bay area, the San Joaquin Valley, the Los Angeles Basin and San Diego County, all areas expected to see significant penetration of EVs during the coming years.

The DC charging stations, which enable battery electric vehicles to fully charge their batteries in 15 minutes or less, would be owned and operated by NRG, which would receive all of the revenue derived from their usage.  An obvious question is, How does opening up retail locations to distribute one’s services and generate revenue constitute reparations?  This is akin to a petroleum company being ordered to open up more gas stations because they were overcharging customers.

The dissatisfaction with the settlement was a frequent topic of conversation in the hallways at the EV Infrastructure USA conference in San Diego last week.  Competing EV charging services companies are unhappy that the “penalty” would give the company first-mover advantage in fast DC charging in many key locales throughout California.  California currently has only one installed DC charging station.

Earlier in the week EV charging services company ECOtality filed a motion for public review of the CPUC settlement.  The filing points out the potential hindrance to competition through the “monopoly-like benefits” and asks, “Does [the settlement] carry the potential to impair competition among different developing business models?”

Of the remaining funds, $40 million would go towards wiring homes, multi-unit dwellings, and public locations, such as schools and hospitals, to make them ready for the installation of EV charging stations.  While this aspect of the contract at first glance might appear to serve the public interest (for those who happen to plan on buying a plug-in vehicle in the next few years), the ECOtality filing points out that “the settlement would confer exclusivity on NRG at the ’make ready’ sites for 18 months before competitors would have access to the use of these sites.”

The nascent EV charging infrastructure industry is as much about the land grab for prime locations as it is about technology and business models.  EV charging vendors see great value in forging relationships with real estate companies and retailers before EVs become commonplace.  An amendment to the agreement that would not inhibit competition would open up access to the pre-wired sites to competitive bidding amongst EV charging services companies.

EV owners could benefit initially if the infrastructure is put in place earlier than if the market were left to its natural evolution, but the benefits may be short-lived if competition is reduced.  Many industry folks believe that the NRG settlement is unlikely to be approved if additional scrutiny and public review are permitted – which in this case seems only appropriate.


How Deregulated Electricity Markets Spark EV Infrastructure Development

— February 23, 2012

Texas is big in land mass, hats, and, well, most things.  The state has no corporate or income tax and is one of the more conservative states.  Europe, on the other hand, is made up of small nations with high population densities, characteristically high tax rates, and a reputation for liberalism.  Despite these big differences, however, the state and the continent share a deregulated approach to governing electricity markets.

In many European countries, residential electricity consumers have the ability to choose their power utility.  This competitive retail market has created an environment in which each individual consumer can choose to have electricity at a higher price from a cleaner source or cheaper, dirtier power.  Deregulated electricity markets first started in the United Kingdom, under Margaret Thatcher, and spread to other EU members in the early 90s.

Stateside, most electricity markets are controlled by geographic near-monopolies.  Specific utilities supply entire communities through a regulated relationship with that community’s governing entity, usually in the form of a public utilities commission.  In the 1990’s many states considered deregulation schemes, but momentum in that direction has since waned.  Texas, however, continued to progress towards deregulation, and today is one of 10 states to offer both an open market for retail competition and no rate cap.  Seven other states offer either open market retail competition or no rate cap, but not both.  The remaining 33 are more strictly regulated.

Deregulation has not always succeeded in developing competition or decreasing consumer costs (see California).  In some cases unwary consumers have been caught on the harsh receiving end of dramatic price increases.  However, deregulation may have found a new advocate in electric vehicle infrastructure development.

For the last few years, the growing interest in electrified transportation has spurred European utilities to get into the business of developing and servicing EV infrastructure.  Most major European utilities have begun developing and deploying their own EV supply equipment in major European municipalities through private membership programs for EV owners.  The memberships usually include, for a monthly fee, unlimited charging at home and access to a network of intelligent chargers that can signal members when specific charge points are available for use.

Norway, for example, a country with a population slightly smaller than Colorado’s 5 million, has over 900 installed EV charging stations while Colorado has at most 30.  Granted, the disparity can’t be blamed only on regulation: Norwegians pay twice what Coloradoans pay for gasoline.

Yet in Texas, where utilities do not have geographic monopolies, European models of EV infrastructure membership services are emerging from both investor-owned and municipal utilities.  NRG recently launched its eVgo network operating in Dallas/Ft. Worth and Houston, and Austin Energy offers membership services through its Plug-In EVerywhere network.

Perhaps the success of electricity market deregulation is largely dependent on timing.  Perhaps the correct timing is now, as smart grid technologies are evolving to better assist electricity consumers communicate with providers, and society is becoming more dependent upon utilities to not only provide power for homes and buildings but power for transportation as well.  State legislators should take note of these success stories.


Reviewing Our EV Predictions for 2011

— January 5, 2012

Plunging headlong into 2012, it’s a good time to pause and look back at our predictions for what Pike Research forecast would happen in the world of electric vehicles in 211.  Here’s a quick rundown of what Pike Research predicted for 2011 along with analysis of where we hit and missed:

1. The majority of people who drive a plug-in vehicle won’t own it.   

This prediction was on the money as GM and Nissan allocated a good percentage of their vehicles to dealers to make them available for test drives and to corporations for fleet use.  As predicted, car sharing programs are incorporating EVs into their fleets to enable many consumers to get their first taste of electric motoring, and we expect that trend to continue in 2012.

2. Automakers will get pushback from EV owners regarding the length of time it takes to fully charge a vehicle.

We haven’t heard as much negative feedback on charging times as we anticipated, partly due to the fact that most consumers are buying faster Level 2 charging equipment rather than plugging vehicles into a standard outlet.  However, Nissan decided that offering a 3.3-kilowatt onboard charger was a competitive disadvantage for the Leaf and therefore doubled the speed for the 2012 model.

3. Stop-start vehicles will arrive in the United States, albeit in small numbers

Sales of non-hybrid vehicles with stop-start technology were indeed minuscule in 2011.  During 2011 Ford and Volkswagen announced they were bringing stop-start to their North American lineups by 2012, and Wisconsin-based Johnson Controls announced it was investing more than half a billion dollars globally in stop-start battery manufacturing capacity.

4. Many EV charging stations will spend the majority of their time idle

We didn’t exactly go out on a limb with this prediction.  Despite the fact that public charging stations installations have lagged, in many cities there are more public chargers than EVs today.  We’ve heard many anecdotal stories of charging stations that are rarely if ever servicing vehicles and we can expect that to continue in 2012.

5. Fuel cell vehicles (FCVs) will be sold to fleets and consumers in small but growing numbers.

Automotive companies are continuing to slowly push forward towards commercialization of FCVs, but the quantities sold were very limited in 2011.  Based on the lack of availability of vehicles during the year, we sharply reduced our expected sales of FCV for 2011 to less than 700 globally – but that’s up from less than 200 the prior year.

6. Someone somewhere will have a bad EV experience and the media will overreact.

Fortunately for automakers the only negative EV experience that received significant media attention was at a NHTSA test facility.  The web and media did play up the event and some reports accused NHTSA of not responding quickly enough.  However, the coverage avoided overreaction.  Fisker also has an issue about potential fires due to coolant leakage within the battery pack, so we’ll see if the “EV batteries are a fire hazard” follow up stories continue.

7. The advanced battery category will heat up with M&A activity.

Way off.  There were no significant acquisitions or mergers during the year, and the biggest news was actually of an “anti-merger” – the dissolution of the Johnson Controls and Saft joint venture.  We expected some of the smaller companies to be acquired, but the independent battery startups managed to survive on their own despite sluggish EV sales.  Lithium-ion battery maker Boston Power received the most interest from investors as the company is shifting its focus, and its operations, to China.

8. Range anxiety” will prove to be more fiction than fact.

The accuracy of this prediction is hard to quantify, but the hypothesis that EVs would become stranded as drivers would not be able to cope with the shorter driving ranges appears to be false.  The media attention to range anxiety is slowly subsiding and should continue to fade from view in 2012.

9. The best-selling EVs won’t have four wheels.

This one was a gimme.  Global sales of electric bikes and motorcycles are continuing to grow rapidly, and are finally making inroads in the United States.  Two-wheeled electric vehicle sales far outpace all forms of hybrids and EVs, and with companies such as SRAM getting into the game, the gap will continue to widen.

10. The landscape for charging equipment will undergo a seismic shift as the category swiftly moves toward becoming a commodity market.

We were on target in predicting a seismic shift in EV charging equipment, but we picked the wrong one.  Prices didn’t fall as quickly as expected due to lower than expected sales of EVs and chargers.  But an emerging business model where third-party companies own and operate the charging equipment at no cost to the property owner has shaken up the industry.  These charging-as-a-service providers (350 Green, Car Charging Group, etc.) will help drive up volumes and drive down sales.

Overall, six of Pike Research’s 10 predictions mostly hit the mark, while four were off or missed entirely.  Undoubtedly we’ll do better than 60% for 2012.


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