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.


Utilities Send in the Drones

— February 19, 2015

Your local electric utility may be the next company to deploy unmanned aerial vehicles (UAVs), a.k.a. drones, in your community. Transmission and distribution utilities are planning to deploy fleets of drones for power line inspections in order to more rapidly identify foliage encroachments on power lines, storm damage, and overloading in both urban and remote areas.

These types of inspections typically have been completed using manned helicopters. Since the Northeast blackout in 2003, North American electric utilities have spent millions to fly helicopters over their power lines to meet new grid reliability standards. Drones offer a cheaper and more reliable alternative.

At the Consumer Electronics Show (CES) show in Las Vegas, a whole section of the exhibit floor was devoted to drone technologies. Forward-thinking utilities have picked up that point.

What They Need to Know

A recent article in Electric Light & Power discussed the utilization of light-reflecting imaging technologies that create 3D images of the environment, called Lidar, to more thoroughly monitor electric transmission rights-of-way. According to Duke Energy, “Lidar’s 3-D models tell us everything we need to know about loading on our lines and nearby encroachments.”

Innovative electric transmission and distribution operators have been working with the Federal Aviation Administration (FAA) to utilize UAVs across their systems. However, utilities won’t be piloting drones until the FAA finalizes rules that govern their safe operations in the National Airspace System. The FAA planned to finalize those rules by 2015 but is not expected to meet that deadline. Utility proponents suggest UAVs can make the nation’s infrastructure more reliable and secure, perhaps warranting an FAA exemption.

Unmanned Pilots

A number of pilot demonstrations of UAV applications and use cases have been occurring across the United States, notably with Duke Energy on the East Coast and San Diego Gas & Electric (SDG&E) in the west. The use cases for UAVs are not limited to transmission and distribution power line inspection; they also include critical functions such as:

  • Solar PV panel inspections to identify damages to PV panels and schedule maintenance across thousands of panels. UAVs can find individual damaged solar panels amid thousands by using thermal imaging to detect anomalous heat signatures.
  • High-risk jobs like scanning a wind turbine blade for cracks 400 feet in the air without human intervention.
  • Improved power restoration efforts in the aftermath of major storms. For example, in 2012, the Electric Power Research Institute (EPRI) suggested drones could assess damage and help bucket trucks and line technicians prioritize power restoration.

In 2014, the FAA granted SDG&E an experimental certificate, also known as a Special Airworthiness Certificate, for UAVs. That certificate allows SDG&E to use drones for research, testing, and training flights in lightly populated airspace in eastern San Diego County. “The unmanned aircraft system provides us with another tool in our electric and gas operations tool chest,” said Dave Geier, SDG&E’s vice president of electric transmission and system engineering.


Community Resilience and the Future of Small Grids

— February 19, 2015

The spate of extreme weather events in recent years has stirred up interest in the concept of “community resilience”—i.e., the creation of more reliable and resilient power grids. The debate rages on how best to provide such services. In a forthcoming report, as well as a webinar on March 17, Navigant Research will analyze and forecast the size of the market for one of the most promising pathways forward: community resilience microgrids (CRMs).

Ground Up

The drive for increased grid resilience comes from community stakeholders, many of whom also value energy independence, sustainability, and local economic development goals. In New York, crowds as large as 100 to 150 people have shown up at recent community meetings, often braving snowstorms, to learn how they can become involved in developing greater resilience at the community level.

This is the segment of microgrids where the most innovation will occur in terms of business models and regulatory reforms. Why? Many of these systems challenge utility franchise rules that prohibit transfers of power services over public rights-of-ways. It may make inherent sense, in terms of both emergency responses and sustainable urban design schemes, to bundle different kinds of customers served by different utility rate classes into a single microgrid. Such novel aggregations, however, bump up against long-standing utility prohibitions on sharing of power.

Smaller Is Better

In essence, each third-party CRM requires a negotiated settlement and special use exemptions (though there are a few interesting exceptions to this generalization).

It is these issues that are at the core of New York’s Reform the Energy Vision (REV) proceeding, perhaps the most comprehensive review of regulations pertaining to resiliency in the nation.

Some providers, such as the Clean Energy Group, argue that microgrids are the wrong focus, asserting that solar PV and energy storage nanogrids, such as those recently funded in Massachusetts, are a better solution. In the short term, this may be the wiser move, especially if they could be aggregated via a centralized control schemes into virtual power plants.

Such nanogrids represent modular building blocks for energy services that support applications like emergency power for commercial buildings, as described in Navigant Research’s report, Nanogrids. These grids typically serve a single building or a single load, generally below 100 kW in capacity—and thus do not violate regulations prohibiting the transfer or sharing of power across a public right-of-way.

Unquestionably, small grids (including both microgrids and nanogrids) represent a major element of the future of the power sector—an essential building block for the Energy Cloud that will encompass distributed generation resources and intelligent networks to meet energy demand, rather than centralized hub-and-spoke power grids. This spring, Navigant will offer a new collaborative study called The Future of Small Scale Microgrids and Nanogrids that will bring together utilities and their suppliers to better understand the risks and opportunities of this emerging market landscape. Click here for more information.


Oil-Gas Price Swings Slow New Energy Investment

— February 18, 2015

As I wrote in this blog in 2012 and in 2013, rising volatility in the oil-to-gas ratio points to a substantial shift in market dynamics for clean energy. Even if short-lived, this shift will have substantial implications for investment in new energy technologies.

In recent years, as the price of oil climbed to over $100 a barrel, the oil-to-gas ratio—which compares the price of a barrel of crude oil to that of a million Btu (mmBtu) of natural gas—spiked to as high as 52:1 in a single month from a relative constant of around 10:1. While this apparent equilibrium had held steady since the mid-1980s, the widening gap between the price of oil and that of gas seemed to represent a new reality, with natural gas prices holding below $3 per mmBtu (Henry Hub).

In the last several months, as oil prices have slid to less than $50 per barrel, that ratio has come crashing back down to Earth. At a current 13:1, the oil-to-gas ratio is once again nearing historic levels—and again reshuffling the deck for a cleantech industry yearning for macroeconomic certainty.

Ratio of Crude Oil to Natural Gas: 1990-2015


(Source: Navigant Research)

While the boom in shale oil and gas recovery (among other factors) has ushered in an apparent return to historical equilibrium, experts are divided on what the future holds. Some argue that the recent spike in the oil-to-gas ratio was a short-term anomaly and that forces will continue to act to bring prices back into their long run equilibrium. Others question whether a stable long-term relationship between crude oil prices and natural gas prices even existed in the first place.

While the jury is still out on the putative correlation between oil and gas prices, we can expect continued volatility in the oil-to-gas ratio. This creates a challenging environment for new energy technologies going head-to-head with existing infrastructure.

The Incumbent Edge

Volatility dampens growth in new energy technologies in several ways. First, it cools investors’ appetite for clean energy ventures, due to the potential risk that seemingly profitable investments one day may turn out to be unprofitable due to changing fuel costs. Building natural gas infrastructure may look attractive in 2012 if you’re in the United States, for example, but not so wise when the price of a barrel of crude oil drops by more than 50% in 2014. This is an issue of asset stranding.

Second, it lowers customers’ tolerance for risk. As noted in our recently published report, Combined Heat and Power for Commercial Buildings, the impact of price swings are most acutely felt by consumers looking to hedge with one fuel against the other. When oil prices accelerated past $100, consumers of heating oil and gasoline, for example, began looking to natural gas alternatives. These decisions can be straightforward when price signals are stable, but actual (or even perceived) volatility favors a wait-and-see approach.

The Underminer

Third, it undermines the role of incentives and other mechanisms for stimulating the deployment of new energy technologies. Still more expensive than incumbent technology in most cases, clean energy has enjoyed incentives that put emerging energy technologies on an even playing field with fossil fuels. Fuel price volatility can make it especially challenging to establish reasonable incentive levels for the long term.

While Navigant Research’s forecasts for distributed generation technologies like solar PV (see our Global Distributed Generation Deployment Forecast report) and energy storage (see our Community, Residential, and Commercial Energy Storage report) in the United States remain strong despite lower energy prices, volatility is likely to mostly benefit the status quo.


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